Review in details the auditing procedures for case study and

Anonymous
timer Asked: Nov 23rd, 2016

Question description

See attachments

Based on your review of the accounts receivable test of controls procedures( Workpapers AR 2.1to AR 2.4), you believe that there were some issues with the audit work performed. Review in details the auditing procedures from the audit program and the related documentation. Pay particular attention to their implementation of the attribute sampling procedures- their sample selection process and evaluation of the results. Identify any of the following issues: a.Did they perform all of the steps associated with the audit program? b. Did they perform the steps accurately? If not, specifically state the nature of the problem and follow up on it to the extent possible with the information given. c.Do you see any other issues or problems with the auditors’ work or client documentation?

Running Head: ALPINE CUPCAKE INC. Alpine Cupcake Inc. Audit Case Study Your name Institution Course title Date of submission ALPINE CUPCAKE INC. 2 a) Did the Garcia and Foster audit team perform all the steps associated with the audit program? Yes, the Garcia and Foster Audit team did all the necessary steps associated with cash confirmation and bank reconciliation. They performed their due duty of reviewing all the necessary documents required in ascertaining that cash account and bank reconciliation were ethically done. Alpine Cupcakes Inc. had all the necessary documents which were required to ensure that cash confirmation process was in line with the required standards. Customer records presented to the auditors were similar to the records auditors kept. Cash receipts and disbursements records were thoroughly reviewed to ensure that they were correct. A substantive testing of the bank reconciliation was done by obtaining various monthly bank reconciliation records maintained by Alpine and it was found that the records reconciled with the outstanding bank balance. A conclusion about the cash balance is that it was fairly stated (Knechel, 2016). b) Were the audit steps carried out correctly? Yes, the audit steps were done correctly. The Garcia and Foster audit team began by obtaining all the necessary records which were needed to facilitate the audit process. The records were carefully reviewed, and it was found that there was no fraud associated with the information on the clients’ records. The internal control measures used by Alpine Cupcakes Inc. were also audited, and it was found that they were in line with the standards required by the audit. Each internal control measure was audited about its function. For example cash internal control measures such as using padlock and key in ensuring that any cash asset kept in the office were secure and free ALPINE CUPCAKE INC. 3 from fraud (White, 2013). Different people from Alpine team were also audited in relation to their roles and records they kept. It was found that they kept correct records which met the required standards. c) Any other issues or problems with the auditor’s work or client documentation. From the information presented about the audit process, there were no problems with the audit work. The auditors did their job as required by the audit standards. They also carefully reviewed the internal control processes of Alpine Cupcake Inc. and found that the internal control processes were well stated. The client documentation was orderly and adequate. All the records required for the audit process were provided to the auditors. They presented adequate information which was required to facilitate the audit process and covered the timelines which the audit was being done. ALPINE CUPCAKE INC. 4 References Knechel, W. R. (2016). Audit quality and regulation. International Journal of Auditing, 20(3), 215-223. White, G. (2013). Why an audit? The audit process in BC explained. Medical Journal, 55(8).
AS 2501: Auditing Accounting Estimates .02 Accounting estimates in historical financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. Examples of accounting estimates include net realizable values of inventory and accounts receivable, property and casualty insurance loss reserves, revenues from contracts accounted for by the percentage-of-completion method, and pension and warranty expenses AS 3101: Reports on Audited Financial Statement .48 In preparing financial statements, management estimates the outcome of certain types of future events. For example, estimates ordinarily are made about the useful lives of depreciable assets, the collectibility of accounts receivable, the realizable value of inventory items, and the provision for product warranties. FASB Statement No. 5, Accounting for Contingencies, paragraphs 23 and 25, describes situations in which the inability to make a reasonable estimate may raise questions about the appropriateness of the accounting principles used. If, in those or other situations, the auditor concludes that the accounting principles used cause the financial statements to be materially misstated, he or she should express a qualified or an adverse opinion. Foot notes 14 Circumstances such as the timing of the work may make it impossible for the auditor to accomplish these procedures. In this case, if the auditor is able to satisfy himself or herself as to inventories or accounts receivable by applying alternative procedures, there is no significant limitation on the scope of the work, and the report need not include a reference to the omission of the procedures or the use of alternative procedures. It is important to understand, however, that AS 2510, Auditing Inventories, states that "it will always be necessary for the auditor to make, or observe, some physical counts of the inventory and apply appropriate tests of intervening transactions." AS 2315: Audit Sampling .11 Nonsampling risk includes all the aspects of audit risk that are not due to sampling. An auditor may apply a procedure to all transactions or balances and still fail to detect a material misstatement. Nonsampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective. For example, confirming recorded receivables cannot be relied on to reveal unrecorded receivables. Nonsampling risk also arises because the auditor may fail to recognize misstatements included in documents that he examines, which would make that procedure ineffective even if he were to examine all items. Nonsampling risk can be reduced to a negligible level through such factors as adequate planning and supervision and proper conduct of a firm's audit practice (see AS 1110, Relationship of Auditing Standards to Quality Control Standards). .28 If the sample results suggest that the auditor's planning assumptions were incorrect, he should take appropriate action. For example, if monetary misstatements are discovered in a substantive test of details in amounts or frequency that is greater than is consistent with the assessed levels of inherent and control risk, the auditor should alter his risk assessments. The auditor should also consider whether to modify the other audit tests that were designed based upon the inherent and control risk assessments. For example, a large number of misstatements discovered in confirmation of receivables may indicate the need to reconsider the control risk assessment related to the assertions that impacted the design of substantive tests of sales or cash receipts. AS 2310: The Confirmation Process .09 The auditor should assess whether the evidence provided by confirmations reduces audit risk for the related assertions to an acceptably low level. In making that assessment, the auditor should consider the materiality of the account balance and his or her inherent and control risk assessments. When the auditor concludes that evidence provided by confirmations alone is not sufficient, additional procedures should be performed. For example, to achieve an appropriately low level of audit risk related to the completeness and existence assertions for accounts receivable, an auditor may perform sales cutoff tests in addition to confirming accounts receivable. .12 Confirmation requests, if properly designed by the auditor, may address any one or more of those assertions. However, confirmations do not address all assertions equally well. Confirmation of goods held on consignment with the consignee would likely be more effective for the existence and the rights-and-obligations assertions than for the valuation assertion. Accounts receivable confirmations are likely to be more effective for the existence assertion than for the completeness and valuation assertions. Thus, when obtaining evidence for assertions not adequately addressed by confirmations, auditors should consider other audit procedures to complement confirmation procedures or to be used instead of confirmation procedures. .32 The nature of alternative procedures varies according to the account and assertion in question. In the examination of accounts receivable, for example, alternative procedures may include examination of subsequent cash receipts (including matching such receipts with the actual items being paid), shipping documents, or other client documentation to provide evidence for the existence assertion. In the examination of accounts payable, for example, alternative procedures may include examination of subsequent cash disbursements, correspondence from third parties, or other records to provide evidence for the completeness assertion Confirmation of Accounts Receivable .34 For the purpose of this section, accounts receivable means— a. The entity's claims against customers that have arisen from the sale of goods or services in the normal course of business, and b. A financial institution's loans. Confirmation of accounts receivable is a generally accepted auditing procedure. As discussed in paragraph .06, it is generally presumed that evidence obtained from third parties will provide the auditor with higher-quality audit evidence than is typically available from within the entity. Thus, there is a presumption that the auditor will request the confirmation of accounts receivable during an audit unless one of the following is true:   Accounts receivable are immaterial to the financial statements. The use of confirmations would be ineffective.4  The auditor's combined assessed level of inherent and control risk is low, and the assessed level, in conjunction with the evidence expected to be provided by analytical procedures or other substantive tests of details, is sufficient to reduce audit risk to an acceptably low level for the applicable financial statement assertions. In many situations, both confirmation of accounts receivable and other substantive tests of details are necessary to reduce audit risk to an acceptably low level for the applicable financial statement assertions. Please answer the question. Q3. Based on your review of the account receivable - test of control procedures (workpapers AR.2.1 to AR.2.4), you believe that there were some issues with the audit work performed. You decide to review in detail the auditing procedures from the audit program and the related documentation. You are particularly concerned about their implementation of the attribute sampling procedures—their sample selection process and evaluation of the results. Identify any of the following issues: a. Did they perform all of the steps associated with the audit program? b. Did they perform the steps accurately? If not, then specifically state the nature of the problem and follow up on it to the extent possible with the information given. c. Do you see any other issues or problems with the auditors’ work or client documentation? (LO 4, LO 5)
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags
Study Guides

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors