ACC621 Task 2, ATMC Semester 2, 2020 Substantive audit procedures
Background:
You are part of the audit team assigned to the audit of Maidenhair Enterprises for the year ended 30 June 2020. This is the third year that your firm has been engaged for the audit of Maidenhair. Notes from last year’s audit file indicated that internal controls around revenue and current assets are strong, while controls around other accounts are generally weak. Tests of controls confirmed this is also the case for the current year. The preliminary assessment of materiality has been set at $5,000. The unaudited trial balance for the client is shown below.
| Cash at bank 37,525 | 36,271 | ||
| Accounts receivable 36,365 | 34,642 | ||
| Inventory 175,295 | 173,034 | ||
| Machinery 141,000 | 140,900 | ||
| Accumulated depreciation | 30,750 | 23,250 | |
| Furniture 11,000 | 11,000 | ||
| Accumulated depreciation | 2,623 | 2,050 | |
| Accounts payable | 12,450 | 13,450 | |
| Bank Loan | 240,000 | 240,000 | |
| Sales | 241,470 | 230,520 | |
| Cost of sales 130,250 | 135,501 | ||
| Consulting revenue | 53,645 | 37,890 | |
| Interest income | 56 | 32 | |
| Other income | 1,434 | 5,075 | |
| Bank charges 515 | 350 | ||
| Depreciation 8,073 | 7,944 | ||
| Interest expense 12,343 | 10,092 | ||
| Printing 501 | 896 | ||
| Wages 55,260 | 54,005 | ||
| Superannuation 5,349 | 5,095 |
The senior auditor in your team has asked each team member to substantively test a different account. Refer to the following to identify the account that has been allocated to you.
Your task:
Your task is to prepare a working paper/s to be included in the audit file, for your allocated account. The working paper/s must address the six points below.
- Consider which assertions are likely to be most at risk for this account. Identify 3 relevant
- Explain why these assertions are likely to be at-risk. In doing so, you should consider fluctuations in the account balance (e.g. compared with the prior year) and consider the key risks generally applicable to this type of
- Identify and describe an audit procedure/s which would provide sufficient appropriate evidence for the identified assertions.
⇛ Ensure that your working paper clearly identifies the account being tested, a relevant audit objective, relevant assertions, and the procedure/s to be used. It is recommended that you prepare your audit working paper using either Microsoft Excel or Microsoft Word and use the feature to add additional notes/justification for your choices. The comments feature should also be used to record your references to information sources.
- The senior auditor has asked you to select a sample of 5 transactions from your general ledger account for vouching. Access the general ledger detail for your account and identify 5 specific entries to make up your sample. Describe/illustrate your sample selection
- Provide a brief statement justifying your sample selection approach with reference to the Australian auditing standards and the international auditing standards. Identify the benefits of your chosen approach compared to alternative
- Comment on whether vouching these 5 transactions is likely to provide sufficient appropriate evidence for this account. In doing so, consider how material the account is and the level of detection risk that would be appropriate for this account. Also, consider the direction of testing, and whether it is appropriate for your
⇛ You may like to address points 4 to 6 on a separate working paper, or include this on your existing working paper. You do not have the documents required to complete the audit testing for this account. As such, your working paper/s will be incomplete. There should be a section at the bottom which says “Conclusion:” but this will remain blank. It would likely be completed during a site visit to the client.
Criteria
Your assignment will be graded based on the criteria below. Please pay due regard to these criteria.
| Criteria | High Distinction | Distinction | Credit | Pass | Fail |
| Knowledge of audit risks and assertions. (9 marks) | Sophisticated: Sophisticated and insightful application of knowledge of
analytical processes, audit risks and assertions. |
Scholarly:
Highly effective application of knowledge of analytical processes, audit risks, and assertions. |
Advancing:
Demonstrates good knowledge of analytical processes, audit risks, and assertions, evidenced through application to audit case. |
Developing:
Evidences adequate knowledge of analytical processes, audit risks, and assertions. |
Undeveloped: Demonstrates little or no comprehension of analytical processes, audit risks and assertions. |
| Identification of appropriate audit procedure.
(4 marks) |
Sophisticated:
Sophisticated and insightful application of knowledge of audit procedures. |
Scholarly:
Highly effective application of knowledge of audit procedures. |
Advancing:
Demonstrates good knowledge of audit procedures evidenced through application to audit case. |
Developing: Evidences adequate knowledge of audit procedures. | Undeveloped: Demonstrates little or no comprehension of audit procedures. |
| Knowledge and application of audit sampling processes. (4 marks) | Sophisticated:
Sophisticated and insightful application of knowledge of audit sampling. |
Scholarly:
Highly effective application of knowledge of audit sampling. |
Advancing:
Demonstrates good knowledge of audit sampling evidenced through application to audit case. |
Developing:
Evidences adequate knowledge of audit sampling. |
Undeveloped: Demonstrates little or no comprehension of audit sampling processes and considerations. |
| Demonstration of critical thinking to evaluate vouching approach requested by audit senior.
(6 marks) |
Exemplary:
Evidences a sophisticated capacity for critical thinking. Rigorously identifies, prioritises, and justifies highly pertinent issues. Uses advanced and relevant discipline- based theory, frameworks and principles to critically and insightfully evaluate these issues. |
Accomplished: Demonstrates an advanced capacity for critical thinking.
Insightfully identifies, prioritises, and justifies pertinent issues in the business context. Uses relevant discipline-based theory, frameworks and principles to critically evaluate these issues. |
Advancing:
Demonstrates good capacity for critical thinking. Systematically identifies and prioritises pertinent issues in the business context. Critically analyses and evaluates these issues through application of discipline-based theories, frameworks and principles. |
Developing:
Demonstrates developing capacity for critical thinking. Identifies and demonstrates developing capacity to critically analyse pertinent issues in the business context using relevant theories and frameworks. |
Undeveloped: Demonstrates limited of no capacity for critical thinking. Demonstrates inadequate capacity to identify and
critically analyse issues in the business context. |
| Communication using digital tools/channels (i.e. Microsoft Word or Microsoft Excel)
(4 marks) |
Sophisticated:
Demonstrates sophisticated use of digital tools/channels to communicate in a highly effective manner. Language choice and tone is highly professional, appropriate and impactful. |
Confident:
Confidently uses digital tools/channels to communicate accurately and professionally. Language choice and tone is professional, appropriate and effective. |
Competent:
Competently and accurately communicates using digital tools/channels. Language choice and tone is effective and appropriate. E |
Adequate:
Uses digital tools/channels to communicate appropriately. Language choice and tone is appropriate. |
Undeveloped:
Demonstrates little or no ability to use digital communication tools/channels to communicate appropriately in a business context. |
| Access and use of information ethically and legally
(3 marks) |
Ethically, legally and professionally accesses and uses information gathered via digital tools/channels. | Evidences strong understanding of the ethical and legal use of information gathered via digital tools/channels. | Demonstrates good understanding of the ethical and legal use of information gathered from digital tools/channels. | Demonstrates developing understanding of the ethical and legal use of information gathered from digital tools/channels. | Demonstrates little or no understanding of the ethical and legal use of information gathered from digital tools/channels. |