Pick a business of your choice and get hold of their most recent financial statements. Imagine that you are part of the audit team for that business. Your task is to perform a set of practical audit related activities that require application of your knowledge of how audits are planned and performed and to comment, explain or critically evaluate what you have done and the reasons you have done it. Detail instructions follow below.
Write a short audit memorandum (about 2-3 A4 pages long, excluding workings) for a junior member of your audit team called Anna which summarises your plan and preliminary findings in a way she would understand and be able to replicate or finish off. Write the memorandum in your own words with nothing copied word for word/quoted directly from the ISAs.
These are the tasks you need to perform:
- Embed the Statement of Financial Position and the Statement of Profit or Loss and any notes you are using in your submission so that is it easy to see what balances and numbers you have worked with. Identify the business and the source of where you obtained their financial statements
- Calculate planning materiality for the audit. Show the formula used and your calculation with reference to the numbers in the embedded financial statements (1 marks)
Explain why you have chosen the method of calculating materiality you have gone for.
(guidance is in ISA 320 Materiality in planning and performing an audit, the lecture slides and the set textbook)
- Select a balance from the Statement of Financial Position. You might need to use the notes to the accounts to get sufficient detail of the reported balances. If you do so, ensure that you embed the notes used as well as the main financial statements (refer to part 1).
- Calculate the sample size for testing your chosen balance substantively in detail. Assume that on this audit a HIGH level of confidence is desired and the risk of material misstatement is assessed as LOW. The tolerable error is to be set at 75% of your planning materiality (which you calculated in part 2). Assume that expected error is 5% of the tolerable error. The following is your audit firm’s approach to confidence factors:
|Confidence factors for non-statistical sampling methods|
|Desired level of confidence|
|Assessment of RMM||HIGH||MODERATE||LOW|
(guidance is in C9 Sampling seminar and other materials for this topic)
- Make a list of the substantive audit tests you will perform (the so called “audit programme”) on the balance chosen and for the sample size you calculated.
Be sure to state:
- what exactly the test entails (what evidence will be collected and how)
- the direction of the test
- which assertion/potential error is the test for
- and finally, critically evaluate the evidence for each test
You need to come up with 5 (five) different test for different assertions/potential errors.
You may want to tabulate this part of your submission.
(guidance on substantive tests is in B8/C9/C10 topics materials) (guidance on evidence is in A4 topic materials) (10 marks)
- Select a balance from the Statement of Profit or Loss. You might need to use the notes to the accounts to get sufficient detail of the reported balances. If you do so, ensure that you embed the notes used as well as the main financial statements (refer to part 1).
- Explain how you will test that balance by Substantive Analytical Review. Describe all stages of your test, your findings, what conclusions you are drawing up as a result of the test or any further actions you may need to take.
(guidance is in ISA 520 Analytical procedures, C11 seminar materials, lecture slides and the set textbook)
- Explain briefly what analytical reviews are in the context of the audit, and discuss the relative strengths and weaknesses of the evidence generated by your substantive analytical procedures.
(guidance is in ISA 520 Analytical procedures and A4 and C11 topics materials ) (1 mark)
(Total: 20 marks)
Type of service-Academic paper writing
Type of assignment-Coursework
Pages / words-3 / 1500
Language style-UK English