Question 1 Part A Essay Example

i). Key Account

ii). Primary Assertion

iii).Explanation given for the account being at possible risk

iv). Substance test of detail

Inventory

Valuation and Allocation

Inventory is at risk of being overstated due to the following reasons;

• Sharp increase in the incidences of Ossicly ceasing to work prompting a major recall.

• High chances of diminishing future sales

• Necessary application of accounting principles and concepts

It is important to evaluate inventory levels to ascertain whether or not write-down of flawed inventories is necessary

Intangible Asset

Valuation and Allocation

Such intangible asset as Research & Development is at a higher level of risk of being overstated due to a number of reasons;

• The shutting down of ossicly has resulted to prompt massive recall of the product, which cannot be sold. Thus, there little or even null expected future economic benefits that might arise from ossicly in near future.

• Necessary application of accounting principles and concepts.

Conduct an immediate review and analysis of the R&D capitalised account and thereafter, make sure to write-down costs attributed to the recalled Ossicly gadgets have been appropriately written down.

Machineries/ PPE

Valuation and Allocation

Machineries purchased are at a risk of being overstated due to;

• High probability of the two machines helping production processes of the yet to be analysed product lines and others which are still underdeveloped.

• Necessary application of accounting principles and concepts/ treatment of machineries

Review all of the four product lines and those underdeveloped to ascertain whether or not new machineries have undergone capitalisation process by the management.

Key Assertion

Justification

The key assertion rests with valuation and allocation

There is a sophisticated form of production process, which might result to possible costing errors

Audit Approach

The situation calls for a combined approach

Procedure

Test of controls

Extensive

Substantive tests of details

Substantive analytical procedures

Extensive or eve medium

Justifications:

• There is extensive need for a distinctive test of controls given that necessary controls for purposes of mitigating material misstatement within the valuation and allocation assertion is indeed visible

• Tests of controls is indeed deemed appropriate and necessary for purposes of effectiveness

Exception Report

How it will be Used

Field 7 > X No. of Days

The auditor will follow to establish the immediate reason for the debt taking more than the recommended 90 days due period.