Nt1310 Unit 6 Audit Case

a. It is very important and crucial for an auditor to have a better picture of the industry and the competence on this environment. An auditor should understand the business risks of its client’s business so they can assess any risks of any material misstatement of financial statements and determine whether it is due to any error or fraud. It is a continuing process an auditor should do throughout the entire duration of the audit. Also by an auditor understanding its client’s environment and entity, it gives the auditor an opportunity to extent, design and perform any further audit procedures. The auditor should make risk assessments and any other relevant assertion levels based on its right and suitable understand of its environment. Some …show more content…
This ratio tells us the amount of the current assets available to pay current obligations including paying invoices, employees and pay bank loan. The optimal value for this ratio is between 1.5 to 2.0. Also, to analyze liquidity risk we can calculate the level of networking capital. Net working capital shows the company’s current assets financed by the fixed capital and it is calculated as the difference between current assets and current liabilities. If the level of networking capital is high then the liquidity risk is …show more content…
The company has four types of inventory in which it includes finished goods, work-in-process, purchased components and parts. Inventory of finished goods has a larger amount in the trial balance, so we will asses that account. Assuming if the company manufactures computers, tablets, laptops, etc.; the five assertions are as follows:
• Existence (occurrence): Medium
Inventories included in the financial statement exist and represent items held for sale in the business. Electronic devices can be stolen by employees or by costumers for personal use or to sell them. Employees can also steal raw material to sell or to take home. Auditors need to inspect physical inventory items and check inventory records. We can apply analytical procedures and confirm if any stock is somewhere else like another company branch.
• Completeness: Medium
Inventory quantities include finished goods or in transit. Inventory listing are accurately complied and properly included in inventory accounts. To achieve this, we need to inspect physical inventory items and check inventory records. We can apply analytical procedures and find out in stock is being held in another branch.
• Ownership (rights and obligations):

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Nt1310 Unit 6 Audit Case