Auditing Assignment 1

Topics: Depreciation, Financial audit, Auditing Pages: 3 (998 words) Published: May 5, 2012
Substantive testing involves directly obtaining audit evidence to detect material misstatements at the assertion level. It is different from tests of control as we do not rely on the internal controls to detect or prevent material misstatements. Substantive testing is divided into two parts which are analytical procedures and tests of detail. Analytical procedures involve comparing accounting information with previous years, budgets and the ratio analysis, whilst tests of details focus on testing the account balance and transactions. There are various procedures that the Auditor can carry out to obtain sufficient and appropriate audit evidence to assess whether the equipment have been fairly and truthfully valued under AASB 116 or impaired correctly under AASB 136. The main assertions at risk are the existence, rights and obligation and valuation/allocation assertions. One of the main procedures carried out would be the physical examination of the equipment themselves. This would confirm that equipment recorded on the balance sheet actually exists and identify any unrecorded or unutilized equipment that exists. Additionally, it allows the auditor to assess the condition of the equipment on its face. This includes assessing whether it is damaged or not and if the company actually impaired the equipment to reflect the recoverable amount if there actually was damage. Thus this would verify the existence, completeness and valuation/allocation assertions. Substantive analytical procedures are useful for examining equipment as well. The auditor can compare the balances of equipment with previous years and budgets to detect changes or trends for the auditor to focus on. Changes that can be detected include miscalculating the depreciation expense for the year if there was a large increase or decrease in depreciation, change of depreciation methods and purchase or sale of equipment. Recalculating the depreciation expense is a method of verifying that depreciation has...
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