1. Review do the assertion and substantive audit procedure correct?
2. Paraphase and re-organise the substantive audit procedure correct?

Q1) Audit risk: Economy recession increases the risk of non-recoverability of debts

Assertion at risk of misstatement: Valuation and allocation assertions of trade receivables

Substantive Audit Procedures:

1. To address this risk of misstatement for the valuation and allocation, the following substantive procedures aim at reviewing and testing the managements process for estimating the allowance for expected credit losses could be appropriate:
2. Review of aged trial balance of receivable to identify any significant and long outstanding balance. For long outstanding, whether make appropriate provision.
3. Undertake subsequent receipts test by vouching post year-end collections for amounts outstanding longer than credit period given to make sure the subsequent collections relate to the period-end balances (sampling can be used).
4. Inspect post year end bank statement and trace payment received to year-end receivables to confirm that amounts were indeed collectable.
5. Inspect invoices and vouching bad debt expense account to ensure the exact amount uncollectible are written off when identified.
6. Recalculate the provision based on managements assumptions.
7. Analytical procedures may include comparison of current year trade debtors turnover to prior period. Comparing % of allowance for expected credit losses to total debtors or sales for current and prior periods. Compare % of allowance to industry averages (Charles 2019).
8. Where there are no subsequent receipts discuss with management about debtors ability to pay and review correspondence between JB Hi-Fi and relevant commercial debtors for any indications of why the debtor has not or may not pay.
9. Discuss the assumptions underlying any general provisions with management to ensure they are appropriate.

Q2) Audit risk: High inventory levels in competitive market increase the risk of inventory loss

Assertion at risk of misstatement: Existence assertion of inventory balance

Substantive Audit Procedures:

1. To address the risk of audit assertion for inventory existence, the substantive procedures include:
2. Observe the inventory counting procedures of the client
3. Conduct physical inventory test counts, on a suitable sample selection basis, as follows:
4. select a sample of items from the inventory records and physically observe the items on the warehouse floor to prove the items exist.
5. select a sample of physical items from the warehouse floor and trace them to the inventory records to ensure that the latter is complete.
6. Confirm the quantities of inventory recorded on the companys system are accurate.
7. Record cut-off information by obtaining details of the last deliveries and despatches prior to the year-end. Perform cut-off testing to ensure inventory transactions are recorded in the correct period.
8. Send confirmations to suppliers or customers to confirm the existence of inventory items, especially for items that are difficult to physically observe.
9. Recalculate the inventory quantities and values to verify the accuracy of the records. This includes comparing the results to the inventory records to identify any discrepancies.

Q3) Audit risk: Climate damages cause Impairment loss of plant and equipment loss

Assertion at risk of misstatement: Valuation and allocation of plant and equipment balance

Substantive Audit Procedures:

To address the risk of material misstatement of valuation of the plant and equipment account balance, the substantive audit procedures include: (IAS 36)

1. Review the details of the impairment expense account to verify if the impairment loss is disclosed fairly and at appropriate amounts. In addition, given that the calculation of impairment loss involves the estimation of recoverable amount.
2. Obtain a copy of the companys insurance policy and review the terms and conditions to confirm whether the plant and equipment are covered by insurance.
3. Compare several years impairment charges and analyse its tendency. Due to the climate-related risks in specified
4. Analytical procedures: detect other comparable companys Plant and equipment, but it should be ensured that the year of use, the location, the surrounding environment and the market conditions of these plant and equipment are similar as much as possible.
5. Obtain managements detailed calculations to gain understanding and allow evaluation of the methodology and assumptions used, e.g. the basis of determining the fair value and the future period over which value in use was determined and the discount rate used to calculate the present value of future cash flows.
6. Develop an estimate of the fair value less cost to sell and value in use and compare to managements estimate. Developing an estimate would involve the following procedures:

6.1 Obtain and review the reports from the engineer to confirm the nature and extent of damage caused to the plant and equipment.

6.2 Obtain and review any external valuation report which the company has used as a basis of the fair value less cost to sell, and evaluate the reasonableness of any assumptions used in the valuation.

6.3 Discuss with management to obtain their view as to whether the factory has any value in use at all in its current state.

6.4 Visit the factory to view the extent of damage caused by the climate damage and evaluate whether it can be used without any further capital expenditure.