You are an audit manager in an audit firm with 250 staff. Your firm is the auditor of Sunrise, a chain of Supermarkets. Your firm has been the auditor of this client for many years. All of the planning work and tests of control have been completed for Sunrise for the year ended 31 December 2003. Staffs are still working on substantive procedures. The company operates a continuous inventory checking system with good records and you have tested this system and will be relying on the records for the year-end balance. The company is intending to invest a substantial amount in opening new stores during the next year and it has been negotiating with both banks and property companies in relation to leases. Required: Describe the objectives of the following and how these objectives will be met in the audit of Sunrise: Overall review of financial statement and Review of working papers

i) Objectives and how they are met: overall review of financial statements

1. The objective of a review of financial statements is to provide the auditor with sufficient audit evidence, when taken together with the conclusions drawn from the other audit work, to form an opinion on the financial statements. This includes determining whether the information in the financial statements is properly presented and disclosed in accordance with accounting standards, legislation and other regulatory requirements. The usual means of achieving this is by the completion of a disclosure checklist.
2. Auditors should consider the appropriateness of accounting policies in particular and whether they have been consistently applied, particularly where changes have been made. There is no indication that any such changes have been made.

3. Auditors should also consider whether the financial statements as a whole are consistent with the auditor‘s knowledge of the business. This involves consideration of the aggregate effect of uncorrected misstatements, any overall bias in presentation and will normally involve analytical procedures on the final financial statements. This exercise involves the application of professional judgement and, in the case of Sunrise, it is likely to be carried out by the senior manager and/or the audit engagement partner with the assistance of the audit manager.

(ii) Objectives and how they are met: review of working papers

1. The objective of a review of working papers is to ensure that all work has been properly planned, executed and recorded and that all outstanding matters have been followed up.
2. In the case of Sunrise, it is likely that some work will have already been reviewed. It is common for audit seniors and audit managers to review the work of audit juniors, and for senior managers and partners to review the work of managers and seniors. There will also be a final partner review of the file.
3. Where working papers are prepared manually, staff normally evidence review of working papers by initialling the working paper. Review comments are often written in red and referred to the person preparing the working paper or to the partner where significant matters of judgement are concerned. Where papers are prepared electronically, electronic
‗signatures‘ can be used.
4. It is important that a detailed review of working papers takes place in areas that are critical to the audit. In this case, critical areas are likely to include inventory (despite the fact that it is well-controlled, it is still a material item), cash and non-current assets.
5. It is also important during the final stages of the audit of Sunrise that all outstanding areas (i.e. the substantive areas) are completed, reviewed and any issues arising followed up. It is very easy for apparently insignificant matters to ‗slip through the net‘ at this stage where both auditors and client are under pressure

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