Audit of the estimated warranty liability, Auditing

Assignment Help:

Required: Describe a complete audit program for collecting relevant evidence for the audit of the estimated warranty liability.

Approach: Develop specific assertions related to warranty liability based on the five principles.
Ans:

  • Financial statement assertions are the representations of the directors that are embodied in the financial statements. By approving the financials statements, the directors are making representations about the information therein. These representations or assertions may be described in general terms in a number of ways.
  • ISA 500 states the ‘the auditor should use assertions for classes of transactions, account balances, and presentation and disclosures in sufficient detail to form the basis for the assessment of risks of material misstatement and the design and performance of further procedures'.
  • Following paragraphs describes the specific assertions related to warranty liability based on the five principles of quality of audit evidence i.e. External, Auditor, Entity, Written and Originals:
  • External: Audit evidence from external sources is more reliable than that obtained from the entity's records. The assertions from outside sources about the warranty liability are the most factual and real and will be considered at high priority by the auditor.
  • Auditor: Evidence obtained directly by auditors is more reliable than that obtained indirectly or by inference. The direct retrieval of information by the auditor from the management and those charged with governance will be more valid than from indirect resources.
  • Entity: Evidence obtained from the entity's records is more reliable when related control system operates effectively. Next comes the order of entity records if there is strict internal control system operating in the environment.
  • Written: Evidence in the form of documents (paper or electronic) or written representations are more reliable than oral representations. Everything in written is more valued than in verbal. Same is the case with warranty liability. If there exists documentary evidence, then that will be highly acceptable.
  • Originals: Original documents are more realistic than photocopies, or facsimiles. If warranty liability original documents are present then it will be a valid proof of its existence and vice versa.

 


Related Discussions:- Audit of the estimated warranty liability

Code of ethics for auditor, B. The following situations involve a possible ...

B. The following situations involve a possible violation of the MIA ByLaws (on professional ethics, conduct and practice). For each situation, (1) decide whether or not the Code ha

Internal control - investment, Internal Control - Investment Whether a...

Internal Control - Investment Whether a trading concern holds merely a few investments, there is unlikely to be any organized internal control systems particularly for those i

Audit risk and business risk, Audit Risk and Business Risk We saw in ea...

Audit Risk and Business Risk We saw in earlier studies that audit risk is often categorized as the product of inherent risk, control risk and detection risk. Auditors should

Briefing paper on the issues facing established audit firms, Case Study: ...

Case Study: You have commenced work as a graduate auditor with a well established audit firm. The firm has a wide client base, which includes some of the largest companies in t

Disclosures about inventories - ias 2, Disclosures about Inventories - IAS ...

Disclosures about Inventories - IAS 2 IAS 2 specifies disclosures about inventories. In a large manufacturing company, no article in the balance sheet appears verification

audit tests and recording items in the audit, With reference to the case s...

With reference to the case study business, identify appropriate audit tests to be carried out. Prepare a statement of the work to be carried out and the manner in which it will be

Risk - controls and audit tests, Internal Audit has been asked by the State...

Internal Audit has been asked by the State to review the activities of The Commission on Workforce Development

audit evidence, Determinants of amount of audit evidenc

Determinants of amount of audit evidence

Assertions about classes, Assertions about classes Assertions about ...

Assertions about classes Assertions about classes of transactions and events for the period under audit : a) Occurrence -events and transactions which have been recorde

What do you understand by yellow book, Q. What do you understand by Yellow ...

Q. What do you understand by Yellow Book? Yellow Book - Written by GENERAL ACCOUNTABILITY OFFICE, yellow book sets forth standards to be followed in auditing FINANCIAL STATEMEN

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd