QUESTION 1

The information in the financial statements of your client, Honesty Company Limited, represents claims by management in relation to its responsibility to prepare financial statements which gives a true and fair view of the company's state of affairs and results of operations for the year under review. These claims are referred to as financial statements assertions.

Required:

As a member of the engagement team charged with the audit of the client's financial statements for the year ended October 31, 2019:

a) Outline the audit objectives for the audit of stock (inventories) in the financial statements. Your answer should relate to the financial statement assertions.

b) Discuss FOUR (4) sources from which evidence can be obtained to confirm the quantities and value of stocks.

c) Explain why stocks present high audit risk

d) ISA 501 - Audit Evidence - Specific Considerations for Selected Items deals with three specific items that may be contained within a set of general purpose financial statements and for which the auditor may need to obtain sufficient appropriate audit evidence. It deals with specific considerations for: inventory; litigation and claims; and segment information.

Required:

What should an auditor do:

i) To obtain sufficient appropriate audit evidence regarding the existence and condition of inventory where inventory is material to the financial statements?

ii) When physical inventory counting is conducted on a date other than the date of the financial statements?

QUESTION 2

a) ISA: 500 Audit evidence requires the auditor to obtain sufficient, appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion. That evidence should be relevant to the financial statements assertions.

Required:

i) Explain the main assertions about account balances and provide an example of each one by reference to the audit of trade receivables.

ii) Identify FIVE (5) of the seven main audit testing procedures (for example inspection) and give an example of how each might be used in the audit of plant and machinery. State the assertion that is being tested in each case.

b) Tamale Pharma specialises in the development of drugs for the pharmaceutical industry.

Required:

State how you could verify the following items appearing in the statement of financial position of Tamale Pharma as at 31 December 2018. You are not required to consider presentation and disclosure:

i) Patents.

ii) Research and development.