Question

Joe Moran is an audit senior of Principal Auditors, a large international audit firm.
He has been asked by the audit partner, Sale Fields, to evaluate the following audit
risks of a major international client.
One of the client's soft drink factory warehouse reported large staff turnover in its
cash payment section. For two months, two employees were recording and
authorising batches of cheques for each other to overcome staff shortages.
Required: What key account(s) is/are likely to be affected? What is/are the audit
assertion(s) to be tested?

Answer 1

As per the scenario stated herewith, the Staff Turnover in Warehouse is extremely very high.

Only Two Personnel in Warehouse is handling the major task of recording the transactions as well as approving the payment details, however they both are authorizing each other other activity over a couple of months.

Key Account likely to be affected are as follow:

Key Accounts	Impact
a. Sale of Goods	Proper Outward of Material Recorded or not, Shipping Order or other documentary proof is been attached with the order.
b. Purchase of Goods	Proper receipt of goods, against the valid purchase order
c. Inventory ( Raw Material and FG )	Proper Bifurcation of Raw Material and Finished Goods, Proper location as already defined in the warehouse. Proper cross indexing is being followed or not.
d. Quality of the Product	Here Concern over the Receipt of Goods as per the Quality standard of the Purchase order is adhered or not .

From Above it impact Receivable, Sale Account , Account Payable Account, Purchase Account, Inventory Account, Cash and Bank Account.

Following Audit Assertions to be tested:

S. No.	Assertion Tested	Reason for Testing
1	Existence and Occurrence	Because, Recording made hence existence and occurrence either by Purchase order or Sale order need to be checked to validate the transaction.
2	Completeness and Cut off	Here, the Transaction is not partially recorded or recorded Completely as per the Material received or Outward moved from the warehouse as same is been recoded as per the cutoff measured during those month, so that sale and purchase figures during the month can be properly evaluated.
3	Valuation and Method of Allocation	Here,, Valuation of Raw Material and FG is properly made as per the policy of Inventory valuation.
4	Accuracy	Here, The Input and output of material as well of cheque value is recorded with full accuracy, no change in the value in recording the transaction.