Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. Design a substantive...

Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. Design a substantive audit procedure that provides reasonable assurance of detecting each misstatement.

6. One-third of the inventory of diamond jewelry is actually cubic zircona or white sapphires.

7. The client paid the same vendor invoice twice, although it is still shown as an account payable.

8. Client personnel informed the auditors that underground petroleum tanks contained an inventory of high-octane gasoline when they actually contained water.

9. The client failed to record warranty expenses incurred after year-end applicable to sales made before year-end.

10. Inventory in one corner of the warehouse is overlooked and not counted during the client’s physical inventory count.

Expert Solution

Following are the substantive procedure should be use which would give us assurance of detecting each misstatement.

Auditor should take management certificate about value of that special type of diamond jewelry. Also can take related field expert service to know correct value of diamond jewelry.
We should verify that all transaction recorded correctly and accurately. We should record all purchases with their Invoice number, amount, date of invoice so that no duplication of transaction/data record in books of accounts of organization.
Auditor should check that stock of petroleum product of underground tank record properly and correctly. Auditor either personally or can take field expert service in physical verification of stock of petroleum products, that stock showing in books of accounts is correct and accurate. Auditor can also take management certificate regarding stock valuation.
Auditor should adopt cut off procedure to ensure that in current year, only current year incomes and expenses items recorded. Last year or next year data not recorded to demine profit and loss of current year of organization. A client not record warranty expense is a error of omission. This transaction can be record as prior period items in current year.
Closing balance of inventory & stock recorded in financial statement should be tally with physical inventory and goods. And also assure that Company have ownership on all disclose and physical inventory & stock item. Auditor should tally physical inventory with their purchase invoice and inventory accounts. And assure that inventory is not over or under stated. If any item left in physical verification than that should be include in inventory.

ekkarill92 answered 1 year ago

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Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. Design a substantive...

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