Question

You are a staff auditor for E&Y assigned to their audit of the video game company called Blizzard Entertainment Inc. They assign you the expense portion of the audit to complete by yourself.

1. What are three risks you should be concerned with on this audit?  Be specific and give examples.

2. What are three tests you would conduct? Name one assertion you would be testing as part of each test?  Be specific and give examples.

3. What are two controls you would expect to see? Be specific and give examples.

Answer 1

1.a.Transactions recognized in the financial statements have occurred and relate to the entity.e.g:Employee benefit expense has been incurred during the period in respect of the personnel employed by the entity. Employee benefit expense does not include the cost of any unauthorized personnel

b.All transactions that were supposed to be recorded have been recognized in the financial statements and further, transactions have been recognized in the correct accounting periods.e.g;Employee benefit expense in respect of all personnel has been fully accounted for and such cost recognized   during the period relates to the current accounting period. Any accrued and prepaid expenses have also been accounted for correctly in the financial statements.

c.Transactions have been recorded accurately   at their appropriate amounts and further, transactions have been classified and presented fairly in the financial statements.e.g:Employee benefit cost has been measured/ calculated accurately and has been fairly allocated between Operating expenses incurred in production activities;General and administrative expenses; and Cost of personnel relating to any self-constructed assets other than inventory

2.(i)All expenses that should have been recorded have actually been recorded.-Assertion:Completeness

(ii)All expenses that have been recorded actually occurred and are related to the client.-Assertion:Occurance

(iii)All expenses transactions have been recorded correctly.Assertion:Measurement.

3.(i)An auditor tests the controls the entity has set around employee benefit payment process to determine how strong and reliable they are. e.g;ensure the payroll authorisation passes through two or three stages of accuracy check.All employee benefit expenses are made through back and tracing of beneficiary is possible.

(ii)An auditor shall ensure that the company have adequete control in the process of recording.A period check should be  done at regular period to eliminate the clerical errors,to check any missed expenses,to avoid double entry of expesnes,to ensure that the figures of expense matches with actual and any expense for future is correctly recoreded as prepaid asset.