Assume that you, an audit senior, are currently preparing the audit program for the year-end audit of Alpha Limited. Your audit manager has informed you that, for last couple of years, a predominantly substantive approach is being taken to the audit of accounts receivables and inventory balances for your client. This is due to control risks relating to these account balances being high and therefore they do not justify extensive controls testing.

Required: a) Due to staff shortages, this year you have been assigned to lead a group of inexperienced audit assistants. To guide them in performing their works, discuss the main issue relating to the following three types of substantive tests and give ONE example of a substantive procedure for each type of substantive test that could be performed to obtain evidence about accounts receivable.

i.) Analytical procedure

ii.) Tests of balances

iii.) Tests of transactions

b) Assume that the audit manager has informed you that Alpha Limited’s management has reviewed the inventory records and updated the amount of inventory on hand and the value of the inventory. An inventory stock take was performed a week prior to year-end. Using the following format, identify TWO KEY assertions and related audit objectives that are relevant to inventory balance. Give TWO examples of substantive audit procedures that you will apply to gather evidence against each of the key assertion.

- Key Assertions

- Audit Objectives

- Audit Procedures

Answer rating: 100% (QA)

Analytical Procedures are used as substantive tests to obtain evidential matters about particular as... View the full answer