Question
You are working on the audit of Deer Park Corporation Ltd (Deer Park), a wholesale distributor, for the year ending 30 June 2018. You have
You are working on the audit of Deer Park Corporation Ltd (Deer Park), a wholesale distributor, for the year ending 30 June 2018. You have reviewed the audit plan for the related accounts in the sales and collection cycle. The audit plan documents the relevant assertions and some detailed procedures you are to perform in relation to each of these assertions.
An extract from the audit plan is reproduced below:
ITEM | ASSERTION | DETAILED AUDIT PROCEDURE |
Accounts receivable | ||
1 | Existence | Examine evidence of subsequent cash receipts for some selected customers. |
2 | Valuation and allocation | Send confirmation letters to clients customers |
Sales account | ||
3 | Accuracy | Review the evidence of control of accounting for numerical sequence of shipping documents and sales invoices |
4 | Cut-off | Check last sales invoices recorded before balance date and first sales invoices recorded after balance date are recorded in the correct period, consider the time of delivery based on shipping documents |
Required
For each of the items 1 to 4 above:
(a) Indicate whether the audit procedure is a substantive test of details or a test of controls (4 marks)
(b) Indicate whether the audit procedure mentioned correctly addresses the given assertion. (4 marks)
3.2 You are working for a public accounting firm in Melbourne. One of your friends is working for Bayswater, a publicly listed company that is required to prepare its half-yearly (i.e. six month) financial statements. Bayswater has just prepared the half-yearly financial statement for the period ending 31 December 2018. As per regulations set out in the Corporations Act 2001, Bayswater needs to get its half-yearly financial statements either audited or reviewed by a public accounting firm. Your friend has approached you with an aim to get some advice about this issue and to know more about the similarities and differences between a review and an audit service. He requests your firm to provide a letter addressing Bayswaters Board of Directors (BOD) regarding this issue.
Required: Write a letter to the BOD of Bayswater advising them of the similarities and differences between a review of financial statement and an audit of financial statement. Your discussion should focus on: the similarities and differences in level of assurance, audit procedures, benchmark or criteria, types of opinion, applicable standards, audit fees etc.
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