You are an audit manager on the year-end audit of Nicolas Manufacturing. Your team was assigned a new junior audit staff member, Michelle, who recently graduated from university. Michelle performed the following two audit procedures and provided you with a written explanation about the reliability of audit evidence that she obtained as part of each procedure.

Procedure # 1
To verify the valuation of accounts receivable, I obtained from the A/R manager the Excel schedule where he calculated the year-end adjustment posted to the allowance for doubtful accounts. I reviewed the formulas used in the calculation and recalculated all the totals. Since the recalculation was done directly by me (auditor), the reliability of this audit evidence is high and I confirm that the accounts receivable balance at year end is valued correctly; no further work required.

Procedure # 2
To verify the existence of inventory, I attended the year-end inventory count. While walking around the warehouse, I inquired of employees who were taking the count about any possible inventory that could have been missed during the count, such as items located on top shelves. The employees told me that they haven’t missed any items. The reliability of this evidence is high as the inquiry was done directly by me (auditor). I confirm that the inventory balance exists; no further work is required.

REQUIRED 

1. Discuss Michelle’s comments about the reliability of her audit evidence. In your discussion consider if the evidence that Michelle obtained is sufficient to support her conclusions.
2. Review the assertions covered by each procedure. Does Michelle’s work cover the stated assertion? If not, what assertion did Michelle’s work cover?

3. Recommend more reliable evidence that Michelle could obtain to support her conclusions.