Question

The following issues were discovered by the audit team while performing the audit of Matador Corporation. Consider each issue independently.

1. Some inventory items sitting in the warehouse were not included in Matador’s inventory account balance.

2. Matador recorded service revenue, but there is no evidence any service work was performed.

3. The fair value for financial instruments (i.e., investments) reported on the balance sheet differs significantly from the audit team’s own determination of the investment’s fair value.

4. In December, Matador purchased some raw materials to be used in its manufacturing process. The raw materials arrived in their warehouse on December 30th. However, Matador didn’t record the raw materials in its inventory accounts until January 2nd (December is the end of Matador’s fiscal year).

For each of the four audit issues above, identify the assertion that best pertains to that issue. Use the format given below

Answer 1

1. To check the inventory item sitting in warehouses whether it is included in inventory or not

For this the auditor has to perform the cut off procedures

cut off procedures is segregation of transaction of one period from other so that the result of the working of each period can be correctly ascertain

this procedures is generally applied to transaction affected by continuity of the business like sales purchase stock

the auditor's satisfy by examination that the cut off procedures adequately ensures that:-

a. Goods purchase property in which has been passed to the client have in fact included in the inventory and the liability has been provided for in case of credit purchase and

b. good solds has been excluded from the inventory and credit has been taken for the sales if the value of the sales is to be received the concerned party has to be debited

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2. Matador Record service revenue but there is no evidence any service work has proformed

Auditor has to perform substantive procedures

Substantive procedures are performed to check the completeness accuracy and the validity of transactions and balance. Auditor's perform substantive procedures in respect of following Assassin related to data received by accounting system

1. Measurement :- THAT A TRANSACTION IS RECORED IN THE PROPER PERIOD AND PROPER AMOUNT

2. Presentation and disclosure :- AN ITEMS IS DISCLOSED, CLASSIFIED, AND DESCRIBED AS PER RECOGNIZED ACCOUNTING POLICES AND RELEVANT STATEMENT REQUIREMENT IF ANY

3. Completeness :- THAT THERE IS NO UNRECORED ASSETS AND LIABILITIES OR TRANSACTIONS

4. Occurrence :- THAT A TRANSACTION OR EVENT TOOK PLACE WITH PERTAINS TO ENTRY DURING THE RELEVANT PERIOD

5. Valuation :- THAT ASSETS OR LIABILITIES IS RECORED AT AN APPROPRIATE CARRYING VALUE

6. Existence :- THAT AN ASSETS OR LIABILITIES EXISTS AT A GIVEN DATE

7. Rights and obligations :- THAT AN ASSETS IS A RIGHT OF THE ENTITY AND LIABILITY IS OBLIGATIONS OF THE ENTITY

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3.

Matador Record service revenue but there is no evidence any service work has proformed

Auditor has to perform substantive procedures

Substantive procedures are performed to check the completeness accuracy and the validity of transactions and balance. Auditor's perform substantive procedures in respect of following Assassin related to data received by accounting system

1. Measurement :- THAT A TRANSACTION IS RECORED IN THE PROPER PERIOD AND PROPER AMOUNT

2. Presentation and disclosure :- AN ITEMS IS DISCLOSED, CLASSIFIED, AND DESCRIBED AS PER RECOGNIZED ACCOUNTING POLICES AND RELEVANT STATEMENT REQUIREMENT IF ANY

3. Completeness :- THAT THERE IS NO UNRECORED ASSETS AND LIABILITIES OR TRANSACTIONS

4. Occurrence :- THAT A TRANSACTION OR EVENT TOOK PLACE WITH PERTAINS TO ENTRY DURING THE RELEVANT PERIOD

5. Valuation :- THAT ASSETS OR LIABILITIES IS RECORED AT AN APPROPRIATE CARRYING VALUE

6. Existence :- THAT AN ASSETS OR LIABILITIES EXISTS AT A GIVEN DATE

7. Rights and obligations :- THAT AN ASSETS IS A RIGHT OF THE ENTITY AND LIABILITY IS OBLIGATIONS OF THE ENTITY

__________________

4 .

To check the inventory item sitting in warehouses whether it is included in inventory or not

For this the auditor has to perform the cut off procedures

cut off procedures is segregation of transaction of one period from other so that the result of the working of each period can be correctly ascertain

this procedures is generally applied to transaction affected by continuity of the business like sales purchase stock

the auditor's satisfy by examination that the cut off procedures adequately ensures that:-

a. Goods purchase property in which has been passed to the client have in fact included in the inventory and the liability has been provided for in case of credit purchase and

b. good solds has been excluded from the inventory and credit has been taken for the sales if the value of the sales is to be received the concerned party has to be debited

Note . There is no format in question so i had provided u answer as per my best opinion