Question

The directors of Synergy Pty Ltd (Synergy) have provided its external audit firm with an oral representation confirming that the bank overdraft balances included within current liabilities are complete.

REQUIRED

1. Describe the relevance and reliability of this oral representation as a source of evidence to confirm the completeness of the bank overdraft balances.                                

1. Explain why the auditor is concerned particularly with completeness of bank overdraft.                                                                                                                                        

ii. Design an additional audit procedure for bank overdrafts. Explain how this procedure will address the concern identified in b) (i).

Answer 1

a)auditors express an opinion about the financial statement and the completeness of the financial statement. this audit opinion must be based on proper audit evidence.

audit evidence is the information used by the auditor to form an opinion about the financial statement, there are many ways to collect proper evidence some of the examples are documents, assets, directors, accounting book and third parties.this are some of the ways the auditors to fund the appropriate audit evidence.

in the above scenario the director of the synergy ltd gave an oral confirmation regarding the overdraft balance.inorder to have reliability in the information provided by the director, the information must come under the above-mentioned form.

if this information from the director is documented or collected from board minuted, this is considered as more reliable than a basic oral representation.so the information is not reliable and if the overdraft id meterial to the overall financial statement then the audit must increase the detection test to ensure the completeness of the information.

b)an objective of the audit is to provide opinion o thee financial staten=ment that and prepared in all material respects in respect with relevant financial reporting framework.an auditor must base the opinion based on sufficient appropriate audit evidence.to ensure that the statement is 'true and fair,

bank overdraft balance is material in nature and must be examined with increased testing.so oral representation cannot be considered as reliable, and it will effect the audit opinion. formal documentation if the statement can be considered as evidence.

c) the auditor can use basic audit procedure to check the balance of bank overdraft, this might include.

• inspection if relevant accounting book to check the completeness o9f the statement.
• recalculation of the figures with the bank statement to ensure the balance is reliable.
• using third parties sources ,in the abiove case it is the bank ,the auditor can enquire with the bank and take a written coinfirmation about the ststement.
• bank reconcialatio can be reviewd to understand the variance and find the overdraft balance.