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阿德萊德論文代寫 essay作業格式

阿德萊德論文代寫 essay作業格式

4.3 The quantitative materiality of an item is assessed relative to a particular base number. What are some of the choices for 阿德萊德 essay作業格式 base and what factors guide the auditor in 阿德萊德論文代寫 essay作業格式 choice?

AASB 1031 guides auditors in the choice of base for materiality calculations. The base must be ‘appropriate’, which means that the potential misstatement should be considered in the context of its effect on the client’s financial performance or position. 阿德萊德論文代寫 essay作業格式 judgement is made based on the auditor’s knowledge of the client and the auditor’s experience. For example, a listed client is primarily assessed on its ability to generate profits, so an auditor is likely to consider profit before tax as an appropriate base. However, a non-profit entity is less likely to be evaluated on profit, so either assets or revenue would be more suitable as a base. However, a listed client could be reporting a loss or have variable profits. In 阿德萊德論文代寫 essay作業格式 case the auditor is more likely to use revenue as a base. If the client is newly established, and thus with little revenue, equity or total assets would be more suitable as the base. The overall consideration is how the impact of the potential misstatement is likely to affect users’ decision-making.

4.4 If an auditor adopts a predominantly substantive approach to the audit, do they have to consider and test the client’s internal controls? If an auditor adopts a lower assessed level of control risk approach, do they have to perform any substantive procedures? Explain.

The two types of audit strategy outlined in ASA 300 are the predominantly substantive approach and the lower assessed level of control risk approach. The auditor bases the strategy decision upon their assessment of the client’s control risk. If control risk is assessed as high, the auditor will reduce control testing and increase reliance on substantive tests of transactions and account balances. In some cases, there may be no tests of control when the predominantly substantive approach is adopted. However, the auditor is still required to gain an understanding of the client’s control system (ASA 315), i.e. consider the controls. The auditor is required to gain an understanding of their client’s controls relevant to a ‘significant risk’ (ASA 315). For example, the auditor will review processes used by management to make estimates of significant balances or transactions.
If the auditor adopts a lower assessed level of control risk approach there will be increased reliance on tests of controls and reduced reliance on substantive tests of transactions and account balances. In 阿德萊德論文代寫 essay作業格式 case, the auditor has assessed the client’s control risk as low and detection risk as high. However, an auditor can never completely rely on a client’s system of internal controls and will always conduct some substantive procedures to gather independent evidence about the amounts in the client’s financial report.

4.5 A client has physical controls over inventory, including a locked warehouse with access restricted to authorised personnel. Testing of these physical controls over inventory shows that they are very effective. Can the auditor conclude that the valuation assertion for inventory is not at risk? Explain.

No. There are many reasons that the valuation assertion for inventory could be at risk, i.e. the risk that the inventory is shown at an incorrect value in the balance sheet. Locking the warehouse would reduce the risk of theft, but does not address all the valuation risks. For example, the inventory could be physically present in the warehouse, but the valuation is incorrect because there are errors in the costing procedures used to value inventory. If the client is using FIFO, there could be errors in identifying the inventory movements and associated costs. There could be errors in calculating inventory costs because of mathematical mistakes in the invoices or inventory records. There could be errors in updating the inventory records so that they misstate the amount and value of inventory in the warehouse. There could be inappropriate procedures for identifying obsolete or damaged inventory so that these items continue to be carried at full cost instead of being written down to NRV. There could be errors in cut-off, so that inventory purchases made prior to the end of the financial year are not recorded in the inventory records as at the end of the year.
The auditor would need to explicitly all the risks to the inventory balance and how these would be prevented or detected by the client’s controls before concluding that inventory was not likely to be misstated.



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