Assessment task

ACCT6003 – Assessment task 3
Martie’s guidance -check list
1) Comment (Identify) and evaluate internal controls applied by the chosen company during the
audit procedures to identify the operating effectiveness of controls. Give two examples of internal
controls applied by the selected company.
Please refer to week 8 tutorial recording
a. Identify Internal controls
Chapter 6 – gaining understanding of client’s system of internal controls (ASA315)
Entity level controls
Refer to task 2 Part B Question 5 : strength /weakness of 2 internal controls
• Control environment of your company – see chapter 6.3.1
• Entity risk assessment process – see chapter 6.3.2 – look in Company
annual report for risk assessment process, possible separate committee?
• IT / Computerised systems controls – see chapter 6.3.3
• Monitoring controls – see chapter 6.3.5
o Internal audit department
o Separate audit committee
Transaction Level controls
Control activities – see chapter 6.3.3 and
– Physical controls ( lock & key or security guards manual controls)
– Performance reviews ( manual – IT -Dependent)
– Segregation of incompatible duties ( IT dependent or Automated
Application control)
– IT systems – (IT dependent or Automated general access or
application(software) controls including edit, validation, interface controls
b. Evaluate means evaluate if the internal controls are
• Entity level or transaction level
• STONG or WEAK or NON-EXISTANT
Example : Look if separate internal audit committee . department … if yes, then
strong controls, if doesn’t exist then not weak or non-existent control
See textbook ch 6.6
• PREVENTATITVE OR DETECTIVE -chapter 8.1.1

AssignmentTutorOnline

Manual = IT Dependent = Senior manager performance / exception/variance report
review
Automated control – General access and Application controls
Example : Look if separate internal audit committee . department … if yes,
then strong controls, if doesn’t exist then not weak or non-existent control
2) Examine the techniques of testing controls that should be applied by the auditing firm. Given
an example for each technique identified.
Refer tutorial week 8 : Techniques of testing controls & week 9 Marties slides – revision for extra
examples – DON’T COPY (Enquiry, Observation, Re-Performance, Inspection for Internal
controls
Chapter 8 – section 8.2
Week 11 slide
3) Determine relevant substantive testing for THREE (3) accounts selected from balance
sheet accounts of the chosen company, such as cash, trade receivables, inventory,
property, plant and equipment (PPE), intangible assets, goodwill, investment, loan,
payables, provisions, leases, long-term liabilities, equity, revaluation surplus, deferred tax
assets, deferred tax liabilities. You should identify the objectives, substantive tests of
transactions and account balances for each account identified. Refer to relevant ASAs or
other resources.
See tutorial slides for Week 10
See chapter 10
If using Inventory make sure you differentiate between manufacturer below or retailer like
Maggie Beer
EXAMPLE Question 3 : Example using Maggie Beer Holdings Ltd
1st Balance Sheet Account : Inventory
For Maggie Beer Inventory comprises of
– Retail inventory (Purchased and sold at a higher selling Price)
Balance sheet note for Inventory : note 9 page51
Objectives for Auditing Inventory account balance
See Textbook chapter 10.4.1 – please DON’T COPY AND PAST FROM TEXTBOOK … YOU
MUST ONLY WRITE OUT THOSE THAT ACTUALLY APPLY TO YOUR COMPANY!!!

Objectives for Auditing transactions related to inventory being Cost of Sales

Substantive test of account balances – See chapter 10 – table 10.9
– Make sure you provide: Analytical review type test
– Test of detail for all the assertions( objectoves identified) to be tested as identified
in Objectives
– Remember to reference to ASA or AASB
– (Write your test of details and in bracket indicate which assertion is being tested,
remember it must be relevant to your company
– For Inventory – always to “Attend / observe physical stock count & refer to ASA501
para 4-8
Substantive Analytical Review for inventory
i. Perform inventory turnover ratios to assess if inventory is slow moving and enquire of
management if inventory needs to be impaired for slow moving / obsolete items
(Valuation)
Substantive test of detail for inventory ( balance)
i. Attend the clients physical inventory count at year end and
i. Evaluate managements count instructions and observe that these have been
followed ASA501.4(a)
ii. Inspect the physical inventory whilst attending the count to ascertain existence and
identifying obsolete, damaged or ageing inventory (valuation) ASA501.A6
iii. Perform inventory test counts by
1. Trace from stock count sheet / physical inventory number of unit to the
general ledger inventory account recorded number of units for
completeness ASA501.A7
2. Vouch sample of inventory items from general ledger inventory account to
physical inventory on the floor for existence ASA501.
iv. Enquire about method of inventory valuation (FIFO or Weighted average) and
agree to accounting policy disclosure per Inventory note IN annual report
(Valuation)
v. Trace sample of inventory physical items back to supplier invoices(FIFO) and
agree / recalculate the per unit cost price based on FIFO method of valuation
vi. Enquire how obsolete inventory is identified and recalculate Inventory write down
(impairments) valuation
vii. Review minute of meeting for evidence of inventory pledged or held as security
for loans which can influence right or ownership of inventory (Rights and
obligations)
Substantive test of transactions – See chapter 10 – table 10.8
Purchasing of Inventory (Cost of Sales)
Testing for Cut-off
i. Enquire of management if all internally generated documents are sequentially prenumbered and request last documents to be processed at year end:
a. Last internal inventory purchase order number before year end cut-off and stock
count
b. Last customer invoice and delivery note of inventory sold before year end.

iii. Vouch entries from inventory register processed immediately after year end to source
documents and inspect date on source documents to ensure recorded in correct
accounting period -Cut-off
To be discussed in Week 11
5. Prepare an auditor’s opinion to the shareholders of the chosen company. Refer to
ASA 700 or other references.
6. Identify two Key Audit Matters (or one Emphasis of Matter if there is any) with
reference to the Auditor’s Report.