Auditing Procedures: Bank Reconciliations, Provision For Doubtful Debts, And Property, Plant, And Equipment

Bank Reconciliations and Audit Objectives

After evaluating the current audit process, it is unreasonable for Daisy to expect the assurance from an audit. This unreliability is generated from inherent limitation of the audit process, which has been used by the professionals, while determining the nature, scope and time of the test. In addition, sampling procedures are used for collecting the audit evidence, while the evaluation of the conclusive nature of available evidence is evaluated. However, audit procedure allows the organisation to detect reasonable level of assurance in the auditors, report regarding the no material misstatement, which is found in the financial report.

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Moreover, the financial report is mainly calculated on the assumption that the organisation is a going concern, which increases the need for auditor test. With the auditors test relevant reasonableness of the assumption is conducted, while it is unreasonable to undertake the guarantee that the entity will continue the existence. However, bankruptcy of an organisation can occur unexpectedly after the publishing of the auditor’s report under unforeseen circumstances.

After representing the audit evidence there is a possible and reasonable expectation that the organisation does not have any kind of material misstatement in their annual report, as there is no presence of fraud or error. However, it is unreasonable to expect that no frauds or errors are being conducted within the organisation. Nevertheless, due to the limitation of audit process it is not possible for detecting the material fraud conducted by the organisation.

(a) The conclusion of the audit is considered incorrect for the following reasons:

  • The relevant measure is considered, as the errors are detected from the control breaches, which amount to immaterial, while the main issue is that the breaches have occurred.
  • The overall fact regarding the amendments that has been conducted by the client regarding the information provided by the audit staff is mainly considered irrelevant, as the main issue is regarding the breach which occurred.
  • The deviation rate or the tolerable rate is mainly at the levels of 5%, which can be ignored during the test evaluation. However, the actual deviation rate is mainly at the levels of 8.3%, which is higher than the tolerable rate and depicts that the controls are not operating effectively.

(b) On the other hand, audit assistance mainly concluded that there is no enough evidence of audit for relying on controls over payroll of the organisation.

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Key Controls

Test of Controls

Payments are not received by cash, instead cheque is used

The relevant handling of the receipt can be conducted for detecting whether no cash payments are accepted by the organisation. Moreover, adequate review of the deposit slips needs to be conduced for detecting the cash payments conducted by the organisation.

Daily cash receipt report is printed

Adequate review of the current accounting measure needs to be conducted for detecting evidence regarding numerical sequence of daily cash receipts

The cheques are agreed to cash receipt report

Adequate inspection of daily cash deposits and deposit slips needs to be conducted for identifying the daily reconciliation of the organisation. In addition, reperforming the reconciliation could help in ensuring effectiveness of the control.

Deposit of cheque needs to be daily

Adequate enquire needs to be conducted regarding the deposition of cash receipts, which has been conducted each day by the organisation.

The test of controls for Movies Galore are mainly affeered as follows.

  • The use of CAATs allows the organisation to check any automated controls, when there is lack of hard-copy documentation of sales.
  • The auditors can use the last year’s evidence for test of controls only if they can confirm that no changes in controls have been taken place. Moreover, the controls are mainly tested each year, where it needs to cover the current period of 12 months
  • The extent of the test is relatively high, while related controls are to be performed more than 3000 times per year. However, the extent of the test needs to be reduced, when there are no changes in controls detected. Hence, the extent of the test will be relatively low, as no changes has been conducted on controls.
  1. a) High risk assertions
  • Rights and Obligations: the transfer arrangements have some relevant concern, where the ownership of the funds within the bank account of Reliable Communication and its subsidiaries.
  • Existence: The transfer arrangements for cash is complex in nature, which may be accounted for twice.
  • Cut-off: The funds has mainly moved around year end, which increases the likelihood of cut-off.
  1. b) Procedures to test and detect the risks resulting from material misstatement
  • Rights and Obligations: Reviewing the transfer arrangements for understanding and determining the point, where the fund is owned by transferee/transferor.
  • Existence: Reviewing the bank reconciliation statement for detecting whether all the relevant outstanding deposits are received after the year end.
  • Cut-off: Reviewing the transfer schedules, bank reconciliation statement, and bank statement for detecting the transfer conducted between bank accounts, while understanding whether the accounts is accounted for transferee or transferor.

From the evaluation relevant audit procedures is used for indenturing subsequent events, which also includes the following measures.

  • The procedure relevantly reads about the board minutes and investigate regarding matters to be discussed in the meeting.
  • The procedure reads the current available interim financial report, cash flows, budget, and other management reports.
  • The procedure enquires about the legal matters.
  • The procedures also evaluate the relationship between build-up receivables, level of cash received from receivables, where doubtful debts are identified.
  • Evaluation of build-up inventory, sale volumes, and sales price of the merchandise is detected with subsequent balance date to identify the inventory obsolescence.
  • Identifying the journals regarding the development of high technology equipment’s that is being sold.
  • Reviewing of the data regarding the expansion of overseas operations, forecasts, economic review, and article regarding the overseas economies are conducted in the procedure.
  • Adequate review is conducted that management needs to display the material after balance date events and detecting whether events have occurred, which might affect financial report of the organisation.




Adjustment to the financial report

The fire mainly occurred before the year end, while the detection of the news by the auditor was after the completion of the audit report. However, the information was detected before the preparation of annual report, which compels the organisation to depict the information in the financial report. Nevertheless, there is insufficient information about the current valuation of inventory harmed in the event and the possible insurance claim made by the organisation. There is adequate risk regarding the going concern, due to the loss of forward sales by the company. Hence, the information regarding the incident was received after the reporting date, while it actual depicts the condition, which occurs at the reporting date.


Disclosure in the notes to the financial report

The occurrence of fire on 17 July is mainly considered to be a non-adjusting event. The event is considered non-adjusting because it occurred after the reporting date.


Take no action

There was no action taken, as the event did not occur at the time of preparing the auditor’s report. Moreover, the discovery of the report was only conducted after the completing the report, which nullifies any obligations for amending the financial report.

  1. i) The issue is considered material, while the report issued by the chairman will be considered materially incorrect. However, the financial report itself will be considered correct, as it holds the relevant information provided by both auditor and chairman in other information section. The occurrence of both information will result in the occurrence of unmodified opinion on the financial report, which will be enlisted in the Other Matter paragraph in the auditor’s report.
  2. ii) The issue is considered material, whereas the organisation failed to reflect the purchase, which was conducted before the year end. Hence, this ignorance will directly increase the material misstatement in he annual report of the organisation, due to the omission of purchase addition in the financial report. Therefore, adequate auditor opinion needs to be addressed by the organisation for understanding the material misstatement. Therefore, without the inclusion of purchases both inventory and liability section of the annual report will not be included.

iii) The issue is considered material, as the organisation failed to adjust the pay increase in their annual report, which increases the material misstatement condition in the financial report. Hence, the organisation needs to take opinion from qualified auditor regarding the changes in both expense and liability section of the financial report, as payroll accrual has not changed.

  1. iv) The client has not disclosed the information adequality, which makes the issue material. Hence, opinion of qualified auditor needs to considered by the client to disclose the material information.
  1. i) The auditors qualified opinion is mainly needed under the situation, where no enough audit evidence is detected, while preparing the audit report. The value of material involved is not considered pervasive, which initiates an opinion of a qualified auditor rather than the disclaimer of the opinion issued.
  2. ii) The issue of qualified auditor is mainly conducted when there is a difference in opinion with those charged for the valuation the accounts receivable of the organisation. In addition, the use of opinion of qualified auditors is only needed, when the amount involved is material not pervasive. Hence, when the situation arises the organisation needs to portray a qualified opinion rather than adverse opinion in their annual report regarding the issue.

iii) The situation indicates that the unmodified auditor’s opinion can be issued for the organisation, which is due to the presence of expert and adequate reliance on the information can be conducted by the auditor. The situation further indicates that the organisation enough evidence regarding the audit report has been depicted in the financial statement, which initiates the unmodified auditor’s opinion within the organisation. This mainly indicates that organisation has enough data for increasing the efficiency level of the financial report.

  1. iv) The situation directly indicates that an unmodified auditors report will be issued by the organisation, while a certain paragraph needs to be mentioned under Material uncertainty related to going concern. The paragraph will mainly address the situation of inherent uncertainty relate to the going concern, which needs to be disclosed adequately in the financial report. The adequate adjustments in the financial report is mainly conducted, when assumption regarding the going concern of the company is not appropriate.
  2. v) The situation indicates that adequate qualified auditors report needs to be issued by the organisation, as there is disagreement between the personas in-charged of governance. This relevantly lacks the disclosure regarding the accounting policies, which has been adopted by the organisation. In addition, the amount involved in the case is considered material but not pervasive. Hence, qualified opinion needs to be issued by the organisation rather than the adverse opinion.

(a) Appropriate Action

(b) Additional information to be obtained


Adequate adjustment needs to be conducted in 30 June 2015 financial report, as on 15 July 2015 additional evidence was seen regarding the valuation of the current liability. The data regarding the valuation of liability section has existed at balance date.

Relevant checking of invoice from supplier needs to be conducted with subsequent payments. This checking of payment from 30 June 2015 mainly helps in detecting the accuracy of the financial report.


Relevant adjustments need to be conducted for the financial report of 30 June 2015, when the warranty claims are mainly considered to be viable. The warranty claim has been detected from the sales conducted in May, as it existed before the balance date. However, the customers raised the problem during 28 June 2015, which is mainly considered as an adjusting event. Moreover, the auditor needs to consider relevant validity of the claims, which mainly depicts the likelihood of the claim. Therefore, it could be detected that liability or contingent liability exists, as the claim is disputed.

The checking of adequate legal actions regarding the customer solicitor needs to be conducted. In addition, checking of the likelihood for customers winning the case needs to be conducted, while adequate estimates of the cost also need to be detected.


The relevant adjustment needs to be conducted for 30 June 2015 annual report, as the regulatory approvals was given before the report preparation of auditor’s report, which is 28 July 2015. This additional information is regarding the valuation of investment that was detected at the balance date.

Adequate checking of the approval needs to be checked for regulatory authority. In addition, relevant review on the impact of the value of project needs to be conducted.


There is no action required, as the settlement date occurred after the financial report disclosure date. The settlement date occurred during 30 September 2015, which is mainly at the end of the auditor’s report.

The date of settlement confirmation was mainly after the singing and mailing of the auditor’s report.