Subject: Auditing

A) You are planning the audit work for the client firm, Melbourne Ltd. The audit program for the revenue account for a client has been drafted. One item has stated as follow:

Assertion	Detailed audit procedure
Cut-off	Select a sample of sales invoices recorded a few days prior to the year-ended and then agree on dates on the invoices to the dates on the delivery documents signed by the customer.

REQUIRED:

1)Does the procedure address the stated assertion?

2)If your answer to (a) is no, provide the correct assertion or explain what work would be required to address the assertion.

3)Explain what type of evidence is obtained by performing the stated procedure. How persuasive is it?

B) In your audit of Melbourne Ltd for calendar year 20X1, you found some matters that you believe represent possible adjustments to the company's books. As a result, you list the following 3 items considered material for review by the engagement manager:

1. Bonus shares were issued on 16 August 20X1 in the amount of $200,000 of its ordinary share, payable 1 January 20X2 to the key shareholders on record as of 31 August 20X1.
2. The company has not established a reserve for the obsolescence of inventories. Your test indicated that such a $30,000 reserve is appropriate under the circumstances.
3. Your review of the allowance for doubtful accounts indicates that it is understated by $50,000.

Required:

1. Explain the difference between the two types of subsequent events.
2. For each item, classify which type of subsequent event it belongs to.