Auditing 415 Spring Semester 2022 Case study Assignment Auditing 415 Assessment Integrated-Audit Case Study Assignment Total Marks 20 Weightage in final exam 20% th Date of Submission 20 May 2022 Mode of Submission LMS online Instructions for Audit Case Study Assignment 1. Please read the instructions before completing the integrated audit case study assignment. 2. The case study is based on the chapter slides and audit case study examples discussed during the class. 3. Please review the questions carefully and try to apply audit theory to a professional setting or business environment. 4. The case requires you to not only think like an auditor but also apply professional scepticism in assessing a client’s risk. Also, an auditor should be aware of identifying the key account balances and assertions that might be impacted by the issues discussed in the case. 5. For each question, the tables provide the title/information that you need to provide based on the account under discussion. 6. There is no word limit for the assignment. If you need to add more information, please add some paragraphs at the end of each question. 7. The assignment will be assessed your understanding of audit theory as well as your ability to analyse information and apply theory to a real-life case. 8. In case you need any information please do not hesitate to contact me at Audit Case Study 1 The human resources department at Countrywide Logistics is responsible for selecting and appointing employees, approving pay rates and promotions, and processing employee terminations. The payroll department is responsible for preparing the weekly wages based on the information from the human resources department and according to the hours worked by each employee. Countrywide Logistics has several long-term contracts to deliver goods along the eastern seaboard. The company operates a fleet of large trucks and has some permanent drivers who are assisted by other drivers on short-term contracts during busy times of the year (such as the three months before Christmas). Drivers work long shifts and most of the driving is done at night. During busy times the human resources department falls behind with processing paperwork related to the short-term contract drivers. In particular, there are constant complaints from the drivers that they have to wait several weeks after they start work for their first pay. John is testing the payroll process. He discovers that the complaints from the drivers are justified; it takes on average three weeks from the date the driver starts work for the relevant authorisation for the driver’s pay to be received by the payroll department. However, he also finds that on average drivers are paid for one additional week after they leave the company because the human resources department does not record the termination date accurately. The payroll department tells John that, because of the confusion, no provision is made for accrued wages at year-end. Required Based on John’s findings, which accounts are likely to be misstated and which assertions are violated? You can either use the following format provided or explain your answer in paragraphs Accounts likely misstated Assertions Explanation/What can go wrong? Audit Case Study 2 Listed below are assertions for particular transactions and accounts. Provide details of two completely different types of substantive tests that an auditor can undertake to gain appropriate evidence about each assertion. (Write your answer in such a way as an audit junior would be able to understand exactly what you wanted them to do). Solution Explain the kind of audit test required to check this assertion for a particular kind of account. Internal Control/Substantive Test of Detail Both are acceptable!!! (a) Existence of Cash (b) Valuation/ Allocation of Accounts Receivable (c) Existence of Accounts Receivable (d) Cut off for repairs/maintenance (e) Completeness of Accounts Payable Auditing 415 Final Exam Preparation topics Please find enclosed the summary of topics that have been selected for final exam. The chapters included for the final exam include the following: Chapter 8 Chapter 9 Chapter 11 Chapter 12 Audit Case studies sample question provided in the class also available at LMS Chapter 8 Expenditure and Acquisition Internal control activates and test of internal control in expenditure and acquisition cycle Chapter 9 Audit of Production cycle and inventory When considering what could go wrong in the production cycle, auditors consider these primary concerns: 1.Items included in inventory were in inventory on the balance sheet date (existence and cutoff). All inventory items have been included (completeness). 2.Inventory has been properly accounted and properly valued using an acceptable GAAP accounting method (valuation). 3.Items included in inventory were the property of the client (rights). 4.Proper presentation and disclosures have been provided for inventory (presentation and disclosure). 5.Cost of goods sold includes all costs of the inventory items sold during the year (completeness). 6.The amount of cost of goods sold has been properly accounted for using an acceptable GAAP accounting method (accuracy). Activities in inventory management Sales Forecasts Production Planning Production plan Bill of materials Production and Inventory Control Production Order Materials requisitions Materials transfer ticket Cost Accounting Standard costs Overhead allocation Internal control activities in audit of inventory COGS Test of internal control for inventory Substantive Test of Detail for audit of inventory Chapter 11 Audit Timeline Written Representation Provided by management to auditors Dated using date of auditors’ reports (audit completion date) Broad purpose Impress upon management its primary responsibility for the financial statements May establish auditors’ defense if a question related to inquiries subsequently arises Qualify or disclaim an opinion if not provided by the client Contents of written representation Information related to financial statements Management’s responsibility for F/S and internal control over financial reporting Appropriate disclosure, presentation, and reasonableness of items Statement that uncorrected misstatements are immaterial Information provided to auditors by management Internal control over financial reporting (for public entities) Timeline of Subsequent events Timeline for Subsequent Events and Subsequently Discovered facts Procedure to identify subsequent events Obtain understanding of procedures management performs to identify subsequent events Inquire of management and those charged with governance Read minutes of meetings of owners, management, and those charged with governance Review entity’s interim financial statements Types of subsequent events Provide new information about conditions existing at date of the financial statements Adjust financial statements to reflect new information Involve events that arose following the date of the financial statements Disclose in financial statements Chapter 12 Kinds of Audit Reports: Components of Standard Unmodified report: Opinion Section F/S and years examined Auditors’ opinion on F/S Basis for Opinion Section Conducted a GAAS audit Required to be independent and meet other ethical responsibilities Audit evidence provides basis for opinion Responsibilities of Management Section Management is responsible for F/S and internal control over financial reporting Management required to evaluate ability to continue as going concern Auditors’ Responsibilities Section Auditor responsible for issuing opinion on financial statements Audit provides reasonable assurance Overview of elements of a GAAS audit Key audit matters Significant matters in the audit Higher levels of risk Significant audit team and management judgment Significant transactions and events If engaged to communicate key audit matters, add Key Audit Matters section following the Basis for Opinion section Why matter was considered to be a key audit matter How the matter was address during the audit Types of Opinion Unmodified opinion F/S are in accordance with GAAP Standard report may be modified to disclose additional matters Qualified opinion Issued when departure is material, yet not pervasive Report Modifications: Change title of Opinion section to Qualified Opinion Indicate that “In our opinion, except for the matter described in the Basis for Qualified Opinion section of our report,….”) Change title of Basis for Opinion section to Basis for Qualified Opinion Add paragraph explaining departure and detailing $ amounts involved Reference qualified opinion in last sentence of section “Except for” some matter, F/S are in accordance with GAAP Adverse opinion F/S are not in accordance with GAAP Issued when F/S do not present fairly according to GAAP (i.e., a serious, pervasive departure from GAAP). Report Modifications: Change title of Opinion section to Adverse Opinion Indicate that “In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion section of our report, the accompanying financial statements do not present fairly….” Omit reference to “all material respects” Change title of Basis for Opinion section to Basis for Adverse Opinion Add paragraph explaining departure and detailing $ amounts involved Reference adverse opinion in last sentence of section Disclaimer of opinion No opinion is issued by auditors Summary of auditors’ report Standard Report Departures from GAAP Unmodified Opinion Qualified Opinion Adverse Opinion Not Material Material, but Not Pervasive Material and Pervasive Scope Limitations Not Material Material but Not Pervasive Audit of Group Financial Statements Assume Responsibility for Work of Component Auditors Disclaimer of Opinion Material and Pervasive Do Not Assume Responsibility for Work of Component Auditors The information selected is summarized but you need to review the FULL CHAPTER slides for your own preparation and understanding form the above-mentioned chapters. Audit case studies have already been provided in the class and will also be uploaded on LMS along with the exam preparation document. Format of the Exam The total marks for your final exam are 40. The exam will include the following kinds of questions: 1. Multiple Choice Questions 2. Definitions and explanation questions 3. Application questions, application of audit theory and knowledge to real life case studies and business setting. 
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