Asa Tut8
Tutorial 8
10.20 You are an assurance services senior and your client is Antique Collectibles Pty Ltd (AC), a small company that specialises in buying and selling antique Australian-made bush furniture. AC purchases pieces at auction, cleans and repairs them, then sells them to the general public. This is the first year that your firm has conducted AC’s audit.
AC is a small owner-managed business that does not have complex organisational structure or an advanced information system. Due to the size of the entity, there is very little separation of duties at AC, and most employees at AC are related to the owner. AC tends to focus purely on sales and market share, and the owner has admitted that, at times, he has treated the finance department as a bit of an afterthought.
He has also admitted that he hasn’t paid much attention to the controls at AC, as he trusts the staff members, due to their relationships to him.
Required
Describe whether the auditor will take a substantive approach or a combined tests of controls and substantive approach to the audit. Explain your answer, with reference to the background information and to ASA 330.
ASA 330.7a states that the auditor, when designing further audit procedures shall 'consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions and account balance, including the likelihood of material misstatement due to the particular characteristics of the relevant class of transactions or account balance'. In other words this paragraph is referring to the inherent risk of the company. NOT RIGHT
The auditor should use ASA 330.7a and the background information provided as guidance for determining the most appropriate audit approach. AC is a straightforward small business where staff members are related to the owner. This information supports a low inherent risk assessment, as the chance of material misstatements is low. However there is little
10.20 You are an assurance services senior and your client is Antique Collectibles Pty Ltd (AC), a small company that specialises in buying and selling antique Australian-made bush furniture. AC purchases pieces at auction, cleans and repairs them, then sells them to the general public. This is the first year that your firm has conducted AC’s audit.
AC is a small owner-managed business that does not have complex organisational structure or an advanced information system. Due to the size of the entity, there is very little separation of duties at AC, and most employees at AC are related to the owner. AC tends to focus purely on sales and market share, and the owner has admitted that, at times, he has treated the finance department as a bit of an afterthought.
He has also admitted that he hasn’t paid much attention to the controls at AC, as he trusts the staff members, due to their relationships to him.
Required
Describe whether the auditor will take a substantive approach or a combined tests of controls and substantive approach to the audit. Explain your answer, with reference to the background information and to ASA 330.
ASA 330.7a states that the auditor, when designing further audit procedures shall 'consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions and account balance, including the likelihood of material misstatement due to the particular characteristics of the relevant class of transactions or account balance'. In other words this paragraph is referring to the inherent risk of the company. NOT RIGHT
The auditor should use ASA 330.7a and the background information provided as guidance for determining the most appropriate audit approach. AC is a straightforward small business where staff members are related to the owner. This information supports a low inherent risk assessment, as the chance of material misstatements is low. However there is little