Effective audit procedure

1. apply theoretical accounting knowledge and skills to solve non-routine accounting problems

to the level of threshold learning outcomes for auditing through assessment tasks;

2. understand and apply the various auditing standards and procedures in the conduct of an

audit;

3. demonstrate and apply technical skills in auditing techniques and judgement skills required

of an accounting professional engaged in audit;

4. demonstrate an understanding of the audit process, beginning with the planning phase,

through the documentation stages, to the testing, evaluation and reporting stages;

5. understand and apply the various auditing standards and procedures in the conduct of an

audit;

6. understand the principles and application of audit sampling techniques; and
7. understand and apply the concepts of internal controls and audit testing procedures.

This assignment consists of FIVE (5) parts

Background

SEQ Supply Company Ltd (SEQ Ltd) is a medium-sized distributor of IT hardware supplies. It has been

a client of yours for several years and has instituted excellent internal controls for sales at your

recommendation.

 

In providing control over shipments, SEQ Ltd has pre-numbered “warehouse removal slips” that are

used for every sale.  It is company policy never to remove goods from the warehouse without an

authorised warehouse removal slip.  After shipment, two copies of the warehouse removal slip are

sent to billing for the computerised preparation of a sales invoice. One copy is stapled to the

duplicate copy of a pre-numbered sales invoice, and the other copy is filed numerically. In some

cases, more than one warehouse removal slip is used for billing one sales invoice.

 

In the audit of sales, one of the main concerns is the effectiveness of the controls in ensuring that all

shipments are billed. You have decided to use audit sampling in testing internal controls.

Required:

a) Describe what is meant by a “sampling unit”. (10 marks)

b) State an effective audit procedure for testing the possibility of omitted sales for SEQ Ltd. What is

the sampling unit? (5 marks)

 

1. c) State an effective audit procedure for verifying the existence of recorded sales for SEQ Ltd. What

is the sampling unit? (5 marks)

 

1. d) Explain why the sampling unit for testing the possibility of omitted sales might differ from the

sampling unit for verifying the existence of recorded sales. (10 marks)

 

1. e) Margorie Smith, an accounting graduate and junior member of your audit team for SEQ Ltd,

performed tests of controls and substantive tests of transactions of sales for the month of

September in an audit of SEQ Ltd’s financial statements for the year ended 30 June 2015.  Based

on the excellent results of both the tests of controls and the substantve tests of transactions, she

decided to significantly reduce her substantive tests of details of balances at year end.  Evaluate

this decision. (70 marks).