Reference no: EM132700578

The following procedures were performed at interim by Liling before he went on parental leave. Liling has left the following notes in the audit file:

Re summary of procedures performed at interim

1. The $10,000 grant deposit from the government was traced to the bank statement to ensure existence and accuracy of the amount. No further work was done.
2. Purchases were confirmed for major suppliers at September 30, 20X6. A sample was chosen by reviewing the accounts payable listing and choosing the highest amounts. Liling performed this procedure, as he believes it is the best way to test completeness of accounts payable. The payable balance will be updated to December 31 through roll-forward procedures during year end.
3. Occurrence of revenues was tested by tracing revenues recorded in the subledger and tracing them to the general ledger.
4. Completeness of rebates from vendors (separate from the Southern Ontario farm) who provide them was verified by multiplying total purchases by the rebate amount of 1%. Amounts agree, so no further work is required. Rebates last year were $31,200.
5. To test accuracy and completeness of the loss from the uninsured flood in the store, inquiry was made of Jean-Pierre. Per Jean-Pierre, the amount recorded on the income statement represents the cost of the flooring and shelves that were damaged. Jean-Pierre also stated that the net book value (cost less accumulated amortization) of the floors and shelves is difficult to measure because they were originally recorded as part of the building, but $40,000 is his best estimate. This is a reasonable explanation, so no further work was done.
6. No further work is required on expenses that had not changed more than 5% as compared to the prior period. For amounts in excess of 5%, explanations were sought from management. Jean-Pierre noted that some expenses had increased due to the poor economy. This explanation is reasonable, so no further work is required. Inquiry of management has tested all relevant assertions.
7. The bank agreement in the permanent file was reviewed. The line of credit amount is tied to 75% of inventory amounts at year end. As per Ray there are no changes to the bank agreement from the prior period. No further work is required.

Required:

Question 1: 1. Evaluate whether the audit procedures performed by the former auditor, Liling, at the interim stage of the audit are sufficient. Outline additional procedures (and the related assertions) that should be performed by the audit team based on your review of his work. Use a chart like the one below to structure your response.