Auditing Practice
Assessment
Word Limit: 1500 words.
• If a student is unable to attend their lecture due to illness or misadvanture, the student should contact their lecturer and provide proof of such a circumstance (e.g. medical certificate covering absence date and subsequent days until submission). The assingment documentary evidence and supporting forms should be submitted to your Lecturer. No penalty will apply if the evidence provided is approved by the Course Leader and covers the entire period prior to submission. Submission do not comply with these requirements will attract the standard penalty.
• The policy statement on cheating and plagiarism is a cornerstone of academic integrity at USQ. All students are responsible for familiarizing themselves with the policy, seeking further advice if necessary and complying with it at all times. If you use any material, for example textbooks, journal articles etc. to support your answer, you are to use the Harvard Style of referecing in your answer for both in-text and bibliography referencing (students are expected to use external material and articles). Referencing: The Harvard (AGPS) style - USQ Library's referencing guide at https://www.usq.edu.au/library/referencing
This assignment consists of THREE parts.
Part 1
According to ASA 520 analytical procedures are defined as follow:
The term means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data...
Required:
Identify and explain the most important reasons for performing analytical procedures.
Part 2
You are the audit senior on the audit of 21st Century Accessories Pty Ltd, a large distributor of technology accessories, whose main market lies in the 18-24 age group.
This is the first year your audit firm has performed the audit. As part of the planning work, you have performed analytical procedures on an annualised basis and compared the results to industry averages and lasts year's audited financial information. The results are given below:
Industry Average 21st Century Accessories Pty Ltd
Ratio 2014 2013 2014 2013
1. Current ratio 2.84 3.27 1.89 2.24
2. Accounts Receivables turnover 4.9 4.6 6.3 7.0
3. Inventory turnover ratio 3.7 3.8 5.0 5.5
4. Return on assets 7% 5% 13% 11%
5. Profit margin 0.06 0.06 0.04 0.04
6. Gross profit per cent 20% 26% 20% 18%
Required:
Based on the information given:
(i) explain the general meaning of each of the above ratios;
(ii) discuss the conclusions that you can draw about 21st Century Accessories Pty Ltd financial position; and
(iii) identify potential audit risks to be investigated further.
Your answer must be presented in a three-column format as follows:
What the ratio means Conclusions to draw Potential risks to be investigated
Part 3
ASA 500 mentions that the auditor should obtain sufficient appropriate audit evidence.
Required:
Explain what is meant by sufficient appropriate audit evidence. Discuss what you understand by reliability of audit evidence and how the reliability of audit evidence may be influenced.