Question 3 – Evidence (20 marks)
PART A
(a) If you are vouching a sample of items from a general ledger
account back to an associated subsidiary ledger, through the
associated journal to associated source documents (for the original
transaction/event), what assertion would you be primarily testing?
(1 mark)
(b) If you are tracing a sample of items from a file of source
documents through the associated journal to an associated
subsidiary ledger and general ledger account, what assertion would
you be primarily testing? (1 mark)
PART B
As an audit supervisor, you are reviewing the work of a new
engagement team member during the financial report audit of a large
proprietary company client. During your review you have made a few
notes for things to ask the new engagement team member during your
work paper review. You will take careful note of their responses
for potential insights about their knowledge so you can recommend
tailored future professional development for the team member.
(a) Identify the requirement for quality control being illustrated
by your reviewing the work of the new engagement team member? Be
sure to also indicate the relevant ASA number and paragraph. (2
marks)
(b) Your review reveals the new engagement team member had selected
a sample of additions from the non-current asset subsidiary ledger
(register) as per the audit program and checked each addition to
the supporting creditor’s invoice. You ask the new engagement team
member to briefly explain to you which assertions are being tested
by this step in the audit program. (6 marks)
The sample from the non-current asset subsidiary ledger of audit
client has brought into focus the replacement of several material
Property, Plant & Equipment (PPE) assets in use at several
remote locations in Western Queensland. The PPE assets are very
specialised in nature and had been individually engineered to
specification and their operation is crucial to your client’s
success. You consult with your engagement manager and partner and
they decide it will be necessary to undertake an additional
substantive procedure for these assets, having the assets inspected
on location.
(c) What requirement for quality control is being illustrated by
your (the audit supervisor) seeking the advice of your manager and
engagement partner? Be sure to also indicate the relevant ASA
number and paragraph. (2 marks)
(d) You ask the new engagement team member which assertion they
would be primarily testing when applying the additional substantive
procedure of inspecting these PPE additions on location for this
client? (2 marks)
(e) You ask the new engagement team member to describe any
pragmatic and professional implications your engagement team might
explore (that is, discuss possible alternatives) as options for
reliable ways to gather sufficient appropriate audit evidence to
satisfy the primary assertions for the PPE additions in this
scenario. (6 marks)
Dear student,
This problem have two questions with various parts.
I am solving here the first question and it's
two parts.
Solution:
Audit assertions are the claims made by the management about the facts reported in the financial statements.
auditor tests the management assertions through various audit procedures as vouching ,verification etc.
Part a.
If auditor is vouching a sample of items from general ledger to the subsidiary ledger through the associated general to the source document,
He is actually checking the audit trail backwards he start with general ledger ,
and checks for the following management assertions by going back to transactions from where it originates through the source document.
1. Accuracy:
Whether the transactions are recorded with accuracy and the amount recorded are accurate.
2. Classification:
Whether the transactions posted in a ledger , is classified correctly.
3.Occurance :
To check whether the recorded transaction actually taken place.
B.
If auditor starts testing a transaction with the source documents to associated journal to the subsidiary ledger to general ledger account.
He is actually testing through the forward trail of transactions, from the source documents where it originates up to the general ledger.
Auditor test the following management assertion in this case:
a. Accuracy
Whether all the transactions are recorded with the accurate amount in the journal books.
2. Classification
Whether all the transaction are recorded under the correct ledger accounts.
3. Completeness
Whether all the transactions are recorded completely in the books of accounts.
Finish.
Dear student, please upvote the answer if it helps, thank you.
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