Unit 17 Audit HELP!!!

Yestin

Hi Everyone,

I have just sat my Unit 17 and know I failed it, can someone please tell me if they have the answers for the following as Im sure they will be in my re-sit!!!

Substantive tests to make sure:
Stock is recorded at the correct quantity
Only stock owend by the company is recorded
Stock is recorded at the lower of cost and net realisable value.

Also:

Four factors you would take into account when establishing a sample size

Thanks. :crying:

Steve Collings

Hi Yestin,

You don't know you have failed yet, so don't be so hard on yourself!

I don't want to give you the answers in the event you do fail because that will defeat the learning process. I can point you in the right direction so you can handle any subsequent questions based on the questions in your post.

Stock is recorded at the correct quantity:

Think about a company with a 31st March 2009 year end. Stock will be counted on that date. What procedures would the auditor adopt to ensure that the stock was correctly recorded on that date? How would you satisfy yourself that the entity had (say) 30 items of stock on 31 March 2009 and not 10?

Only stock owned by the company is recorded:

Think about the assertions here (ie. rights and obligations). How would you check that the entity had the right to ownership? Look up issues such as 'consignment stock'. That will point you in the right direction.

Stock recorded at lower of cost or NRV

This is an IAS 2 issue. Link this in to how you would verify the stock in your first point (stock recorded at the correct quantity). Think about things like values placed on obsolete stock or slow moving items or damaged items. Think about what IAS 2 is telling us.

If stock is valued at $10 but realistically we can only sell it for $3 then we must value it at $3 to accord with IAS 2. How would you check the valuations placed on this stock. Think about what constitutes 'cost' in IAS 2: cost of purchase, conversion costs and 'other costs'. How would you determine what these costs are? How would you ensure they have been included in stock valuation.


In summary, put yourself in the role of auditor and think about what you would do if I asked you to go and do the above 3 tasks yourself in real life.

Regards
Steve

Yestin

Thanks Steve, you have been a great help.