Question

Question 1

You are the audit senior on the audit of Big Pharma Pty Ltd, a large manufacturing company, for the year ended 30 June 2019. It is now 25 August, 2019 and you are reviewing the audit working papers prepared by the audit assistant, Michelle Bradwick, and notice the following matters:

(a) Michelle attended the stocktake on 30 June and observed that the client followed the stocktake instructions. She selected numerous items for test inventory from the client’s inventory sheets and all were found to be correct. Cut-off details were noted and subsequently checked and found to be correctly treated. Michelle concluded that inventory was fairly stated.

(b) Michelle selected 20 invoices to test the control that the sales clerk checks that the prices agree with the authorised price list. She found 3 instances where the sales clerk had not signed the “prices checked” box in the invoice. The sales manager explained that the sales clerk always checks the prices but sometimes forgets to sign the box. As the prices on all the invoices agreed with the authorised price list, Michelle concluded that the control was operating satisfactorily.

(c) As part of her work on subsequent events, Michelle noted that there were a large number of returns in July of Product 75L. However, as this product was first sold in June and represented only 1% of sales for the year, Michelle concluded that the amount was immaterial and no further work was necessary.

(d) Advertising expenses are material, although only 50% of last year’s balance. Michelle selected a large sample of entries and agreed them to supporting documents. No errors were found. Michelle concluded that advertising expenses were reasonable.

(e) As part of the verification work on accounts payable, Michelle carried out a search for unrecorded liabilities. She tested a random sample of 20 payments made after 30 June, 2019 and found 3 instances of cheques that related to services provided in June, which had not been accrued. However, as the total of the 3 cheques was immaterial, she concluded that no adjustment was required for unrecorded liabilities.

Required: For each of the five scenarios presented above, indicate whether you believe that sufficient appropriate audit evidence has been obtained to support the conclusions reached. Give reasons for your decision.

Answer 1

Audit of Big Pharma Pty Ltd,

This case depicted a picture about the audit work of  the audit assistant, Michelle Bradwick in Big Pharma Pty Ltd, a large manufacturing company, for the year ended 30 June 2019.You are the audit senior and taken a task for  reviewing the audit working papers prepared by the audit assistant, Michelle Bradwick,on 25 August, 2019 As an audit senior certain important matters pointed five scenarios are noticed in the passage.Based on this are you believe thatsufficient and appropriate audit evidence has been obtained to support the conclusions reached.Yes i am believe in the audit work of the audit assistant, Michelle Bradwick as relates with the audit evidence support documents.mainly auditing is the detection and prevention of errors, mistakes and fraud conducted during the time of books of accounts as true and fair value mention in the records.Simply auditing is critical examination of the records and books of account of a business by an independent qualified person for ascertaining the authenticity and the accuracy of entries appearing in the books of account and financial statement.

In the mentioned case audited by the audit assistant ,Michelle Bradwick and you noticing the five scenarios.each one provide better proof and evidences for smooth audit work conducted by Michelle Bradwick.Under the first scenario represented that the inventory of the company checked and found to be correctly.For this she selected numerous items for test inventory from the client’s inventory sheets and all were found to be correct and also consider the cut off details and ensure the proof of evidence.In the second scenario Michelle ensure the prices agree with the authorised price list. Forn this she elected 20 invoices to test the control that the sales clerk checks that the prices agree with the authorised price list. She found that 3 invoices had not signed by the sales clerk.She meet the sales manager and the sales manager explained that the sales clerk always checks the prices but sometimes forgets to sign the box.So, Michelle concluded that the control was operating satisfactorily.Third scenario regards with the large number of returns were pointed the accounts of Product 75L in July was immaterial in the grounds because only 1% sale conducted in that product in that time ,so the large amounts of returns in that head need further work for proving and concluding the facts.In the fourth scenario Michelle ensures the advertising expenses are material with a large sample of entries and agreed them to supporting documents.No errors were found and she concluded that advertising expenses were reasonable.In the last and fifth scenario with regards the accounts payable also provide clear cut accounts except 3 cheques were immaterial that related to services provided in june,which had not been accrued.for this she search for unrecorded liabilities and tested a random sample of 20 payments and finally conclude the facts.

From the above five scenarios ,Michelle's work as good and efficient for detecting and preventing the errors and mistakes in the audit accounts of Big Pharma Pty Ltd.