Before beginning work on the assignment, refer to the Assignment Formatting

document for instructions on formatting and submitting the required work.

Assignment 2 is a continuation of the Green Grocers Inc. (GGI) audit from Assignment 1

and covers material up to Week 5. It is out of 42 marks and is due at the end of Week 5.

All information provided in Assignment 1 remains relevant: your role is the senior auditor

at Dhaliwal & Company, and you are working on the GGI audit.

The following procedures were performed at interim by Liling before he went on parental

leave. Liling has left the following notes in the audit file:

Re summary of procedures performed at interim

The $10,000 grant deposit from the government was traced to the bank statement to

ensure existence and accuracy of the amount. No further work was done.

Purchases were confirmed for major suppliers at September 30, 20X6. A sample

was chosen by reviewing the accounts payable listing and choosing the highest

amounts. Liling performed this procedure, as he believes it is the best way to test

completeness of accounts payable. The payable balance will be updated to

December 31 through roll-forward procedures during year end.

Occurrence of revenues was tested by tracing revenues recorded in the subledger

and tracing them to the general ledger.

Completeness of rebates from vendors (separate from the Southern Ontario farm)

who provide them was verified by multiplying total purchases by the rebate amount

of 1%. Amounts agree, so no further work is required. Rebates last year were

$31,200.

To test accuracy and completeness of the loss from the uninsured flood in the store,

inquiry was made of Jean-Pierre. Per Jean-Pierre, the amount recorded on the

income statement represents the cost of the flooring and shelves that were

damaged. Jean-Pierre also stated that the net book value (cost less accumulated

amortization) of the floors and shelves is difficult to measure because they were

originally recorded as part of the building, but $40,000 is his best estimate. This is a

reasonable explanation, so no further work was done.

No further work is required on expenses that had not changed more than 5% as

compared to the prior period. For amounts in excess of 5%, explanations were

sought from management. Jean-Pierre noted that some expenses had increased

due to the poor economy. This explanation is reasonable, so no further work is

required. Inquiry of management has tested all relevant assertions.

The bank agreement in the permanent file was reviewed. The line of credit amount is

tied to 75% of inventory amounts at year end. As per Ray there are no changes to

the bank agreement from the prior period. No further work is required.

2. Based on all of the information that has been gathered on GGI (including that in Assignment 1), the partner has identified a number of areas requiring further investigation. See the table below for details.

For each of these areas, discuss how the issue presents a risk of a material misstatement at the assertion level and what assertion is affected, and design a substantive audit procedure to address the identified risk. Be specific; marks will not be awarded for generic audit procedures. Include what assertion(s) is being tested. Use a chart like the one below to structure your response. (18 marks)

Issue

What is the risk of a material misstatement?

Account and assertion impacted

Substantive audit procedure to address risk

Inventory is not being counted as it is being received.

Example: Inventory may not be recorded, and there may not be purchases accrued; therefore, inventory and the related payable may be understated.

Example: Inventory and A/P completeness and existence

Example: Perform test counts of inventory and compare them to the inventory subledger to ensure that inventory on hand is reflected in the subledger.

Select invoices received both immediately before and immediately after year end from suppliers and trace them to the accounts payable subledger to ensure that all payables are captured in the appropriate period.

Audit and Assurance Assignment 2

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Issue

What is the risk of a material misstatement?

Account and assertion impacted

Substantive audit procedure to address risk

As a grocery store, GGI sells many perishable products that are only saleable before their expiry dates or while product is still safe to consume.

GGI sells health supplements with a short shelf life (two to six months).

GGI has not recorded the 10% purchase rebates on beef for the year.

NBYP pays GGI a 25% commission every quarter based on reported sales. GGI waits until the commission is received before recording it.

NBYP inventory is mixed with GGI inventory.

Unreconciled transactions with Sweet Treats. Nousha claims she was charged for product she never received from GGI. Ray could not find any records of the deposits for the invoices in question.