ACCG340 2016 3

Seminar 2: Audit planning & Risk Assessment 1

READING GUIDE
Please note:
(i) As noted in the Unit Guide, it is essential that students familiarise themselves with the
compulsory text readings PRIOR to the seminar each week.
(ii) The text is Gay & Simnett 6e Ed (GS) Chapter 4

Relevant Auditing standards:

ASA (ISA) 200, 230
ASA (ISA) 315, 230, 330,
ASA (ISA) 450
ASA (ISA) 500, 501, 540, 580
ASA (ISA) 600, 620
GS 011
SEMINAR DISCUSSION QUESTIONS
Martinov-Bennie, N., Roebuck, P., & Soh, D. (2016) revised 6 eth. Auditing and assurance:
a case studies approach.
1. Case 1.3 pages 9-10 ( Parts A & B only - ignore internal control part)
2. Case 3-8 page 65 (Part A only ignore substantive test part)
Gay & Simnett 6e Ed (GS) Chapter 4
3. 4.20 page 191
4. 4.21 page 191
5. 4.24 page 193
6. 4.30 page 196

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Suggested Solutions Guide

Case 1-3
WENDIG Limited

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1

Risk
Inventory is fairly liquid, subject to theft, large qualities are on hand
(increases business risk (BR)).

2 Assertion existence
unrestricted access to the warehouse

Traedcivblsntym
1

Risk
Estimates involved in arriving at allowance (increases BR).

Aosenrti

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Valuation and allocation of trade receivables; allowance for doubtful debts.

Case 3-8
XYZTLIMED
Part A
1
BALANCE
SHEET
ACCOUNT

EXPLANATION

ASSERTION
Valuation and
allocation

Inventory
Drop in value

Valuation and
allocation

Trade receivables
Fluctuations in local and
$AUD exchange rates

4.20
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(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)

1 Inspection
6 Observation
3 Confirmation
2 Recalculation
4 Analytical procedures
1 Inspection
5 Enquiries
7 Re-performance
1 Inspection

4.21

(a) The auditors recalculation of depreciation is generally more reliable

(b) The bank confirmation would be considered generally more reliable
(c) The bank statement would be considered generally more reliable

4.24
(i) The increasing competitiveness of the industry in which Clothing Ltd operates has an
overall effect on inherent risk.
(ii) The change in payroll processing and the related change in the internal control affects
control risk,
(iii) increasing pressure on the companys management to produce favourable financial
results, thereby increasing inherent risk at the financial report level.

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4.30

Type of test

Is given
assertion
Correct?

Actual
assertion

Explanation

Test of control

No

Occurrence

The procedure does not test the

completeness assertion, as the sample is
selected from the recorded population
(i.e. wrong population).
This test of control would not ensure the
completeness of revenue, as any items not
recorded cannot be selected (i.e. the
direction of testing is wrong).
The procedure of matching invoices back
to customer orders and delivery docket
proves that a sale has occurred.

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Substantive test
of detail

Yes

N/A

This procedure ensures that prices

charged are correct (i.e. accuracy). If the
prices are not correct, the sales price will
not match the authorised list price.

Substantive test
of detail

No

Occurrence

Procedures that test the cut-off assertion

address the timing of sales around year
end to ensure that sales just prior to year
end have been included and those after
year end have been excluded. This
procedure only tests whether sales
occurred prior to year end (i.e. it tests the
occurrence of transactions recorded and
delivered in the current accounting
period).