Reference no: EM133932943

Advanced Auditing

LO 1: Apply the audit procedure on selected items of financial statements
LO 2: Analyze auditor's report on financial statements

Apply the audit procedure on selected items of financial statement

Case 1- Inventory Reporting Issues Analysis
Search the audit reports of companies listed on the ADX (Abu Dhabi Securities Exchange) or DFM (Dubai Financial Market) to identify a company that has been recently cited for financial reporting problems specifically related to inventory management.
Required Deliverables

Research Memo
Summarize the inventory-related issues identified in the audit report
Include key details about the company and the nature of the inventory problems
Provide context about the findings, materiality, and auditor's opinion
Supporting Documentation
Screenshot(s) from the company's audit report highlighting the inventory issues (e.g., qualified opinion, emphasis of matter, key audit matters related to inventory)
Screenshot(s) showing the relevant financial statement notes or disclosures about inventory
Ensure all evidence is clearly labeled and referenced in your memo

Case 2. Property, Plant & Equipment (PPE) Reporting Issues Analysis

Search the audit reports of companies listed on the ADX (Abu Dhabi Securities Exchange) or DFM (Dubai Financial Market) to identify a company that has been recently cited for financial reporting problems specifically related to Property, Plant & Equipment (PPE).
Required Deliverables
Research Memo
Summarize the PPE-related issues identified in the audit report
Include key details about the company and the nature of the PPE problems
Provide context about the findings, materiality, and auditor's opinion
Supporting Documentation
Screenshot(s) from the company's audit report highlighting the PPE issues (e.g., qualified opinion, emphasis of matter, key audit matters related to PPE)
Screenshot(s) showing the relevant financial statement notes or disclosures about PPE
Ensure all evidence is clearly labeled and referenced in your memo

Case 3- Payroll Audit Case

You are auditing Al Noor Trading LLC for the year ended December 31, 2024. The company has 52 employees and processes monthly payroll using a local accounting software. Get top-notch online assignment help.
During your audit testing of payroll transactions for November 2024, you discovered the following:
Finding:
Employee #189, Ahmad Hassan, appears on the November 30th payroll register with a salary of AED 8,500
When you requested his personnel file and labour card copy for testing, the HR coordinator informed you that Ahmad Hassan's employment was terminated on October 15, 2024
His final settlement (including end of service gratuity) was processed on October 31, 2024
The AED 8,500 November salary payment was transferred via WPS (Wage Protection System) to the same bank account used for his previous salary payments
The payroll officer, Khalid Ali, has been with the company for 6 years and handles all payroll processing independently
Additional Information
Khalid Ali is responsible for:
Registering new employees in the MOL system
Processing visa cancellations and final settlements
Entering monthly salaries into the payroll system
Preparing and uploading WPS files to the bank
Maintaining employee records and labour cards
Reconciling the payroll bank account
Department managers submit monthly attendance sheets to Khalid via email
The Financial Controller reviews the total payroll amount monthly but doesn't verify individual employee details against HR records

Required:
Draft an audit finding memo (10 marks) that includes:
The misstatement identified - What is wrong and what is the impact?
Control weaknesses - What internal control failures allowed this to happen?
Recommendations for management - How can they prevent this in the future?

Case 4 & 5:

Scenario
You are auditing Desert Tech Solutions LLC's trade receivables balance of AED 2,850,000 as of December 31, 2024. The total balance has been agreed to the sales ledger which shows that trade receivables consist of individual customer accounts. Get top-notch online assignment help.

A junior auditor has been testing a sample of 6 customer balances by sending confirmation requests. Five responses have been received and agreed without issues. However, one customer - Emirates Digital Systems LLC - has not responded. This customer owes AED 485,000, representing a material balance (17% of total receivables). The junior auditor has asked for your guidance on alternative audit procedures to verify this balance.

Sales Ledger Extract: Emirates Digital Systems LLC
Customer: Emirates Digital Systems LLC
Credit terms: Net 60 days
Credit limit: AED 600,000

Purchase Ledger Extract from Emirates Digital Systems LLC

On Desert Tech's sales ledger, invoices marked with status 'Paid' show payment received. Invoice INV-3842 (AED 210,000) remains unpaid and overdue by 43 days as of year-end.
Emirates Digital Systems has credit terms of Net 60 days with Desert Tech. They receive a 3% early payment discount if payment is made within 30 days of invoice date.
Emirates Digital Systems' Supplier Statement (received by them)
Supplier: Desert Tech Solutions LLC

Additional Information:
Goods received notes (GRNs): Emirates Digital Systems' receiving department inspects all goods upon delivery and issues GRNs. These are matched to purchase orders before invoices are approved for payment by their accounts department.
Dispute details: Emirates Digital Systems claims that 15 units (out of 50) of hardware supplied under INV-3842 were defective. They issued a goods return note on December 10, 2024 and requested a credit note for AED 35,000.
Desert Tech's records: The credit note CN-156 for AED 35,000 was processed on December 15, 2024 but was not posted to the sales ledger due to a system error. It appears in the credit note register but not in the customer account.

Required:
Case 4-A. Prepare a reconciliation statement explaining the difference between:
Desert Tech's receivables ledger balance: AED 485,000
Emirates Digital Systems' payables ledger balance: AED 183,250

Case 4-B. For each reconciling item identified, describe the audit work you would perform to verify the item and determine the correct receivables balance that should be included in Desert Tech's financial statements.

Case 5-C. Draft an audit finding memo highlighting:
The misstatement identified
Control weaknesses that led to this error
Recommendations for management

CLO 4: Analyze auditor's report on financial statements

Long Case:
Case Study: GreenEarth Manufacturing Ltd.

Background
GreenEarth Manufacturing Ltd. is a mid-sized company specializing in eco-friendly packaging solutions. Established 15 years ago, the company has recently expanded its product line and increased its production capacity. The management is seeking external audit services for the fiscal year ending March 31, 2024, to comply with regulatory requirements and to prepare for potential external investment.
Financial Information
Income Statement (in millions)
Revenue: AED350
Cost of Goods Sold: AED220
Gross Profit: AED130
Operating Expenses: AED90
Net Income: AED40
Balance Sheet (in millions)
Total Assets: AED600
Total Liabilities: AED400
Total Equity: AED200
Audit Findings
Revenue Cut-off Issues: Sales recorded for shipments made after the year-end were included in current-year revenue, inflating the figures by AED8 million.
Environmental Liability: The company has a legal obligation to remediate certain manufacturing waste sites, estimated at AED30 million, but this liability is neither accrued nor disclosed.
Fixed Asset Valuation: A major production machine, purchased three years ago for AED25 million, has not been depreciated correctly; accumulated depreciation was understated by AED5 million.
Inventory Obsolescence: Certain raw materials related to discontinued product lines are still recorded at cost, overstating inventory by AED7 million.
Related Party Loans: The CFO extended a short-term loan of AED12 million to a company partially owned by a board member, which is not disclosed in the notes.

Task
As the auditor, your responsibilities include:
Assess the materiality and impact of each issue.
Determine the potential impact on the financial statements
Evaluate the overall fairness of the financial statements.
Prepare an audit report, including your opinion on the financial statements.
Draft an executive summary and a presentation for management, highlighting key findings and your audit opinion.
Suggest improvements to internal controls to avoid similar issues in the future.
Considerations
Materiality threshold: AED4 million
Evaluate cumulative effects on financial statements.
Consider management's attitude toward disclosure and adjustments.