Question
Specify a substantive test for each of the following. Ensure you also identify the starting point, the evidence used for verification, the procedure, and whether
Specify a substantive test for each of the following. Ensure you also identify the starting point, the evidence used for verification, the procedure, and whether or not sampling would be used.
(1) Occurrence of purchase transactions
(2) Completeness of sales transactions
(3) Valuation of the accounts receivable balance
(4) Existence of inventory
(5) Completeness of the accounts payable balance
(1) Read the case study concerning E-Car Ltd (below) and Identify two significant statement of financial position accounts at risk of material misstatement. Explain why each account that you identified is at risk and state the key assertion that is most at risk.
(2) Specify a substantive test for each of the accounts and the associated key assertions you identified in (1) above.
You are auditing an electric car manufacturer by the name of E-Car Ltd. (EC).EC is a major exporter of vehicles from Australia, and has recently won an award from the Department of Trade and Industry. It is standard practice in the vehicle industry to allow debtors 90 days to pay their accounts. You are currently planning the 20X5 audit of EC. Your assistant provides to with the following note:
(a) In one of its major European markets, EC's prices have been undercut by a new US manufacturer which is trying to establish itself in that market. In the past half-year, sales to Germany and France have decreased by twenty percent. In addition, two long-standing Italian customers have indicated that they are unable to pay on time, and have requested that their credit periods be extended to one hundred and eighty days. As well, I am concerned that debtors' responses to external confirmation requests may be difficult to obtain because of language difficulties.
(a) Why is the completeness assertion generally considered to be the assertion most at risk in an audit of liabilities?
(b) Explain the principle that underpins a review of subsequent payments.
(a) Why is the valuation assertion generally considered to be a key assertion in an audit of accounts receivable?
(b) Explain the principle that underpins a review of subsequent receipts.
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