Chapter 14 (Case Studies)

Question 1

What course of action Auditor should do if confirmation request sent by client?

Answer 1

Auditor should send confirmation request again to confirming party

Question 2

What Steps Auditor should do if reply received by client?

Answer 2

1) Auditor need to send confirmation request again to confirming party
2) Auditor should ask confirming party to send confirmation directly to auditor
3) if confirming party do not send confirmation directly to auditor then auditor should perform alternative substentive procedures to obtain evidence

Question 3

If a debtor goes into liquidation then what procedures auditor should perform?

Answer 3

1) The correspondence between liquidator an management should be reviewed to assess whether there is any likelihood of collection
2) Review the post-year end period to see if any payments have been received from customer

Question 4

If debtor is bankrupt then what procedures should be performed?

Answer 4

1) Auditor should check provision relating to debtor
2) Auditor should check basis of provisions for debtor

Question 5

Should Auditor check immaterial misstatements

Answer 5

Yes, Auditor should check immaterial misstatements. Although misstatements are immaterial but the impact of these misstatements may be material.

Question 6

Consignment of RS 500000 shipped on 27 December and RS 350000 were returned subsequent to year-end. What steps auditor should do?

Answer 6

1) Auditor shall inquire from management the reasons of returns of goods. in case of adjusting event (e.g. defective goods, fake transactions) sales of goods should be reversed, and goods should be included in stock
2) To ensure correct amount is reversed, auditor should inspect related sales invoices
3) If goods are defective, these should be included at NRV. in such case, auditor should also check whether defect of inventory also effects other inventory items. If so, inventory may also have to be stated at NRV. In case of manufacturing fault, impairment testing may also required.

Question 7

Consignment of RS 100000 was shipped on 31 December 2018 and received by customer on 01 january 2019. what steps required by auditor?

Answer 7

This seems timing difference
1) Auditor should check Goods dispatch Note, Goods Receive note and date of acknowledgment by customer to confirm the date of delivery and receipt of goods