Details of your task
You are planning an audit and have access to the preliminary trial balance for your client. You would like to use the trial balance to identify accounts that are likely to require significant audit attention. Follow the directions to the appropriate worksheet.
Ryanco - Trial Balance
| |
|
Jul 1, 2016 - Mar 31, 2017 |
Jul 1, 2015 - June 30, 2016 |
| |
|
Debit |
Credit |
Debit |
Credit |
| Cash at Bank |
89,750 |
|
83,000 |
|
| Accounts receivable |
109,850 |
|
103,585 |
|
| Inventory |
164,500 |
|
174,000 |
|
| Machinery |
64,000 |
|
64,000 |
|
| Accumulated Depreciation |
30,207 |
|
24,000 |
| Motor Vehicles |
66,000 |
|
66,000 |
|
| Accumulated Depreciation |
40,913 |
|
21,000 |
| Furniture |
|
7,400 |
|
7,400 |
|
| Accumulated Depreciation |
2,760 |
|
2,220 |
| Bank Loan |
|
240,000 |
|
240,000 |
| Sales |
|
|
145,894 |
|
187,450 |
| Cost of sales |
44,288 |
|
63,595 |
|
| Consultancy fees |
|
44,438 |
|
57,000 |
| Interest income |
|
36 |
|
50 |
| Bank charges |
261 |
|
350 |
|
| Depreciation |
26,659 |
|
15,738 |
|
| Interest expense |
8,625 |
|
12,000 |
|
| Printing |
|
278 |
|
375 |
|
| Miscellaneous |
1,080 |
|
- |
|
| Wages |
|
39,428 |
|
53,000 |
|
| Superannuation |
3,746 |
|
5,035 |
|
| Owner's Equity |
|
121,616 |
|
116,358 |
| |
|
625,864 |
625,864 |
648,078 |
648,078 |
Your task:
You must choose six (6) accounts from the trial balance for audit testing. In doing so, you should:
- Complete an analytical review using horizontal analysis of the Income Statement and the Balance Sheet using the trial balance provided. Your analysis should include the gross profit margin, the net profit margin and one other ratio that you select. Explain why you have selected that ratio.
- Make a preliminary judgement of materiality using the blended Method. Complete an overall (for the financial report as a whole)
and performance materiality, justify your selected level and cite your sources.
- Use the analytical review and materiality assessment to identify accounts that are at-risk of material misstatement.
- Consider whether there are any accounts that should be selected regardless of their quantitative materiality, including one account that may be at-risk of fraud.
- Provide a brief rationale for the selection of each of the 6 accounts.
- For each account that you have selected, identify one assertion that is at risk (i.e. identify 6 assertions in total). Please include an explanation as to why the assertions are at risk.
- For each account/assertion briefly explain an audit procedure that could provide evidence relevant to the assertion.