Question
You are reviewing the audit working papers prepared by a junior auditor for the audit for the year ended 30 June 2018 of Purple Haze
You are reviewing the audit working papers prepared by a junior auditor for the audit for the year ended 30 June 2018 of Purple Haze Ltd. During your review, you note that the following two independent situations.
1. Accounts payable is a material account balance comprising 25 large and 150 small accounts payable. Geoff Hunt, the chief executive officer (CEO) of Purple Haze, presented the junior auditor with the list of a accounts payable making up the balance at 30 June 2018. The junior auditor decided to randomly select 25 creditors from this list and vouch these creditors to source documents. The junior auditor indicated in their working papers that they believed this would provide sufficient appropriate audit evidence regarding accounts payable.
2. A test of controls regarding 50 sales transactions was undertaken. This test resulted in three errors. In the planning of the test, a tolerable deviation rate of 5 per cent was established. The working papers by the junior auditor noted that none of the errors found was material, either individually or in aggregate, and therefore the tests of controls established that the controls were reliable.
Required:
(a) For each of the two situations above, provide advice on the ability of the audit procedures to provide sufficient appropriate audit evidence to reduce audit risk to a tolerable level.
(b) In relation to the accounts payable balance, what details should be included in the audit documentation regarding the junior auditor's procedures?
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