Question

Question 2 (18 marks)

The purpose of substantive testing is to verify the assertions made by management in the financial statements. Consider the following unrelated audit tests, which a CPA performed for the audit of the financial statements of a client with a fiscal year-end of December 31, 2017.

Required

For each of the six audit procedures listed below, identify the primary management assertion being tested and the account balance being verified, name the specific audit procedure being used (e.g. inspection, observation, inquiry, confirmation, computation, analysis, etc.) and state the quality of the audit evidence obtained (high, moderate, or low), explaining why the evidence is the quality level you specify. Organize your answer with these headings:

Situation	Identify the primary management assertion (½ mark) and the account balance being verified (½ mark)	Name the specific audit procedures being used (½ mark each)	State the quality of the audit evidence obtained (high, moderate, or low), explaining why the evidence is the quality level you specify (½ mark for the quality and 1 mark for the explanation)
Sent positive confirmation requests to a sample of customers with unpaid balances at December 31, 2017.
Performed test counts of goods on hand during the company’s normal physical inventory taking on December 31, 2017, and traced them to the client’s inventory listing.
Requested statements as of November 30, 2017, from a large sample of vendors with whom the client did business during 2017.
Examined shipping reports dated prior to year-end that have not been matched against customers’ invoices.
Recalculated amortization of copyrights, patents, and other intangibles as at December 31, 2017
Examined and counted Canadian government bond certificates held as investments as of December 31, 2017.

Answer 1

1.Primary assertion would be the valuation of account balance of Trade Receivables

As per SA 303 external confirmation is used as audit procedure in the given case where quality level is high. But since it is positive confirmation it leads to lower response rate thus additional effort is us required to get the required evidence.

2. The primary assertion is the existence of account balance of inventory.

As per SA 501,Audit Evidence - specific consideration for selected items here in this case we check the existence and condition of inventory with moderate level of quality of audit evidence.