Reference no: EM132699088
1. Auditor conducts an audit of the client company which is a retail business to customer company. The client has a large number of transactions, this makes the auditor use a sample to check for a sufficiently material transaction. The company has 100 sales transactions with a material amount. Out of 100 transactions, materiality is set at 5% or 5 transactions. The auditor took a sample of 40 transactions and found that there were 4 misstatements or deviations found from the 40 audited transactions. Based on the results of the sample test, the auditor concluded that there was a material misstatement. The auditor assumes that 4 out of 40 equals 10%, so that the misstatement is above 5%. In fact, there were only 4 transactions where there were misstatements or deviations from the 100 transactions, but incidentally all 4 transactions were taken in the sample.
Question:
a. What are the risks associated with the cases mentioned above? Be specific about your answer!
b. What audit objectives are in this case? Explain your answer!
2. You are a financial auditor who works in a public accounting firm. You are assigned by your partner to audit the client. This client is listed on a stock exchange using IFRS as accounting standards. This client is a distribution company whose products are home appliance electronics such as air conditioners, refrigerators, washing machines. Clients sell goods to retail stores, both modern and traditional retailers. The following are things you encountered while auditing that client:
You do an inventory audit. Total inventory in physical quantities and company records accordingly. However, there are supplies that are outdated or outdated, namely products that have not been sold for a long time, so that their physical appearance has changed color, for example, is the stock air conditioner which initially turned white and turned yellow. The client does not make adjustments for the decline in the value of obsolete inventory. The client says they will create a bazaar by selling obsolete items directly to end users, then adjusting when those items are sold
Question:
a. In your opinion, in that case the client has presented fairly or was there a finding of misstatement? Explain your answer!
b. Explain the audit objectives and audit procedures contained in this case!