Question

You have recently been appointed as an audit assistant for MKZ Auditing LLC, a popular auditing firm based in Al Ain. Your line manager spoke to you two weeks ago to inform you that you have been assigned with another senior auditing staff to undertake a visit and audit a client called SMC Hotels LLC.

Your line manager has tasked you to liaise with the senior auditing staff to prepare a presentation to be delivered to the senior management on how you propose to investigate and plan the audit of SMC Hotels LLC.

Required

Discuss why it is important to identify the account balances to be verified in SMC Hotels LLC and the associated risks?

Note : Answers should be in Word Version and in your own words

Answer 1

Following are the possible reasons why auditor should verify the account balance:

1. Whether opening balance contain misstatement that could effect materially current year financial account balance

2.Determining whether opening balance reflect the appropriate application of accounting policies.

3.Evaluating whether audit procedures performed in current period provide evidence relevant for opening balance.

4. In order to identify unauthorised adjustment in the account balance.

5. It audit process found audit evidence that account balances contain misstatement that could effect current year financial statement , auditor have to perform additional audit procedures to determine the effect.

6. It also helps to conclude, whether financial statement is free from material misstatement or not, if not auditor should qualify or give disclaimer of opinion as may be appropriate.