Modern Auditing and Assurance Services
Assignment
Word count: approx. 1,250 words
Weighting: 25%
This assignment has three parts: Part A, Part B and Part C. In this document you will find:
General information about the assignment,
Details of your task for Part A,
Details of your task for Part B,
Details of your task for Part C,
A suggested template for your answer, and
The criteria rubric with which your assignment will be marked.General information about the assignmentIt is critical that you provide complete referencing for any sources of information you use in preparing your assignment.
This includes both in-text references and a list of references at the end of your assignment. Referencing should be Harvard referencing.
The word count for each of the three parts provides you with a guide to the approximate number of words that you should use for each part. The suggested total word count is 1,250 words. However assignments between 1,000 and 1,500 words in length will be considered acceptable.
Part A: Audit Planning (Approximately 500 words)You are planning the audit of Bobs Bikes and have accessed the preliminary trial balance for the entity. This is presented below. You would like to use this trial balance to identify accounts that are likely to require significant audit attention.
Bobs Bikes
Trial BalanceJul 1, 2015 April 30, 2016
Jul 1, 2014 Jun 30, 2015Debit Credit Debit Credit
Cash at Bank 98,751
124,320102,503
112,000Accounts receivable
Inventory 189,000 175,000
Machinery
Accumulated Depreciation
Motor Vehicles65,00065,000
46,04165,00065,000
24,375Accumulated Depreciation 26,650 20,150
Furniture 7,500 7,500
Accumulated Depreciation
Bank Loan
Sales3,000 215,000
201,5152,250 215,000
187,450Cost of sales 53,271 63,595
Consultancy fees 47,975 57,000
Other income 1,000 25,000
Interest income 40 50
Bank charges 290 350
Depreciation 28,916 15,590
Interest expense 8,958 10,750
Printing 210 250
Miscellaneous 2,000
Wages
Superannuation
Owners Equity46,816
4,213153,02453,000
4,770144,033694,245 694,245 675,308 675,308Your task:
You must choose 5 accounts from the trial balance for audit testing. In doing so, you should: Make a preliminary judgement of materiality,
Complete an analytical review using the trial balance,
Consider whether there are any accounts that should be selected regardless of their quantitative materiality, and
Provide a brief rationale for your selection of each of the 5 accounts.
Please be sure to choose at least 1 revenue account, as this will be required for Part B.A suggested template for presenting your answer is included later in this document.Materiality is covered in chapter 10, and analytical reviews are covered in chapter 8.Part B: Sample Selection (Approximately 600 words)
You are now further into the audit process. You have finished your audit planning, including gaining an understanding of the entitys internal control structure. You have decided to adopt a predominantly substantive approach for the revenue accounts and are now in the substantive testing stage of the audit.Your task:
Select 1 of the revenue accounts that you identified in Part A,
Access the General Ledger detail for that account from the file: GL extract for Part B.doc
Use one of the following sample selection techniques: random, systematic or haphazard, to select 5 transactions from the ledger account for further audit testing,
Explain/demonstrate how your chosen sampling technique resulted in the selection of these 5 transactions, and
Provide an explanation of the benefits of your selected technique (including the limitations of the 2 alternative techniques).Sampling is covered in chapter 13.A suggested template for presenting your answer is included later in this document.Part C: Considerations in Substantive Testing and Collecting Audit Evidence(Approximately 150 words)Your task:
Please provide an answer to the following questions:1. What might be your reason for adopting a predominantly substantive approach in Part B?
2. Which of the following assertions are you likely to be more concerned about for the account used in Part B: occurrence or completeness? Why?
3. Which of the following audit procedures would be more appropriate: tracing or vouching? Why?
4. Please list 1 other assertion that might be relevant for this account.
5. What evidence could you seek for the assertion you identified in question 4? You should list at least 1 example of corroboratory evidence and/or a specific audit procedure.
6. Assume your further testing revealed an error with one of the transactions you selected in Part B, specifically a misstatement of $20,000.
a. Is this likely to be considered acceptable? Why/why not?
b. Would the magnitude of the misstatement be relevant if you were doing tests of control rather than substantive testing? Why/why not?
c. What other information would you need to know before projecting your results to the entire account balance?
7. Under which circumstances might it be considered acceptable to use a part-year trial balance, such as the one presented in Part A, for substantive testing?A suggested template for presenting your answer is included below.
A suggested template for your answer
You may wish to format your answer as follows: