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In: Accounting

In regards to Sooty Ltd: Two key account balances at risk of material misstatement. For each...

In regards to Sooty Ltd: Two key account balances at risk of material misstatement. For each account balance, the key assertion at risk. A justification as to why the account balances and assertions are at risk. An outline of one (1) substantive test of detail that Tyrone could undertake for each account to address the assertion and risk identified.

In relation to Hales Ltd:

  • The weaknesses in the internal controls for each of the three aspects of the inventory system identified (raw materials, finished goods and changes to the master file).
  • An assessment of the implications of each of the weaknesses you have identified.
  • Three tests of control JDM’s IT audit division could perform to assist Tyrone with verifying the effectiveness of the internal controls (assuming that JDM will be performing tests of control).
  • Two Computer Assisted Audit Techniques (CAATs) that Tyrone could request the IT auditors run to assist him in testing the valuation of inventory.

Solutions

Expert Solution

Substantive audit procedures using CAATs

Use CAATs to

1. INITIAL PROCEDURE

a. Obtain an electronic version of listing and import to audit software

b. Scan listing for unusual amounts

c. Stratify accounts by categories

d. Using CAATs cast scheduleof account for mathematical accuracy

2. CAATs can be used to confirm whether any inventory adjustments noted during verification have been processed correctly into final inventory records.

3.CAATs enable audit team to test large volume of inventory data more quickly and accurately.

4. Audit team can use CAAT software to calculate inventory days for the year-to-date to compare against the prior year
to identify whether inventory is turning over slower, as this may be an indication that it is overvalued.
5.Audit software can be utilised to produce an aged inventory analysis to identify any slow moving goods, which may require write down or an allowance.
6.Cast the inventory listing to confirm the completeness and accuracy of inventory.
7.Audit software can be used to select a representative sample of items for testing to confirm net realisable value and/or
cost.
8.Audit software can be utilised to recalculate cost and net realisable value for a sample of inventory.
9.CAATs can be used to verify cut-off by testing whether the dates of the last GRNs and GDNs recorded relate to pre year
end; and that any have been excluded from the inventory records.
10.CAATs can be used to confirm whether any inventory adjustments noted during the count have been correctly updated into final inventory records.


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