Question 16
A.
The two main account balances that have been affected by the inability to locate supplier invoice and corresponding entries in the payables register are the purchases account and the inventory account. The assertions that are a risk in this scenario are – Occurrence and Existence. The given scenario has given rise to the doubt that whether the purchase transactions relating to the deliveries that took place between February 2020 and May 2020 have actually occurred or not and are actually related to the entity or not. It has also given rise to the doubt that whether the inventories that have been recorded in the inventory register actually exist or not.
The two main assertions that are affected owing to the finding by Donna regarding various transactions labelled as scheduled maintenance that has been recorded in the machine account are existence and classification. The scenario has affected the assertion of existence as this has caused a suspicion that whether these additions to the machine account actually exist. Secondly, the assertion of classification has also been affected as there is a doubt that whether the said items recorded as "scheduled maintenance' have been properly classified or not (i.e., the classification between revenue items and capital items).
A physical verification of the inventory should be performed to ensure that the inventories are actually in existence and there is no case of recording fictitious inventory.
The auditor should observe the inventory count procedure and verify whether the quantity of physical inventory reconciles with the balance recorded in its account or there is any major shortage of inventory.
The auditor should also check other supporting documents such as goods received note, delivery note provided by the client, shipping documents and other records which may act as proof that the inventory was actually received by the company on dates at which they have been entered in the inventory register maintained at the warehouse.
Substantive procedures to verify the existence and classification of scheduled maintenance
The auditor should enquire about the nature of the scheduled maintenance carried out on machine and obtain supplier invoice in respect of same.
The auditor should check the description of the item and/or service provided in the invoice and apply his professional judgment to determine whether the said item or service should be categorized as revenue or capital expenditure.
Question 17
Catherine should issue an adverse opinion in this case. An adverse opinion is justified in this case as the financial statements of Marysville Ltd do not provide a true and correct view of its financial position. It has been provided that the fair value of many machines owned by the company was declined significantly owing to a new technological development which has rendered these machines to be obsolete. According to AAS 116 "Property Plant and Equipment" and AAS 136 "Impairment of assets", an entity must test its cash-generating units for indicators of impairment on every balance sheet date and restate the carrying amount of its Property Plant and Equipment if its carrying amount is greater than its recoverable amount.
The entity is required to record impairment losses in relation to the same. In this case, as the CFO of Marysville Ltd has refused to adjust the book value of machines and refused to record any impairment losses and continued to present these machines at historical cost less accumulated depreciation, this accounting treatment is not in compliance with the applicable Australian accounting standards, will not provide a true and fair view and is not in accordance with the requirements of Corporations Act as well. As the auditor has a disagreement with the client on a matter which involves material amounts, it is justified to issue an adverse audit opinion.
MCQ’s
1(d)
4(c)
5(a)
6(d)
7(a)
8 (b)
9(b)
10(a)
11(d)
12(b)
13(d)
14(c)
15(b)
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Auditing and Assurance Assignment Help
Get 24x7 instant assistance whenever you need.
Get affordable prices for your every assignment.
Assure you to deliver the assignment before the deadline
Get Plagiarism and AI content free Assignment
Get direct communication with experts immediately.
Get
500 Words Free
on your assignment today
It's Time To Find The Right Expert to Prepare Your Assignment!
Do not let assignment submission deadlines stress you out. Explore our professional assignment writing services with competitive rates today!
Secure Your Assignment!