2) For the scenarios below, identify an audit procedure that you would perform to address the...

  
 

Transcribed Image Text:

2) For the scenarios below, identify an audit procedure that you would perform to address the audit risk within the scenario and which account/assertion the audit procedure is addressing. Scenario Account/Assertion Audit Procedure The recording of contract revenues of your client is an area of significant inherent risk due to the complexity of contracts and the potential long-term duration of the contracts (greater than 1 year). There is a risk that capital assets are not being amortized correctly by management of your client, as the useful lives assigned to the assets is greater than what the asset will actually. be used for. Assets are being depreciated over a useful life of 10 years but management expects they'll have to replace them after 7 years. I You've identified that your client has an outstanding cheque on their cheque list has been outstanding for longer than 6 months. Most banks won't cash a cheque that is outstanding for longer than six months (stale-dated) so the cheque might not be valid anymore. I You've reviewed your client's outstanding A/R listing and identified 4 customers of your client that have outstanding A/R balances of greater than 90 days (the terms of the invoices are for payment to be received within 45 days). Generally, these 4 customers pay in advance of the 45 days based on your experience auditing your client in prior years. As you were performing a walkthrough of your client's warehouse, you identify there is inventory that appears to be collecting al lot of dust and doesn't look like it's been moved (or sold) in quite some time. These relate to products that your client sold 10 years ago and is not as popular anymore. I 2) For the scenarios below, identify an audit procedure that you would perform to address the audit risk within the scenario and which account/assertion the audit procedure is addressing. Scenario Account/Assertion Audit Procedure The recording of contract revenues of your client is an area of significant inherent risk due to the complexity of contracts and the potential long-term duration of the contracts (greater than 1 year). There is a risk that capital assets are not being amortized correctly by management of your client, as the useful lives assigned to the assets is greater than what the asset will actually. be used for. Assets are being depreciated over a useful life of 10 years but management expects they'll have to replace them after 7 years. I You've identified that your client has an outstanding cheque on their cheque list has been outstanding for longer than 6 months. Most banks won't cash a cheque that is outstanding for longer than six months (stale-dated) so the cheque might not be valid anymore. I You've reviewed your client's outstanding A/R listing and identified 4 customers of your client that have outstanding A/R balances of greater than 90 days (the terms of the invoices are for payment to be received within 45 days). Generally, these 4 customers pay in advance of the 45 days based on your experience auditing your client in prior years. As you were performing a walkthrough of your client's warehouse, you identify there is inventory that appears to be collecting al lot of dust and doesn't look like it's been moved (or sold) in quite some time. These relate to products that your client sold 10 years ago and is not as popular anymore. I

Answer rating: 100% (QA)

Scenario The recording of contract revenues of your client is an area of significant inherent 1 risk ... View the full answer