M.Fahad 18U00151 Sec E Assignment 1 Auditing
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muhammad fahadM.Fahad 18U00151 Sec E Assignment 1 Auditing
Uploaded by
muhammad fahadM.
Fahad
18U00151
Sec E Assignment 1 Auditing
Audit Risk Auditors Responses
There is increased risk of inflating the financial
Different kind of methods must be used and the
1 statements for giving a better reputation as the company
auditor must use professional skepticism.
is planning to expand by opening three stores.
There is a risk that recognizing a current asset will not Auditor must have a meeting with director
state companies' financial position accurately. The discussing about how certain they are about the
2 company has spent money on advertisement thinking cash flows in the future and make certain that the
that it will provide them cash flow in future. But none current asset is derecognized and expensed in
could estimate the exact cash flow in future SOPL.
Finance cost for the year could be understated as
company had taken a bank loan during the year and the Auditor must ensure that the loans which company
3 increase in finance cost may not be recorded in the took are recorded and he must recalculate the
financial statement. finance cost for the year.
There is risk that redundancy provision are not made
Auditor must discuss it with the director that
where it is needed which must have been made if the
4 whether redundancy provisions are given or not.
criteria is met.
The inventory valuation of ABC company could be
overstated because it is following a perpetual inventory Auditor must carry out full year-end inventory
5 counting system over the 18 months. And the company count and closely observe this. Only then this risk
may commit some kind of mistake in counting the could be avoided.
inventory..
Financial statements could be misstated as bank loan are Auditor must ensure that financial statements are
6 due quarterly so there is a risk that current and non- correctly recorded by calculating all the loan
current liabilities are not classified correctly. payments.
ABC is using to value its inventory with industry practice,
Discuss with the director and ask them to value
which is not acceptable as per IFRS.an inventory should
inventory as per IAS 2. assure that NRV valuation
7 be valued at lower cost or NRV as per IAS2.ther is a risk
basis is accurate
that Industry-based valuation will overstate the inventory.
During the year company outsourced its Payroll function. Ask for a detailed report about the payroll updating
There is a risk of error occurred during the updating and and ensure that sufficient preventive measures are
8
also the extra cost on outsourcing may not be expensed taken while updating. And ensure that the
which will understate the expenses outsourcing expenses are expensed in SOPL.
Non-current asset could be overstated as during the IA Auditor must make certain that PPE is recorded as
9 review it was found that non-current assets are not fully per IAS16 Property Plant and Equipment and a
depreciated and are unused so there is a risk of not proper impairment review must be carried out.
conducting the impairment