Audit case studiesIdentify problems in auditing mattersDiscussion on basis of audit research. Mention relevant auditing standards

ACC 707 AUDITING AND ASSURANCE SERVICES
INDIVIDUAL ASSIGNMENT: AUDIT CASE STUDIES
Table of Contents
Introduction    3
Answer 1    3
a) Identification and explanation of two key assertions at risk related to inventory    3
b) Substantive audit procedures in response to risks of assertion relating to inventory    4
c) The requirement of the ASA 701 Communicating Key Audit Matters in the Auditor’s Report    4
Answer 2    5
a) Two key assertions at risk in relation to intellectual property intangible asset    5
b) Substantive procedures to be performed in response to the risk of assertion relating to intellectual property right    6
c) The requirement of the ASA 701 Communicating Key Audit Matters in the Auditor’s Report    6
Conclusion    7
References    8
Introduction
Auditing is an examination of the financials of an entity. The auditor performs the examination with a view of provide an opinion on the true and fair view of the financial statement of the entity. The auditor is required to abide by the auditing standards and follow accounting standards. This assignment deals with identification of risk relating to audit of inventory and intellectual property rights. The substantive audit procedures for dealing with the risk and the required disclosures have also been dealt with. The auditor is required to make the disclosure in the report as per the requirements of ASA Communicating Key Audit Matters in the Auditor’s Report Communicating Key Audit Matters in the Auditor’s Report.
Answer 1
a) Identification and explanation of two key assertions at risk related to inventory
Two key assertions at risk related to the inventory are as follows—
Inventory, which has been recognised in the balance sheet of Computing Solutions Limited, exists at the end of period. As per ASA 580 ‘Written Representations’, the management of an entity provides the best figures as per its judgement. It believes that the amount of inventory that has been disclosed in the financials of company at a certain period actually exists. It provides the breakup of inventory along with location of specific inventory. The auditor is supposed to verify inventory physically and estimate its actual value. The ascertained value should be checked with figures provided by the organisation. As per the opinion of Dai (2017), if the management of the organisation wants to hide/reduce the profits, it may lower the value of closing inventory. On the other hand, if the management desires to show high profits, then it may increase the value of its closing inventory. The auditor should use their knowledge and experience to assess correct value of inventory at the mentioned period. Both the cases involve material misstatement. Therefore, the auditor should reduce risks by verifying the inventory.
Computing Solutions Limited has the ownership or control over the entity mentioned in the financials provided by the entity. Any inventory that has been held on behalf of other organisation is not taken into account. The management of an organisation ensures that the management has the ownership and control inventory value at the period end. However, there may be a risk that the management holds inventory on behalf of others and disclosed it in their inventory value for the period. This will lead to material misstatement, as the entity will have to return the inventory after a specified period. In such a case, there is a high risk of errors that may be due to improper accounting knowledge of deliberate attempt to manipulate the accounts. According to the views of Knechel and Salterio (2016), if the organisation holds inventory that is not owned and controlled by it, then it will lead to increase in closing stock that will lead to higher profits. Such a risk may not be only due to deliberate misstatement. It may be due to confusion or lack of accounting knowledge.
b) Substantive audit procedures in response to risks of assertion relating to inventory
Observing the physical inventory count:. Physical verification of inventory of Computing Solutions Limited will be helpful in checking the presence of the inventory in the warehouse or production area. As per ASA 500, the physical count should be noted.
Cut off analysis: At the time of checking, the goods will be moved from the warehouse, as the production process cannot be stopped. Therefore, one should examine the details of the movement of the inventory at the time of physical count. According to the views of Mock et al. (2018), necessary adjustment should be made to ensure that there is no issue in calculating the physical stock on the day of audit.
Checking the high value items with care:. This will ensure that there is no material misstatement in the inventory records. Checking of high value items will ensure that there are no errors, which can have a material impact on the financial statement (Simunic et al. 2017). Even though an error exists, it will not have a material impact on the financials of the company.
Checking the receipt and issue bills at the warehouse:. According to the views of Christensen et al. (2016), there are certain items that cannot be checked due to various reasons. Therefore, the presence of such items can...