Question

You are a trainee auditor and work for an audit firm in Hong Kong called Admiralty Partners. It is the middle of January and you are auditing at your client, Angel Ltd. a company which sells products to customers on credit. Your manager has asked you to perform the substantive audit testing of trade receivables at Angel Ltd.

While you are at Angel Ltd. the managing director asks to see you. She would like to know some detail of what your auditing colleagues were doing when they visited Angel Ltd. during the previous October. Her understanding is that this was a planning visit by the auditors but would like to have more detail of what activities were carried out in particular in relation to the work performed on controls testing. She does not understand why you are at the business in January doing even more testing and asks why this could not have been performed in the previous October visit. She also would like to understand the role of analytical review in the auditor’s work.

REQUIRED

Explain briefly to the Managing Director the role of analytical review in the audit at the stages of planning, substantive testing and final audit review. (for valid and clear statement of the role of AR in each of the three main stages of the audit. Two marks for each stage to maximum of six.)

Answer 1

Solution Given that dogte houdboon storita aos Analytical Review in case of toade seceivable one of the simplest methods available is the use of accounts is the use of the accounts receivable to sales High this satio is conceon for company because higher salio have difficulty collecting payments from its customer. Another method consist of examine the manner in which allowance for bad debt has a changed over time this allowance is typically reported in the financial statement • Auditos has to see trend of Allowance for bad debt and if it's in higher trend then another issue to collect cash on time from customer Auditor also do analytic review in case of Specific customer with outstanding debts, collect the names and investigate the coedit woothness of each debt owing castomer individually & Auditos

can estimate likelihood of each cestomes depaying their dues or not. the process of estimating coedit coothness can became highly complex i Another important factor is 'the importance of Diversificafron". A business whose.accocents receivable ase owned by a highly diversified customer base may be less vulnerable. . Auditor has to "Scoutinise Age wise debloos report and understand the movement of debtors and any high value debtoos lying mose than ao dayst need to do detail investigation Acedites hag to take management view in case of debtors age days are OLD+ vegg OLD and Auditors need to review provision policy base on ageing repost