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This Assignment is designed to give you an opportunity to:
1. Apply theoretical accounting knowledge and skills to solve non-routine accounting problems to the level of threshold learning outcomes for auditing through assessment tasks.
2. Understand and apply the various auditing standards and procedures in the conduct of an audit.
3. Demonstrate and apply technical skills in auditing techniques and judgement skills required of an accounting professional engaged in audit.
4. Demonstrate an understanding of the audit process, beginning with the planning phase, through the documentation stages, to the testing, evaluation and reporting stages.
5. Understand and apply the various auditing standards and procedures in the conduct of an audit.
6. Understand the principles and application of audit sampling techniques and
7. Understand and apply the concepts of internal controls and audit testing procedures.
a) Describe what is meant by a 'sampling unit'.
b) State an effective audit procedure for testing the possibility of omitted sales for SEQ Ltd. What is the sampling unit?
c) State an effective audit procedure for verifying the existence of recorded sales for SEQ Ltd. What is the sampling unit?
d) Explain why the sampling unit for testing the possibility of omitted sales might differ from the sampling unit for verifying the existence of recorded sales.
e) Margorie Smith, an accounting graduate and junior member of your audit team for SEQ Ltd, performed tests of controls and substantive tests of transactions of sales for the month of September in an audit of SEQ Ltd's financial statements for the year ended 30 June 2015. Based on the excellent results of both the tests of controls and the substantve tests of transactions, she decided to significantly reduce her substantive tests of details of balances at year end. Evaluate this decision.
SEQ Ltd is a medium-sized distributor that provides IT hardware. It has been one of the clients for many years and was rewarded for the best internal controls for sales. The company policy is that goods cannot be removed from the warehouse without showing a warehouse removal slip. One day after the shipment of goods, two copies having warehouse removal slip were sent to the billing section for computerizations of sales invoices. In that time, one copy was stapled with the duplicate copy of the sales invoice that was pre-numbered and another copy was filed manually. In most of the cases, the same removal slip is used many times for billing sales invoice. The objective is to testing the possibility of omitted sales and verifying the existence of recorded sales for SEQ Ltd.
The sample item that is selected by the auditor from the population item is called a sampling unit. The major motive of defining the sampling unit while doing audit testing is to meet the objectives of the audit tests (Sullivan, Jerry, 1985). Hence, planned audit procedures and the term population are usually used to identify the appropriate sampling unit. It is the unit in which population size is divided into a number of sample units for the purpose of sampling. For selecting the items for the sample, the auditors calculate the interval based on the interval size. Each unit is selected with regard to indivisible and individual. A sampling unit in the context of sampling theory is the minimum unit of sample for information of observative operations.
An effective audit procedure for verifying the existence of recorded sales for SEQ Ltd would be tests of controls. Test of controls is an audit procedure that is used to test the efficiency of controls by a client in correcting, detecting, or preventing the errors that occur in material misstatements. Examples for a test of controls for sales are: Examine the numerical series of sales invoices, any break in the sequence of sales are noted down and then enquire is done with the management about the missing invoices (Scott, et al., 1997). A sample of sales invoices is considered as a proof of authorization for any discount allowed by a responsible official. Inspect the statements of customer to use as evidence for preparation of statements. The sampling unit taken for verifying the occurrence/existence of recorded sales for SEQ Ltd will be the entries in the sales journal as the auditor validate the recorded sales using this document.