Substantive procedures and accounting estimates: 20 marks Richie Smith, an auditor, has a client who manufactures...

 

Transcribed Image Text:

Substantive procedures and accounting estimates: 20 marks Richie Smith, an auditor, has a client who manufactures teddy bears, CareBears Ltd. The client company has a year-end of 31 July 2020. In December 2019, CareBears Ltd. changed its manufacturing process to improve the quality of the stitching to ensure its durability. Because of this increase in quality, the company decided to increase the warranty on its products from 2 years to 4 years in relation to all sales of bears made from 1 January 2020. From management's review of warranty claims relating to the new products, it was noted that claims were down by about 25% compared with the old product. Management made an estimate of the provision for warranty of $402,000 for 31 July 2020, up from $307,000 for the previous year. Required: Question 2.1: (1 mark)- Identify the various audit assertions that Richie Smith should consider for this part of the audit for CareBears Ltd? Question 2.2: (1 mark)- What auditing standard would assist Richie Smith in performing his assessment as to the types of substantive procedures to use? Question 2.3: (2 marks) What phrases would be appropriate if you are required to justify your selection of the auditing standard to be used in this scenario. (There are multiple answers to this question). Substantive procedures and accounting estimates: 20 marks Richie Smith, an auditor, has a client who manufactures teddy bears, CareBears Ltd. The client company has a year-end of 31 July 2020. In December 2019, CareBears Ltd. changed its manufacturing process to improve the quality of the stitching to ensure its durability. Because of this increase in quality, the company decided to increase the warranty on its products from 2 years to 4 years in relation to all sales of bears made from 1 January 2020. From management's review of warranty claims relating to the new products, it was noted that claims were down by about 25% compared with the old product. Management made an estimate of the provision for warranty of $402,000 for 31 July 2020, up from $307,000 for the previous year. Required: Question 2.1: (1 mark)- Identify the various audit assertions that Richie Smith should consider for this part of the audit for CareBears Ltd? Question 2.2: (1 mark)- What auditing standard would assist Richie Smith in performing his assessment as to the types of substantive procedures to use? Question 2.3: (2 marks) What phrases would be appropriate if you are required to justify your selection of the auditing standard to be used in this scenario. (There are multiple answers to this question).

Answer rating: 100% (QA)

21 during this case SA 540 is going to be applied which involves the utilization of management estim... View the full answer