An Overview of Auditing and Associated Topics

Specific Audit Procedures for Inventory

You are an audit junior responsible for the audit of current assets of your firm’s client. You are now auditing the client’s inventory which is presented on the balance sheet as £1,500,000.  

Required: 

Discuss the specific audit procedures you would undertake in respect of this vehicle in relation to the following assertions. 

a.Existence 

b.Accuracy 

c.Completeness 

d.Valuation 

e.Presentation

An external audit is the examination of a company’s financial information by an independent accountant in order to enable an opinion to be made on whether that information offers a true and fair view of its actual financial position.  

Critically discuss the concept of auditor’s independence and the factors that have potential to threaten it (500 words).  

‘‘The audit report is the means by which auditors communicate their satisfaction or dissatisfaction with the financial statement to the shareholders’’ (Gray and Manson, 2011, p. 610). 

Required: 

a.Critically discuss the extent to which an auditor’s report comprises sufficient evaluation of a company’s financial statement.

b.Explain with suitable examples the differences between test of controls and substantive testing as used in audit and assurance                                                                                         

Audit risk and business risk are two different kinds of risks. Whereas the former is the main concern of auditors, the latter concerns the management of organisations. However, it is often said that the auditor’s opinion runs greater risk if the auditor fails to appreciate the importance of business risk in the context of audit.  

Required: 

Making use of suitable examples, critically discuss the above statement.

Zonton, a UK public limited company, has been experiencing a downturn in its fortunes. The company's performance in the past seems to have moved in line with the performance of the UK economy. The directors of the company are concerned about the current economic climate in the UK and are looking for suggestions to reduce their risk to the UK economy and to boost profits. Cara Van informed the board at a brainstorming session that a way to alleviate the impact of the expected downturn in the economy would be to open a factory in Tomarat (fictional emerging economy). She suggests that with a couple of small bribes - to the right people- a suitable factory can be obtained and that the local indigenous population (from the age of five upwards) would be delighted to work for a mere fraction of the wages being paid in this country. This would reduce costs and increased profit margins, which would more than outweigh the expected reduction in sales units.  

Required: 

Your father sits on the board of this company and he asks you as an accounting student for advice on the appropriateness of this proposal.