Reference no: EM132372211
Assessment type: Auditing case study
Topic: Key audit matters, Financial report assertions and substantive audit procedures
Task details:
Question 1
While assessing the risk of material misstatement and determining the appropriate response with regard to the inventory of Computing Solutions Limited (Computing Solutions) for the 30 June 2019 audit you become aware of the following information:
(i) The best-selling computer presentation package has been experiencing a high level of returns owing to suspected software problems
(ii) Based an closing inventory. inventory turned over an average of 5.2 limes in 2018 and 3.8 times in 2019
(iii) Computing Solutions moved its inventory from a central warehouse to six new regional warehouses in March 2019
(iv) Inventory on hand at end of year represented 26 per cent of sales in 2019 and 19 per cent of sales in 21018
(v) Computing Solutions has recently won a tender to supply a large government department with various products. In order to win the tender and prevent competitors from gaining a foothold ii the public sector market, Computing Solutions agreed to supply the items at 10 per cent below their cost price. The first shipment is due to be delivered to the government department in the middle of July 2019.
Required
(a) Identify and explain the two key assertions at risk in relation to inventory
(b) Identify and describe two substantive audit procedures that you could perform in response to each risk identified above
(c) Explain the requirement of ASA 701 Communicating Key Audit. Matters in the Auditors Report and the rationale for this auditing standard. Determine if each of the above matters are key audit matters. providing full rationale for the determination. If it is determined that they are Key Audit ',diallers_ provide the disclosures which are required in Key Audit Matters Section of the Auditors report as required under ASA 701.
Question 2
You are the audit senior with Howard & Associates arid have been assigned to the audit of Beautiful Hair Ltd (Beautiful Hair)
In early 2019, Beautiful Hair acquired a small manufacturer of high-quality organic hair-styling products_ Shimmer Ply Ltd (Shimmer). Beautiful Hair's management had identified that Shimmers line of products would fit extremely well with the Beautiful Hair business, and organized funding for the acquisition from Regional Bank.
Shimmer uses special formulas to create its product Only the owner of Shimmer knows the secret ingredients for the formulas_ These secret ingredients are apparently documented and held by Shimmers solicitors.
Beautiful Hair's management has been advised that the intellectual property related to the formulas has the potential to be both a material and valuable asset and has been recognized as an intangible asset arising from the acquisition in accordance with accounting standard AASB 3.
Required
(a) Identify and explain the two key assertions most at risk in relation to the intellectual properly intangible asset
(b) Identify and describe a substantive audit procedure that you could perform in response to each risk identified above
(c) Explain the requirement of ASA 701 Communicating Key Audit Matters in the Auditor's Report and the rationale for this auditing standard.
Determine if each of the above matters are key audit matters, providing full rationale for tie determination. If it is determined that they are Key Audit Matters, provide the disclosures which are required in Key Audit Matters Sermon of the Auditors report as required under ASA 701.
Submission requirements details: Using reference materials available on the Internet. research the topic and prepare a report, fully referenced and up to 2,500 words (assignment in excess of 2.500 words wig be penalized). Minimum of 6 academic references is required.
The report should include title page executive summary, table of contents, appropriate headings and sub headings. recommendations. reference list (Harvard-Anglia style). attachments if relevant single spaced font Times New Roman 120