Methodology
We followed all performance audit standards in accordance with generally accepted government
auditing standards. To accomplish our audit, the following methodology has been used:
 Inspection
ASA 500 (ISA 500) emphasizes the need to inspect original documents rather than
photocopies. We reviewed records and files judgmentally, try to find out any possible
mistakes.
 interviewed personal
Met with the appropriate personnel to confirm the understanding of the performance
indicates.
 Reviewed external information
Request relevant transaction, detail and record form external entities, for example, suppliers,
clients and bank, and review them to find out the discrepancy. The action also called
external confirmation.
 Appropriate tests
Test of control and substantive tests would be taken if it was necessary. For instance: test of
source documentation.
 Recalculation
Recheck the metric or algorithm of the performance indicator to make sure mathematical
accuracy.
3.1 Case c
3.1.1 Detailed Finding
SST Limited has a 30 June balance date. The company’s inventory consists of approximately
20,000 music cassettes and compact disc, details of which are maintained on a perpetual IT
inventory system. Inventory is counted on a cyclical basis throughout the year with all items being
counted at least once during the year.
A stocktakes are attended by an audit assistant where a sample of 20 items is counted from the
floor and checked to stocktake sheets and perpetual records, and a further sample of 20 is
selected from the perpetual records for checking to the floor.
The most recent stocktake took place in March. The client’s inventory system was not
subsequently updated for several errors identified at the time of the stocktake.
3.1.2 Implications of the finding
Based on the research and test we did, the actual amount of inventory is not match the stocktake
sheets and perpetual records, and also it did not update the errors identified.
SST Limited fails to the assertions about classes of transactions and events and account balance
of inventory (ASA 315. A 111).
 Completeness: the company should record the transactions and events that should have
been reported. The errors occurred but didn’t record; the quantities of inventory must be
different from the record and actual amount.
 Accuracy: the amounts and other data relating to recorded transactions and events have
been recorded appropriately; it means the actual amount of inventory should match the
amount on record.
 Existence: inventories included in the balance sheet physically exist. If the errors occurred,
some recorded inventory might not exist.
The errors which occur in March and have not been recorded would lead the misstatement of the
balance sheet and profit and loss statement.
There are several reasons lead to the mistake, first of all, the IT inventory system is defected;
Secondly, people who use the system is not well trained and last but not least, the mistake had
done by intentionally.
ASA 200.3 states that the purpose of the audit is to enhance the degree of confidence of the
intended users of the financial report. In addition, Auditor must plan and perform audit with
professional scepticism, being a questioning mind and a critical assessment of evidenceASA200.15. Thus, a deeper investigation should be taken in this situation.
 Review records and files
The documents and records which related to the inventory need to be examined of the
original one (ASA 500 emphasises the need to inspect original documents raher than
photocopies ), in order to locate when the mistake occurred.
 Interview personal
As the mistake occurred after March, the stocktake staff should provide more information
about the recorded he/she made.
 Obtain relevant record for external entities
In this case, we need the transaction and records occurred after March from suppliers and
clients. ASA 500.31 claims that the evidence from source outside and entity is more reliable
than evidence obtained solely from with the entity.
What is more, we also recommend that:
 Improve the performance of the inventory system.
In the further evolution, SST Limited needs to collect the feedback of the executive staff in
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order to improve the performance of the system.
Establish a stock take monitoring program
It helps to reduce the error rate.
Improve the policies and procedures of documentation.
The relative transaction and record should be complete and accurate when the events
happen.
Well train of the employees
The executive employee is a vital element of how good the system performs.
4.1 Case d
4.1.1 Detailed Finding
As part of year-end substantive testing of trade payables account, the audit assistant has carried
out a search for unrecorded liabilities. He tested a random sample of 15 payments made after 31
March 2010, the company’s year end, and has found the following items for which no accrual was
made at 31 March 2010:
 Cheque number 19902 for $6,024 for stationery received in March;
 Cheque number 19794 for $11,239 for February advertising in the local community
newspaper;
 Cheque 20064 for $9,432 for hire of office furniture in February and March.
4.1.2 Implications of the finding
According to the substantive testing of trade payables account, the accrual transaction was not
match the record. The amounts immaterial or not, depend on the turnover of the company. In
this situation, the amount assumed material regard to the lack of the fact.
The client company fails to the assertions about classes of transactions and events (ASA 315.
A111):
 Occurrence – transactions and events that have been recorded have occurred and pertain to
the entity. The company has the transaction recorded, but actually it didn’t happen. It is not
accord nary to the assertions.
 Accuracy – amounts and other data relating to recorded transactions and events have been
recorded appropriately. The client recorded the transaction which is not inexistence.
AGS 1002 Bank Confirmation Requests
The misstatement of the cash would result the discrepancy between balance sheet and actual
account. It also affects the operational decision or cash flow of the company, if the amount was
big enough.
Further action is needed in this situation:
 Transactions and records review.
Review the appropriate and original (ASA 500 emphasises the need to inspect original
documents rather than photocopies) transactions and records, to find out is there any other
mistake and confirm the mistake of the three cheques.
 Interview personal
To obtain more information from the staff who deals with the transaction. Try to ascertain
the reason leads to the mistake.
 Request the transaction from creditors and bank statement
ASA 500.31 claims that the evidence from source outside and entity is more reliable than
evidence obtained solely from with the entity. Request the transactions from creditors and
bank and see if they were equivalent.