ACCT2004-Auditing and Internal Controls - Accounting & Finance Assignment Help

Assignment Task

Task 

Learning Outcomes The Subject Learning Outcomes demonstrated by successful completion of the task below include:

a) Explain the professional, legal and ethical requirements and responsibilities of auditors and explore the significance of audit quality.
b) Illustrate an understanding of the audit process including risk assessment, response to assessed risks and audit reporting requirements.
c) Demonstrate an understanding of assurance engagements other than historical financial information and investigate the relevance of such engagements in the contemporary business environment.

Assessment Task
The assessment covers a range of scenarios that auditors confront when conducting and audit. Students are to review the scenarios and apply practical solutions to each scenario using current auditing literature to justify their answers. 

Instructions
Background – The Auditor and the Audit Client
Infinity Auditors are Certified Practicing Accountants who are registered company auditors. They service a broad range of clients across Australia however they are known for their work within the medical and pharmaceutical industries. Established in 1986 the firm consists of 8 partners, 50 audit staff and 10 administration staff. You have been an audit senior with Infinity Auditors for 3 years.
Infinity Auditors have two offices located in Adelaide and Brisbane. 

During the year Infinity Auditors was approached by Medical Services Group Limited (MSG) to complete their 2020 financial year audit. Their financial year ends June 30 and the previous auditor was ABC Auditors.
MSG supplies medical equipment to hospitals and doctor surgeries including medical diagnostic testing units, disposable products for surgery and medical safety equipment. They sell a total of 230 stock items ranging from $50 an item to $50,000 an item. They have warehouses in Sydney, Melbourne and Adelaide but ship their products all over Australia. Recently MSG opened another warehouse in Brisbane bringing the total number of warehouses to four. The head office is in Adelaide, and this is where most of the administration staff are located. 

Question 1
Prior to accepting MSG as a client, you need to first assess if they are a suitable audit client for your firm. Develop a Client Engagement Workpaper to be used by Infinity Auditors for their audit preplanning. You are required to look at policy and practice requirements and how you may gather sufficient and appropriate evidence to test with a clearly defined set of procedures. Policy and practice requirements detail the types of checks that you would carry out before accepting the engagement. 
This section should also state the reasoning that this check is required using appropriate legislation, standards, policies or identification of any potential audit risks. Procedure looks at how you might gather appropriate evidence to test client suitability. Note that you can complete several different procedures for each policy and practice requirement. 

Question 2
You have engaged MSG as a client and have started the independent audit of MSG’s financial statements.
You have been asked to circulate the receivable confirmations to MSG’s debtors. These letters seek to confirm the balances that MSG has in their accounts with that of its customers. On June 30, 2020 the Accounts Receivable balance is $3,980,250 and is considered material.
MSG’s payment terms are 14 days from the date of the invoice. Sixty per cent of the balance is represented by invoices outstanding from five different medical practitioners. The remaining forty per cent is made up of numerous smaller amounts, most of which have been outstanding for more than 60 days. Any allowance for doubtful debts is taken directly against the trade receivables account and not shown separately in the balance sheet.

a. Discuss the strength and weaknesses of debtor confirmations as audit evidence for MSG. Include the deficiencies in the accounting system and accounts receivable process in your answer.

b. Is it possible for Infinity Auditors to use debtor confirmations as the only audit evidence?

Question 3

MSG use a perpetual inventory system which updates the stock levels every time an item is bought or sold. On year end, the manager prints out a full stock list for each location showing:
• Stock code
• Quantity on hand
• Location of stock
• Cost per unit

At year end, a physical stocktake was carried out by MSG staff at the four MSG locations. All physical inventory items are checked against the inventory system printouts and any discrepancies are noted and provided to the warehouse manager who updates the stock levels in the accounting system. On June 30, the inventory on hand in the accounting system shows total inventory cost over the four locations is $23,500,000. The physical stocktake shows a physical inventory count of $23,100,000, the level of materiality set for inventory is 3%.

a. You are to gather sufficient and appropriate evidence regarding the existence and completeness for inventory. Describe the type of tests you would carry out for each of these assertions.

b. Discuss how you would select a sample size for testing the existence and completeness assertions. You must support your reasoning with the available literature. 

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