Identify accounts which auditor will most likely consider

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Reference no: EM133327339

Question 1: According to AU-C 315, paragraph 06(b), analytical procedures should be used by an external auditor as part of their risk assessment procedures. Analytical testing can help an auditor identify areas of concern at both the financial statement level and at the assertion level. To properly conduct an analytical test, the auditor MUST establish a benchmark (expectation) and then compare the actual result with the expectation.

Assuming that an auditor properly develops an expectation for the inventory turnover ratio (Cost of goods sold/average inventory) to be approximately 4. When the auditor calculates the actual inventory turnover ratio on the client's books, the calculation indicates that the actual inventory turnover ratio is 3. The auditor determines that this discrepancy is significant and builds this into the risk assessment model. Identify the accounts which the auditor will most likely consider to be "high risk" based off of this finding, as well as the specific assertions within those accounts that you believe will likely be considered high risk.

Question 2: According to AU-C 315, paragraph 06(b), analytical procedures should be used by an external auditor as part of their risk assessment procedures. Analytical testing can help an auditor identify areas of concern at both the financial statement level and at the assertion level. To properly conduct an analytical test, the auditor MUST establish a benchmark (expectation) and then compare the actual result with the expectation.

Assuming that an auditor properly develops an expectation for the receivables turnover ratio (Sales Revenue/Accounts Receivable) to be approximately 4. When the auditor calculates the actual receivables turnover ratio on the client's books, the calculation indicates that the actual receivables turnover ratio is 5. The auditor determines that this discrepancy is significant and builds this into the risk assessment model.

Identify the accounts which the auditor will most likely consider to be "high risk" based off of this finding, as well as the specific assertions within those accounts that you believe will likely be considered high risk.

Reference no: EM133327339

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