Question 2 Specific audit procedures undertaken to obtain audit evidence are lis

Question

Question 2

Specific audit procedures undertaken to obtain audit evidence are listed below:
1 Send debtors confirmation letter to a number of the client’s customers.
2 Recalculate depreciation charges.
3 Calculate gross profit rates for the current year and preceding year.
4 Discuss the potential obsolete inventory with the management.
5 Examine registration certificates for motor vehicles purchased during the year.
6 Use the computer to scan a file to determine that all documents in a number series have
been accounted for.
7 Hear about a possible lawsuit in conversation with the financial controller.
8 Obtain a valuation of land held by the company interstate.
9 Observe the year-end inventory count.
10 Check a sample of repair and maintenance expenses and check if any should have been
capitalised.

Required
For each of the above audit procedures undertaken indicate:
(a) the type of audit evidence obtained; and
(b) the assertion or assertions to which it pertains.

Explanation / Answer

1 Send debtors confirmation letter to a number of the client’s customers

(a) the type of audit evidence obtained- Confirmation from a third party- to respond directly to the auditor.

(b) the assertion or assertions to which it pertains- balance stated exists for the period stated.

2 Recalculate depreciation charges.
(a) the type of audit evidence obtained- Evidence obtained by reperforming the calculations to check mathematical accuracy.

(b) the assertion or assertions to which it pertains- to assert the accuracy of the amount as well as the period of depreciation charges

3 Calculate gross profit rates for the current year and preceding year

(a) the type of audit evidence obtained- It is an analytical procedure to study relationships among data ,to spot any wide variations- done regularly on all audits-at the completion stage

(b) the assertion or assertions to which it pertains-Asserts the regularity in occurrence,accuracy and valuations of all components of expenses and income.

4 Discuss the potential obsolete inventory with the management

(a) the type of audit evidence obtained-Evidence is collected by inquiring the management-oral or in the form of a questionairre.

(b) the assertion or assertions to which it pertains-assertion regarding the proper valuation of inventory-also accuracy in disclosure assertion.

5 Examine registration certificates for motor vehicles purchased during the year

(a) the type of audit evidence obtained- This is a documentation vouching- testing an already recorded transaction/amount-supported by a document - issued by an external authority

(b) the assertion or assertions to which it pertains-asserts the vehicles' existence and valuation as also the date of purchase.

6 Use the computer to scan a file to determine that all documents in a number series have
been accounted for

(a) the type of audit evidence obtained-Tracing the document,verifying its recording in books of accounts-

(b) the assertion or assertions to which it pertains- This is to assert the occurrence,classification,accuracy, recording and valuation of any business transaction- assert completeness.

7 Hear about a possible lawsuit in conversation with the financial controller

(a) the type of audit evidence obtained-Inquiring the client -to provide for any contingent liabilities.

(b) the assertion or assertions to which it pertains- asserts proper valuation and disclosure of any liability that may arise in future.

8 Obtain a valuation of land held by the company interstate

(a) the type of audit evidence obtained-Confirmation from a third party- or an external ,written document

(b) the assertion or assertions to which it pertains- Asserts the existence, ownership and valuation of the said property

9 Observe the year-end inventory count

(a) the type of audit evidence obtained - Observational evidence- collecting evidence by just seeing and observing.

(b) the assertion or assertions to which it pertains- asserts the existence and ownership of the inventory as also its quantum

10 Check a sample of repair and maintenance expenses and check if any should have been
capitalised.

(a) the type of audit evidence obtained -This involves reperformance and rechecking of accounting treatments given by the company and their consistency

(b) the assertion or assertions to which it pertains-asserts the expenses' accuracy,classification and proper disclosure

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