You have identified the following audit risks in relation to a number of your audit clients:

A. Property Investments Limited acquired a large commercial property investment in the center of Sydney four months prior to the financial year end. The directors intend to record the investment at cost. You are aware that Sydney CBD has an excess of office space which has led to significant vacancies and downward pressure on commercial property rentals and prices both before and since the financial year end.

B. Golf Limited is a manufacturer of sporting and golf equipment. The majority of the merchandise is highly desirable, easily handled and of relatively high dollar value. Theft has been an ongoing significant problem for Golf Limited.

C. Build Limited is a construction company which recognizes construction revenue earnt using the percentage-of-completion method. This method is determined by calculating the expenses incurred to date as a percentage of total estimated costs for each of its construction projects. Management is confident that their estimated percentage-of-completion calculations represent the actual percentage of completed projects.

REQUIRED:

For each of the scenarios described above in A, B and C:

(i) Identify the key account balance at risk

(ii) Provide a brief explanation as to why the scenario represents a significant risk to the auditor

(iii) Identify the key audit assertion at risk , and

(iv) For the account balance and the assertion listed in (i) and (iii) above, describe in specific and detailed terms the substantive audit procedure that would best address the risk.

Answer rating: 100% (QA)

1 Identify the key account balance at risk In order to identify significant accounts and disclosures and their relevant assertions paragraph 28 basically talks about the five financial statement asser... View the full answer