Audit Plan and Execution of Audit

Risk Area IdentifiedAudit Risk AssessedAudit Approach including Details of Audit Procedures PlannedEvidence to be Collected for TestingInventoryHigh inherent risk related to inventory puts the assertions of existence, valuation and completeness at risk. The risk is associated with the overstatement or understatement of inventory. Incorrect inventory valuation can materially misstate the financial statements of the group.

As both the inherent risk and control risk related to this account is high, a substantive audit approach should be adopted.

The key audit procedures include inspection of physical inventory (existence assertion), observation of physical inventory at stock take as it will permit in evaluating slow-moving stocks, damaged or obsolete inventory, excess stock or impaired inventories (valuation assertion), inspection of physical inventory which requires checking from physical stock to the records of inventory (completeness assertion), and enquiring regarding stock held at different stores of the group in order to ensure that impairment related to inventory has been properly accounted for (Listalia and Suryaningrum 2023).

It is needed to collect evidence regarding whether there is overvaluation or undervaluation of inventory of the group.Trade ReceivablesThis account is at the risk of misstatement owing to insufficient control over credit approval and ineffective customer account monitoring. Furthermore, incorrect revenue recognition can affect this account as well.

The audit approach should be substantive approach as control risk is high and inherent risk is low.

The audit procedures include testing whether the group has carried receivables at their net realisable value (valuation assertion), confirming the balance of this account by undertaking debtor confirmation procedures and such confirmation should be done at the yearend (existence assertion), assessing the sufficiency of allowance for doubtful debts (valuation assertion), and reading draft financial reports of the group to make it sure that clear descriptions and understandable disclosures of trade receivables have been provided in the financial statements and notes of the group (presentation assertion). The methodology used for measuring fair value of trade receivable should also be examined (valuation assertion) (Miculescu and Grui 2018).

Evidence on whether this account is overvalued or undervalued needs to be obtained.Revenue

The group is exposed to the risk of incorrect recognition of revenue due to insufficient control. Premature revenue recognition can overstate revenue, and insufficient revenue recognition can lead to understatement of revenue (Ali and Tseng 2023).

The assertions at risk are accuracy, cut-off, and completeness.

As both inherent and control risks are high, a substantive approach needs to be adopted.

The audit procedures include checking last sales invoices recorded before the balance date and first sales invoices recorded after the balance date have been recorded in the correct accounting period (cut-off assertion), examining the sales transaction files mathematical accuracy (accuracy assertion), testing the sales invoices pricing and mathematical accuracy (accuracy assertion), tracing the positing of sales transactions to the general ledger and transaction file related to trade receivables (completeness assertion), and testing from supporting documentations like invoice to sales journal or subsidiary ledger.

Evidence should be collected on whether there is an overstatement or understatement of the groups revenue.Cash and Cash Equivalent

This account is at the risk of misstatement as ineffective controls related to cash can result in unrecognized transactions, theft, and different cash associated discrepancies.

The assertions at risk are existence, accuracy, completeness and valuation and allocation (ASA 315, 2023).

Due to high inherent and control risks, a substantive audit approach is to be adopted.

The substantive audit procedures include confirming cash held by bank through performing bank confirmation (existence assertion), undertaking bank reconciliation tests (accuracy and existence assertion), tracing the total amount of daily deposits as shown in the bank statement to total daily cash receipts in the cash receipts file (completeness assertion), and tracing invoices and other original records related to cash sales transactions to the amount of cash sales recorded, while vouching cash sales to the supporting documents.

Evidence which is to be collected is whether there is understatement or overstatement in cash and cash equivalent.Accounts Payable

This account is at the risk of material misstatement due to the risk related to duplications of payment, theft by employees, and errors in the purchase orders.

The related assertions at risk are completeness and accuracy.

It is needed to adopt a substantive audit approach for this account as control risk associated with this account is high.

The audit procedures include testing bank reconciliation of the group and when appropriate, performing procedures of bank reconciliation cut-off for ascertaining whether the group has recorded cash receipts or payments in a timely manner (completeness assertion), and verifying quantities, prices and computation on invoices of the suppliers while verifying the quantities purchased to the notes related to goods received (accuracy assertion).

It is needed to obtain audit evidence regarding whether accounts payable is understated or not.Derivatives

This account balance is at the risk of material misstatement because of the inherent risk associated with the valuation of these assets. The group ascertains the fair value of these securities on the basis of market swings and complex valuation algorithms. Therefore, material misstatement can be caused by inaccurate valuation of these securities.

The assertion at risks are valuation, and completeness (ASA 315, 2023).

Since the inherent risk related to this account balance is high, it is needed to adopt a substantive audit approach.

The audit procedures include testing the fair value measurement methodology of these securities to assess whether the group has applied it appropriately (valuation assertion), and testing whether there is any understatement of the value of these securities due to incorrect valuation (completeness assertion).

It is needed to obtain evidence on whether these securities have been valued property, and whether correct disclosures of them have been made.COGS

This class of transaction is at the risk of material misstatement because of the risk of incorrect valuation of inventory. In case there is incorrect inventory valuation or if the group has failed in recognizing impairment for slow-moving or obsolete inventory, COGS gets affected which eventually impacts net profit.

Therefore, the assertion at risk is completeness.

Substantive audit approach should be adopted as inherent risk and control risk are high. It is needed to verify that the group has not understated COGS through deferring recording this expense to the next period.

The audit procedures include examining the cut-off through testing files related to COGS transactions and other supporting documents immediately before and after the cut-off date while ascertaining the group has recorded the expenses in the correct period (completeness assertion), and tracing invoices of suppliers to the initial record entry (completeness assertion).

Evidence on whether COGS is understated or overstated is to be collected.

This assessment task will be based on your Risk Assessment and Audit Plan.

You should also assume the following:

Based on your risk assessment and audit plan, your team have carried out an extensive series of tests of controls and substantive procedures including (but not limited to):

• Re-performance of cash payments in the accounting system, to test the application control preventing payments to be made by unauthorised staff. This control was deemed effective.
• Accounts receivable with balances over $500,000 were verified via external confirmation revealing one material anomaly due to a billing error.
• Average daily payroll was calculated and compared to prior periods, demonstrating consistent levels across the period.

The presentation should be oriented towards your direct supervisor in an Audit firm (the

Audit partner). This is designed to be a brief update to your supervisor; you do not need to go into the level of detail submitted in your group assignment.

In your video you should cover:

• Introduction of yourself and the client
• Brief explanation of your initial risk assessment and audit plan (from Part A)
• Evaluation of the three (3) pieces of audit evidence collected above. You should consider the persuasiveness of the evidence and how each may impact your conclusion about the relevant account balance or disclosure.

Note: you are not required to present overall audit conclusions or an audit opinion.