Auditing Assignment Example | Topics and Well Written Essays - 1500 words

Auditing - Assignment ExampleThis report will discuss several size up problems which can impact the materiality of financial statements. Wentworth Brewster limited specializes with the manufacture of sports equipment. All the products are sold to medical specialist retailers and private member gym clubs. The company owns a large number of freehold premises than it generally requires. The unneeded office is usually sub-let to three other businesses. All sales are on a realization basis and customers are authorized and credit checked by the credit controller before an trace is being set up. Detailed records on stocks are in addition maintained. The visit risk areas for Wentworth relate to debtors, stocks, claims on damages and rent income. Debtors have been circularized and no evaluation on replies and follow ups on non-replies had been done. there was also a dispute from a particular debtor with regard to eyeshade match. There were also slow-moving stocks whose valuation wa s questionable. Rental income had not been audited since it was argued that its amount was less than that of sales income. Finally, there were no provisions do for claims or contingency. The audit duration will be a period of one month and the audit team will from time to time visit the site to obtain information. Communication shall also be done via emails when necessary. Debtors The main purpose of circularizing debtors is to obtain evidence regarding the ownership, existence and value of debtors in the financial statement. Debtors are third parties and thus are considered to be an external source of information. Obtaining evidence from different sources or types especially from third parties increases the level of assurance (Kumar and Sharma 2006). Circularization is done by writing to debtors directly requesting them to confirm their account balances. Debtors circularization can either be positive or negative. In positive circularization, the debtors are mandatory to move whet her they agree or disagree to the contents of the circular. In negative circularization, the debtor is required to respond whether they disagree with the contents of the circular. The major drawback of negative circularization is that in case the debtors fails to reply to the contents of the circular, the attendee assumes that he is in agreement with the contents of the circular. The auditor of Wentworth Brewster limited sent circulars to a sample of 30 debtors to confirm year end balances. There were replies and non-replies to the circular. Second request was done to non-replies where some debtors replied but cinque did not reply. One of the debtors who failed to reply had a zero balance while three of these debtors had balances ranging between ?5,000 and ?20,000. There were no follow ups done on these accounts. The fifth customer was a major customer, Multi-gym ltd and had a yearend balance of ?145,000. The audit senior had discussions with the credit controller of Wentworth wit h regard to this account as part of the follow up process. According to the credit controller, Multi-gym limited had disputes on a number of invoices worth ?95,000. The amount related to a model of rowing machines bought from Wentworth and Multi-gym disputed that the machines were inefficient as they kept on jamming every time. Upon the acknowledge of replies, the