Question

Assertions:	Evidence Types
Existence Occurrence Accuracy Classification Cutoff Completeness Valuation/Allocation Rights/Obligations Presentation	Inspection of documents/records Inspection of tangible assets Observation Scanning evidence Inquiry Confirmation Reperformance Recalculation Analytical Evidence

Part 2: Assume you are the audit team for the audit of Waren Sports Supply (a client with a traditional information system, which you should be familiar with). Imagine that this is the first time you’ve audited them, so you need to develop your own audit programs to make sure important assertions are tested for each account. Using Word, write simple substantive (i.e., no tests of controls) audit programs for each of the following three accounts: (1) Inventory, (2) Accounts Payable, and (3) Sales Revenue.

Each audit program should have three columns: The left hand column should list the nine management assertions listed at the beginning of this project. (Note that authorization is not being tested here as such is only tested as part of tests of controls). The middle column should then describe very explicitly one specific audit procedures (i.e., audit evidence) to test each management assertion. The right hand column should then indicate the evidence type(s) being used in the audit procedure.

Please note the following:

1. Remember, the assertions and evidence you choose may be related to (1) transactions or (2) account balances/details.

2. All evidence types may be used. However, inquiry may only be used once per account.

3. If an assertion is not relevant for testing the account, please note this in the middle column rather than coming up with an audit procedure.

Answer 1

Audit Programme of Inventory based on the management assertions:

Existence	Auditor should confirm this assertion that whether the inventories recorded in the balance sheet of the enterprise really exists or not.	Inspection of all the inventory related documents and records.
Occurrence	Auditor might want to test whether inventories that purchases and sold during the year have really occurred.	Physical inspection of inventory
Accuracy	Check whether the inventories’ values are correctly calculated in the financial statements as the generally accepted accounting principles.	Observe management and operating staff and their work practices.
Classification	To check whether all the inventory transactions are recorded in their respective ledger.	Scanning evidences
Cutoff	Check Whether inventories records are proper as per cut off date. For eg. inventories that should be recorded in 2018 were recorded in 2018 and the inventories that should be recorded in 2019 were recorded in 2019.	Cutoff analysis may include Last few receiving and shipping transactions
Completeness	Test whether inventories are completely recording in the list as well as financial statements.	ll inventory units that should have been recorded have been recognized in the financial statements. Any inventory held by a third party on behalf of the audit entity has been included in the inventory balance.
Valuation/Allocation	Value of inventory is really important especially the slow-moving and high technological inventories which obsoletes very fast.	Inventory has been recognized at the lower of cost and net realizable value in accordance with IAS 2 Inventories.
Rights/Obligations	Check whether the entity has the right to manage the inventories.	Audit entity owns or controls the inventory recognized in the financial statements. Any inventory held by the audit entity on account of another entity has not been recognized as part of inventory of the audit entity
Presentation	Perform analytical review procedures.	The auditors must follow the lower of cost or market rule, and will do so by comparing a selection of market prices to their recorded costs.

Audit programme of Account Payable based on the management assertions:

Existence/ Occurrence	Obtain complete documentation of actual obligations held by organisation including current liabilities and unprocessed invoices for products and services received but not billed as of period end.	The common way auditors establish legitimacy is by reaching out to vendors and suppliers with transaction confirmation requests.
Accuracy	Whether the full amounts of the account payable balances have been reported without error.	Policies and accounting procedures for close processes (month, quarterly, annual, etc.) are evaluated to ensure items are recorded in period in which the expense was actually incurred.
Classification	Ensure accounts payable are correctly classified as current liabilities.	Review the balance sheet to identify large balances. Confirm these balances with vendors and reclassify as relevant.
Cutoff	Whether all the transactions of the parties are recorded in the period in which they actually incurred.	use audit trails to follow transactions and confirm payments match the values recorded by payables, with a special focus on open files containing unmatched documents.
Completeness	Whether the account payable balances were fully reported.	Reconciliations, cutoff tests and audit trails are the main ways that auditors verifies whether audit procedures documents have been properly recorded.
Valuation/Allocation Rights/Obligations	Confirm entry amounts provided by accounts payable match paired invoices, purchase orders, and other supporting documentation. All transactions are correctly recorded with regard to account, amount, and period.	inspecting end-of-year financial statements, including the balance sheet, income statement and cash flow statement, then choose random entries in the general ledger
Presentation	Identify internal controls in need of improved risk management and suggest modifications as necessary.	reviewing a mandatory management representation letter attesting that financial statements fully disclose accounts payable and purchases figures.

Audit programme of Sales Revenue based on the management assertions:

Existence/ Occurrence	Whether all the sales transactions are indeed occurred	Mail confirmation requests to customers and reconcile confirmation exceptions
Accuracy	correct amounts which reflect their proper values
Classification	transactions have been recorded within the correct accounts in the general ledger.	Proper classification of trading sales, non trading sales, sales returns
Cutoff	all transactions were recorded within the correct reporting period.	Vouch subsequent period collections, making sure the subsequent collections relate to the period-end balances (sampling can be used)
Completeness	all business events to which the company was subjected were recorded.	Accounts receivable reflected in the balance sheet exist, are for valid transactions
Valuation/Allocation Rights/Obligations	include all authentic obligations of third parties to the entity.	Compute average profit margins by sales categories and compare with previous years
Presentation	Perform analytical review procedures.	Thoroughly review allowance computations to see if they are consistent with prior years; compare allowance percentages to industry averages;