SEMESTER FALL 2012
FUNDAMENTALS OF AUDITING (ACC311)
SOLUTION OF ASSIGNMENT NO.02
DUE DATE: 09th JANUARY 2013 MARKS: 25
1. No, the auditor’s assessment of risk is judgmental only and is not sufficient enough to identify the material misstatement in the financial records. The auditor should conduct the complete audit procedure and then express his opinion about the fairness of the financial statements of the company.
For proving the foreign currency risk as identified by the auditor, the auditor should produce sufficient and appropriate audit evidence to substantiate his judgment otherwise the audit report will be unqualified.
2. Substantive audit procedure should be adopted in the case to verify the occurrence/accuracy of sales figures and debtor record because the substantive procedures assist the auditor to detect material misstatements at the assertion level. Test of control in case of sales and debtors may consist of the following steps:
(a) Carry out checks on invoices, credit notes, dispatch notes and orders.
(b) Check the existence of evidence for authorization in respect of:
i. acceptance of the order.
ii. Dispatch of goods
iii. Raising of the invoice or credit note
iv. Pricing and discounts
v. Write off debtors as bad debts.
(c) Seek evidence of checking of the arithmetical accuracy of:
i. Invoices, including pricing, and VAT and sales tax calculations
ii. Credit notes,
(d) Check dispatch notes and goods returned notes to ensure that they are matched with invoices and credit notes.
(e) Check that control account reconciliations have been performed and reviewed.
3. WWF should properly maintain its main inventory ledger at head office to control stock maintained at its branches. Because, the company is required to have updated information about the physical inventory in all the warehouses/showrooms and must ensure that all the inventories are properly recorded in the main inventory ledger as well as the warehouses/showrooms inventory ledger.
In order to recover the receivables efficiently it should develop a receivable management policy and actions should be taken to decrease the day’s sales in receivables and make all possible efforts to improve its cash sales besides improving collection.