Question

Sufficiency and appropriateness of audit evidence at Perkins Ltd. Tyrone has indicated that he has completed testing on accounts payable and sales Perkins Ltd, a small manufacturer of confectionary goods. Tyrone has performed the following tests:

• In relation to accounts payable, Tyrone selected a random sample of creditors from the accounts payable ledger and agreed these to statements, invoices and reconciliations. The balance of the accounts payable ledger was then agreed to the general ledger and the trial balance. Tyrone found no discrepancies.

• A positive debtors confirmation was performed on the 30 June balances. Baker Pty Ltd had an outstanding balance as per the confirmation of $10,000, however in their reply they noted that they only owed $9,000. The difference is due to invoice 1938 dated 1 July 2020. Tyrone has noted that Baker’s account appears to be overstated but the amount is immaterial and he has not performed any additional work.

• Tyrone performed tests of control over payroll. Out of 50 items he found 4 breaches of control. Tyrone notes that as the errors were immaterial and the error rate was below 10% no further work is required as everything complied with the accounting standards and controls over payroll can be relied on.

Question 2: Whether Tyrone’s testing has obtained sufficient appropriate evidence for the relevant assertions (where appropriate) pertaining to Perkins Ltd.

Answer 1

To: Tyrone Vickery

From: Jacques Fernandes, Audit Manager

Date: August 23, 2020

Subject: Obtaining of sufficient and appropriate audit evidence

I have reviewed the audit proof that you have obtained for Perkins Limited. It is true that an auditor employs many audit procedures to try to obtain audit proof onthe basis of which an opinion is developed as to whether acompany'sfinancial statements are free of material errors and represent the correct view of the organisation's financial situation. Audit evidence is primarily used in order to say that the auditor gives an opinion on an organisation's financial statements.A random sample of creditors in the booklet and invoices, statements andreconciliations were properly checked and authorised for the accounts payable by Percins Limited.

Sufficient audit evidence specifically indicates the amount of audit evidence that could be used in performing the audit by choosing the number of samples, by applying audit methods, and obtaining the required documentation from the auditor in the case of Perkins Limited. The appropriateness of the audit evidence is primarily concerned with the quality. Using positive confirmation on the debtor balances at yearend is considered necessary for the checking of accounts payable amounts. The account of Baker Pty Limited, one of the organisation's clients, was found to be overstated by 1,000 dollars, due to inclusion of an invoice which is dated on July 1 , 2020.Since the amount is insignificant, there was no extra work undertaken.

In this regard, it seems to me that Baker Pty Limited's account balance would reflect $9,000 on June 30 , 2020 because the $1,000 invoice represents the next financial year. It does not offer an accurate and right view of its balance at the end of the year if it reflects $10,000 as the balance on June 30 , 2020. As the error is found, the correct balance of $9000 (Kfknowledgebank, 2020) should be reflected correctly. In addition, 4 infringements out of 50 products tested were determined in performing test checks for payroll control. No additional work in this respect has been undertaken as breaches are not material and only within 10% of the error rate. In compliance with that of accounting standards, Perkins Limited's financial statements can also be relied upon payroll controls.

But I believe that the breaches in the control of the payroll must be reported to the company's management and treated accordingly. They may be immaterial, but efforts must be taken to correct these items since they have been identified.