Question

Substantive testing at Sooty Ltd

Lastly, Tyrone brings up the audit of Sooty Ltd. Sooty manufactures machine parts which are used for servicing heavy equipment in the mining industry throughout Australia. Tyrone informs you that during the planning stage of the audit of Sooty, it was found that one of Sooty’s key suppliers had gone into administration which had led to major shortages of key materials. In order to circumvent this problem, Sooty secured the supply of materials through an alternative supplier, however Tyrone notes that the alternative supplier is new to the market and that some of Sooty’s production staff have been complaining that the materials are of inferior quality. Tyrone says that Sooty has also suffered from cash flow problems recently as one of their debtors, Brown Ltd, has also been experiencing financial problems, taking up to 4 months to pay amounts which are normally due within 30 days. Tyrone notes that Brown makes up 35% of Sooty’s sales and that management wish to maintain a good relationship with Brown. The resulting cash flow implications has meant that Sooty has been drawing on its lines of credit, which has subsequently caused it to temporarily violate the terms of its contract with its bank, ASBC, which requires Sooty to maintain a current ratio of 2:1.

Question 5

In regards to Sooty Ltd:

• Two key account balances at risk of material misstatement.
• For each account balance, the key assertion at risk.
• A justification as to why the account balances and assertions are at risk.
• An outline of one (1) substantive test of detail that Tyrone could undertake for each account to address the assertion and risk identified.

Answer 1

9: { 2 up the audit of Sooly Ltd. Subs-tantive testing at sooty hd. . Sooty manufactuzes machine Paxts which are ased for servicing heavy equipment in the mining Industry throughout Australia, soll Tyone has a responsib?ty to conduct Audit as per standard of Auditing and to ensure about approcable finacial reporting framwort which corte applicable to en+7+9 psime objective of tyd be 's financial Statement of Sootyco. ade Pape from material misstatement and ty xone % able to get sollices) and appropriate and it evidence. Audalox xeqire to understand the entally and F/S enusonment and risk of material misstatement as per sa31. Auditor of Sooty co. requise to obtain evidence regarding test of cold and test of delaSA Auditor should idehlify thal (0) Accounts and balance are consistent accosting to accounig Pony, (ii) internal como ade designed an effective mannes. (i) internal control are operate effectively.

. (flaudhtoo Should obtain app sop date and sufficient and it avidence to draw conclusion (v) audit obtain oudol evidence on the samping basis. of risk of material misstatement are exist ºn Phacial Statement of the Scooty, auditor are ase unable to obatein Suff? Bent and approbate aud!). evidence then auditor will prove adverse op?non opp fs of Scooty, as Per Sa Sot Onesnal confermation 95 requered then ouditor should confirm from debtor. o