This report will include the requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report. There are two case studies in the report based upon whom the report had been made. The case studies mention the name of two organizations, which are Computing Solutions Limited and Beautiful Hair Ltd.
Since, The report will contain the key matters of the above-mentioned case studies and their disclosure in the case studies. The risk related to key auditing matters and the substantive audit procedure for minimizing the risk had been identified. In addition, the rationale for selecting for auditing matters and its disclosures had been given.
(a) Identify and explain the two key assertions at risk in relation to inventory
The Statement of Accountant Standard (SAS) No 31 define this assertion as an assertion that checks that whether assets like an inventory of an organization exist or the recorded transaction involving that asset had happened on a particular given date.
For example, in this case, it will check whether the amounts of inventory are there in the six new regional warehouses of Computing Solutions Limited (Computing Solutions) on a given date.
(b) Identify and describe two substantive audit procedures that you could perform in response to each risk identified above.
The two substantive audit procedures that can be performed in the response of each risk identified above are observing the physical inventory count and matching purchasing record of inventory with inventory in the warehouse or sold (Mamo, 2016).
Therefore, The first substantive procedure is that auditor can personally check the physical count of inventory by visiting these six new regional warehouses of the organization, count of the amount of inventory present there, and ask for an explanation if any difference is seen with the recorded amount from the management.
The second substantive procedure of audit is the crosschecking of the purchase record of Computing Solutions with its inventory present in a warehouse or sold.
Since, The auditor can use check the purchase record of inventory with sales record and the physical count of inventory in the six regional warehouses of the Computing Solutions.
(c) Explain the requirement of ASA 701 Communicating Key Audit Matters in the Auditor’s Report and the rationale for this auditing standard. Determine if the above matters are key audit matters, providing a full rationale for the determination.
One of the key requirements of ASA701 communicating key audit reports is the opinion of the auditor should be based overall financial statement of the organization.
Therefore, There are two key requirements of ASA701 communicating Key Audit Matters regarding placement of key matters in the Auditor’s report.
Hence, The first key requirement of ASA701 is placing the auditor’s opinion and separate Key Matters section in close proximity to give importance to that information.
Since, This falls under auditing standard A28 and A29. A30 tells the auditors that description of the key auditing matters should be accurate and detailed form.
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A31 tells the auditor to provide reasons for giving high significance to a particular key auditing report.
Therefore, A32 tells communication basis of the key auditing matters should be the written and oral documentation with the people in charged with the governance.
Hence, A33 tells to take help of paragraph 8 to select the key auditing matters of the auditing report. This accounting standard provides a guideline for selecting key auditing matters.
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A34 ask the auditors to provide the disclosure of the key auditing matters and not substitute it with the description of the key auditing matters.
Hence, This makes the inclusion of the disclosures compulsory (Council, 2015). A35 tells auditor to obey regulations, laws and ethical practices in the auditing process. Since, This had been created to protect the confidential information of the organization (Carson & Fargher & Zhang, 2016).
Since, A37 ask the auditor to be alert about the accuracy of the information provided in the auditing report. Therefore, This created to make the auditors more alert about the information provided in the auditor’s report(DeSimone, 2016).
All the above-mentioned matters are key auditing matters as the all the information in the has a high influence on the financial performance of the Computing Solutions Limited.
Therefor, The disclosure of the suspected software problem as the reason for the high return of the best-selling computer presentation package should be disclosed.
Since, The second disclosure should be that identified the reason for lower inventory turnover in the current year than the previous year. Therefore, The disclosure of the fact of shifting inventory from one central warehouse to six different warehouses should be included.
Hence, The Computing Solutions decision to supply the items at 10 percent below their cost price and its negative effect on the financials of the company and, how the company plan to recover the amount and reason behind this decision should be disclosed.
(a) Identify and explain the two key assertions most at risk in relation to the intellectual property intangible asset
The new company may or the old owner may manipulate the value of the intangible to gain more profit.
Therefore, The second key assertion at risk related to the intellectual property intangible assets is presentation and disclosures.
Therefore, the detailed description and disclosure of the asset may not be included in the audit report.
(b) Identify and describe a substantive audit procedure that you could perform in response to each risk identified above
(c) Determine if the above matters are key audit matters, providing a full rationale for the determination.
This falls under sections A28 and A29. The A30 defines that the description of all key matters should be in detailed and accurate form. Since, A31 ask the auditors to give the reasons for giving more significance to a particular key auditing matter.
Hence, This had been made to safeguard the confidential information and data protection purpose of the organization (Carson & Fargher & Zhang, 2016).
Only those information, which is not confidential will be included.
The report had been based on two case studies. The report includes the identification of key auditing matters and disclosures of the key auditing matters.
List of references
Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise risk management: Review, critique, and research directions. Long range planning, 48(4), 265-276.