Reference no: EM132916402

Question - You are the newly promoted audit manager of a mid-size audit practice. The managing partner has tasked you to address the issue that the junior staff do not exercise sufficient professional skepticism when designing audit procedures addressing complex audit areas involving significant judgement and estimates. Junior staff often adopt a "Same-As-Last-Year" mentality, i.e., uncritically applying the same audit procedures as in the prior year.

In order to better understand the issue, you have performed a review of several audit files in the firm and identified the following audit procedures that are most commonly repeated in the audit files over the years:

Audit procedure 1 - Valuation of warranty expense provision

Develop an independent point estimate of the provision for warranty based on the annual average of the past three years' actual warranty claims and compare it to the management's estimate of the total warranty expense provision. Based on that, the auditor concludes that the warranty provision is reasonably valued.

Audit procedure 2 - Occurrence of recorded trading sales

Select sample items from the general ledger and vouch to the sales journal, sales invoice and the relevant delivery orders acknowledged by the customers to ensure that the sales transactions have actually occurred.

Required -

(a) For each of the audit procedure above, identify and explain the possible circumstances where the audit procedure may not have achieved the planned audit objective.

(b) For each of the circumstances in part (a), identify an alternative or additional audit procedure, and explain how the proposed alternative or additional procedure would better achieve the planned audit objective and address the risks identified. Do not repeat the audit procedures.