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(Solved) You are the audit senior on Tables Limited (Tables) audit and have started planning for the 2016 audit. You have been able to get the following...


a) Determine any significant audit risks with reference to each relevant facts;

b) Identify the key assertion at risk (as per ASA 315) to each significant audit risk; and

c) Outline two appropriate audit procedure to test the asseration you identified.

You are the audit senior on Tables Limited (Tables) audit and have started planning for the
2016 audit. You have been able to get the following information about various sectors of the
business.
1 – Property, plant and equipment (PPE)
There are generally few fixed asset transactions. Asset registers are maintained, and staff are
generally competent. The transactions are often not complex but an element of risk can be
introduced when management has to make decisions concerning whether to capitalise or
expense items. PPE, being less liquid than other assets, are generally not subject to theft. In
recent years a number of PPE items have been manufactured in-house. You have noticed as a
result of your analytical procedures that repairs and maintenance expense has dropped
considerably in the last two years.
2 – Inventory balances and purchase transactions
Although fairly voluminous, purchases transactions at Tables are not complex. Inventories
are tightly controlled so that overstocking and obsolescence are normally not a problem.
Inventory, although not as liquid as cash, is subject to theft. At Tables, finished package
products are shipped immediately to customer, although large quantities of purchased
merchandise are maintained on hand. The personnel handling purchases and inventory
transactions are, in general, competent. Access to the warehouse is unrestricted.
3 – Trades payables transactions and balances
Although not complex, the amount of trade payables transactions is quite high. A significant
risk with trade payables is that employees may fail to record them in books. The reason is
because the company has applied to the bank for an increase in its overdraft and wants to
impress the bank with a strong current ratio. At Tables a request form is first prepared for all
items that are to be paid through the cash disbursements system. The previous trade
payables clerk, who had been with the company for eight years, left in December 2015. A
new clerk was hired but is not yet thoroughly familiar with the procedure.
4 – Trade receivables and credit sales system
Transactions of trade receivables and credit sales are not particularly complex at Tables, nor
is there any degree of estimation involved (except for the allowance of doubtful debts
account). The persons processing revenue and trade receivables transactions are thoroughly
familiar with the procedures and are generally competent. Sales transactions processing
does, however, entail the completion of many transactions. Competition from overseas is
becoming an issue, and because of the poor general economic conditions some customers
have requested extensions of time to pay.
For each of the above account balances and classes of transactions:
a) Determine any significant audit risks with reference to each relevant facts;
b) Identify the key assertion at risk (as per ASA 315) to each significant audit risk; and
c) Outline two appropriate audit procedure to test the asseration you identified.
Provide justifications in each case.

 


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