Question 1: Purpose of audit procedures
Daryeel Construction Company (DCC) is an engineering company with good control environment and well documented procedures. As part of the team engaged in the audit of the company's financial statements for the year ended 31, December 2016, you are aware of that various members of the team have carried out detailed audit procedures.
Required:
For each procedure listed below, explain the purpose of carrying it out
1. Forwarding of bank confirmation request letter to DCC's bank
2. Examination of supplier statement balances as of 31 December, 2016
3. Cut-off tests on inventory, purchases and sales
4. Analytical procedures at the final review stage of the audit
Question 2: Inventory Count
United Basic Industries (UBI) Co., a long standing audit client of Qasim Accountants & Co. will prepare its next set of annual financial statements to 31 December, 2016. On that date, the Company will carry out full inventory count and in future the company will rely on a system of continues inventory count procedures as a bases for the inclusion of inventory in its financial statements.
The manager in charge of the audit is now planning the audit of inventories as at 31 December, 2016. Prior to that date, as part of ongoing development, several junior member of the audit team will attend a training course on auditors' attendance at inventory count. The course will cover procedures to be carried out before, during and after the inventory count
Required
1. Describe the major benefits normally associated with continuous inventory count procedures as compared to a year-end inventory count.
2. State FOUR conditions that would need to apply to the continuous inventory count procedures of United Basic Industries, if they are to be acceptable as a basis for inclusion of inventories in the company's financial statements.
3. State SIX procedures that the audit manager in charge of the audit should undertake when planning the audit coverage of the inventory count on 31 December, 2016.
4. State how both your audit firm and individual employees may benefit from their attendance on the training course.