Question

The following is an audit procedure that an auditor performs relating to the financial report audit of a client.

State the most appropriate assertion which is being tested by the audit procedure.

Note: No marks will be given if more than one category of assertion is answered.

Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.

Answer 1

A) Audit Procedures Responsive to Risks of Material Misstatement at the Relevant Assertion

The auditor should design and perform further audit procedures whose nature, timing, and extent are responsive to the assessed risks of material misstatement at the relevant assertion level. The purpose is to provide a clear linkage between the nature, timing, and extent of the auditor's further audit procedures and the risk assessments. In designing further audit procedures, the auditor should consider such matters as:

• The significance of the risk
• The likelihood that a material misstatement will occur
• The characteristics of the class of transactions, account balance, or disclosure involved
• The nature of the specific controls used by the entity, in particular, whether they are manual or automated
• Whether the auditor expects to obtain audit evidence to determine if the entity's controls are effective in preventing or detecting material misstatements

B) As an auditor, it becomes imperative to obtain the evidences to prove accuracy of the financial statements. Sample of duplicate sales invoices to determine whether each one has a shipping document attached support below assertions:

• The goods against the sales invoice have actually left the factory premises and the invoice has name and description of the buyer.
• Inventory is correctly reduced by the sales value and quantity, to help in ascertaining accuracy of closing stock in the firm.
• Invoice has the details of value added taxes which can be verified from the particulars of return filed with the federal government.