Audit Review Questions

To begin the audit, a review of previous 2 years of financial statements, provided by current or previous auditors for any unusual business transactions relating to revenue.

As focusing on each of the five management assertions for the inventory account, we discovered that there are some risky areas that indicate the need for further attention during the audit. First of all, for existence or occurrence, all items in the inventory account must physically exist and be available for sale. Thus, the auditors should physically count finished goods, copper rod, and plastic inventories, and determine actual increase of inventories at year end. Also, they should select items from the inventory ledger and locate them and reconcile the quantity. Second, for completeness, the auditors should make sure that all existing inventories have been recorded completely , go around the warehouse and ensure all the inventories are recorded in the inventory ledger. Third, for valuation or allocation, the auditors should make sure that Laramie Wire manufacturing sticks with one valuation method(For inventory items, valuation is based on the lower of cost or market value, with several alternative methods for calculating cost), find out if there is any scrap inventory that needs to be recorded and written off ,and ask about obsolescence items. Fourth, for rights and obligations, the auditor should ask them if there is any consigned inventory at their warehouse. If there is, those inventories should not be recorded in the company's inventory ledger. Finally, for presentation and disclosure, the auditors should review the company's financial

2. What procedures can auditors perform to detect fraudulent entries made during the consolidation process?

Also he may conduct bank reconciliations on pertinent accounts to make sure no discrepancies or misstatements are found. The auditor should also perform vertical and horizontal analysis for the income statements and balance sheets by the use of ratios.

1a) What should the auditor consider when determining whether an account should be considered significant?

Another aspect relevant to the information technology is the system-generated data and reports. If auditors choose a control that uses some information generated from the company’s internal IT system, the effectiveness of the control requires obtaining audit evidence of the accuracy and completeness of the internal information. In the ZOU’s case, when testing of the controls over risk #2, auditors use reports, which are automatically generated by the Warehouse K system. Auditors decide to further test the controls over accuracy and completeness. When testing the controls over risk #3, both monthly reporting package and budget information are somewhat generated internally by ZOU’s internal system. Depending on different systems, auditors decide to further test controls for accuracy and completeness with respect to the monthly reporting package, which is generated from PeopleSoft.

3. The retail consumer electronics industry was undergoing rapid and dramatic changes during the 1980s. Discuss how changes in an audit client 's industry should affect audit planning decisions. Relate this discussion to Crazy Eddie.

c. The recording of transshipping transactions as retail sales. – The auditor should obtain documentation of the transshipping transaction. The auditor should then trace the

Inventory: IFRS aimed to provide guidance on “the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized.” (IAS 2-1)

information to external auditors. Maximizes return, and limits risk, on cash by minimizing bank balances;

Statements prepared by company managers for their shareholders (Heang and Ali 2008). The general consensus achieved the primary objective of an audit function is to add credibility to the financial statement rather than on the detection of fraud and errors. This change in audit objective is evident in the successive edition of Montgomery’s Auditing text issued during this period which stated “An incidental, but nevertheless important, objective of an audit is detection of fraud.” (1934, p. 26). “Primary responsibility…for the control and discovery of irregularities necessarily lies with management.” (1940, p. 13). Hence, it can be witnessed that the shift of the focus of an audit function from preventing and detecting fraud and error towards assessing the truth and fairness of the companies’ financial statements began at this period (Heang and Ali 2008).

Stocktaking is the ‘physical verification of the quantities and condition of items held in an inventory, as a basis for accurate inventory audit and valuation’.(11)

A wide range of relationships and situations may create threats. At the point when a relationship or condition makes a risk, such a danger could bargain, or could be seen to trade off, an expert bookkeeper 's consistence with the key standards. A condition or relationship may make more than one risk, and a danger may influence consistence with more than one central rule. Dangers fall into one or a greater amount of the accompanying classes (Cimaglobal.com, 2016). Internal auditor independence refers to the internal audit staff and conducting internal audit activities, the impact of the internal audit objectivity state

4) Materials inventory – consist costs of direct and indirect materials which have not entered the manufacturing process.

A final set of audited accounts has to be sent. The involved firm can begin the