This assignment has three parts: Part A, Part B and Part C. In this document you will find: • General information about the assignment, • Details of your task for Part A, • Details of your task for Part B, • Details of your task for Part C, • A suggested template for your answer, and • The criteria rubric with which your assignment will be marked. General information about the assignment The assignment must be your own individual work; i.e. it is not a group assignment. If it is believed that a student has copied material from another student or any other source without appropriate referencing, the necessary action will be taken under the University's Student Academic Misconduct Policy: (http://www.usc.edu.au/explore/policies-and-procedures/ student-academicmisconduct-academic-policy). Therefore, it is critical that you provide complete referencing for any sources of information you use in preparing your assignment. This includes both in-text references and a list of references at the end of your assignment. Referencing should be in accordance with USC's guidelines for Harvard referencing. The assignment should only be submitted electronically via Safe Assignment on the course Blackboard site. If you wish to apply for an extension to your submission date, please email Kirsty Meredith ([email protected]) to explain the circumstances and attach any necessary supporting documentation. Late penalties will be applied for assignments submitted after 5pm on the due date without an approved extension. More details on late penalties are provided in the course outline. The word count for each of the three parts provides you with a guide to the approximate number of words that you should use for each part. The suggested total word count is 1,250 words. However assignments between 1,000 and 1,500 words in length will be considered acceptable. 2 Part A: Audit Planning (Approximately 500 words) You are planning the audit of Bob's Bikes and have accessed the preliminary trial balance for the entity. This is presented below. You would like to use this trial balance to identify accounts that are likely to require significant audit attention. Bob's Bikes Trial Balance Jul 1, 2015 - April 30, 2016 Jul 1, 2014 - Jun 30, 2015 Debit Credit Debit Credit Cash at Bank 98,751 102,503 Accounts receivable 124,320 112,000 Inventory 189,000 175,000 Machinery 65,000 65,000 Accumulated Depreciation 46,041 24,375 Motor Vehicles 65,000 65,000 Accumulated Depreciation 26,650 20,150 Furniture 7,500 7,500 Accumulated Depreciation 3,000 2,250 Bank Loan 215,000 215,000 Sales 201,515 187,450 Cost of sales 53,271 63,595 Consultancy fees 47,975 57,000 Other income 1,000 25,000 Interest income 40 50 Bank charges 290 350 Depreciation 28,916 15,590 Interest expense 8,958 10,750 Printing 210 250 Miscellaneous 2,000 - Wages 46,816 53,000 Superannuation 4,213 4,770 Owner's Equity 153,024 144,033 694,245 694,245 675,308 675,308 Your task: You must choose 5 accounts from the trial balance for audit testing. In doing so, you should:  Make a preliminary judgement of materiality,  Complete an analytical review using the trial balance,  Consider whether there are any accounts that should be selected regardless of their quantitative materiality, and  Provide a brief rationale for your selection of each of the 5 accounts. Please be sure to choose at least 1 revenue account, as this will be required for Part B. A suggested template for presenting your answer is included later in this document. This may require independent reading beyond the chapters indicated in the course outline. Materiality is covered in chapter 10 (week 6 lecture) and analytical reviews are covered in chapter 8 (week 3 lecture). 3 Part B: Sample Selection (Approximately 600 words) You are now further into the audit process. You have finished your audit planning, including gaining an understanding of the entity's internal control structure. You have decided to adopt a predominantly substantive approach for the revenue accounts and are now in the substantive testing stage of the audit. Your task: • Select 1 of the revenue accounts that you identified in Part A, • Access the General Ledger detail for that account from the file: GL extract for Part B.doc (Go to Blackboard: Assessment: Assignment), • Use one of the following sample selection techniques: random, systematic or haphazard, to select 5 transactions from the ledger account for further audit testing, • Explain/demonstrate how your chosen sampling technique resulted in the selection of these 5 transactions, and • Provide an explanation of the benefits of your selected technique (including the limitations of the 2 alternative techniques). A suggested template for presenting your answer is included later in this document. Part C: Considerations in Substantive Testing and Collecting Audit Evidence (Approximately 150 words) Your task: Please provide an answer to the following questions: 1. What might be your reason for adopting a predominantly substantive approach in Part B? 2. Which of the following assertions are you likely to be more concerned about for the account used in Part B: occurrence or completeness? Why? 3. Which of the following audit procedures would be more appropriate: tracing or vouching? Why? 4. Please list 1 other assertion that might be relevant for this account. 5. What evidence could you seek for the assertion you identified in question 4? You should list at least 1 example of corroboratory evidence and/or a specific audit procedure. 6. Assume your further testing revealed an error with one of the transactions you selected in Part B, specifically a misstatement of $20,000. a. Is this likely to be considered acceptable? Why/why not? b. Would the magnitude of the misstatement be relevant if you were doing tests of control rather than substantive testing? Why/why not? c. What other information would you need to know before projecting your results to the entire account balance? 7. Under which circumstances might it be considered acceptable to use a part-year trial balance, such as the one presented in Part A, for substantive testing? A suggested template for presenting your answer is included below. Sampling is covered in chapter 13 (week 8 lecture). We will discuss each of these 3 techniques in lectures and tutorials. Chapters 9 through 13 will assist you in answering these questions. These topics are covered in lectures in weeks 4, 6, 7 and 8. 4 A suggested template for your answer You may wish to format your answer as follows: Title page 1.0 Part A: Audit planning 1.1 Preliminary judgement of materiality 1.2 Analytical review 1.3 Five accounts selected and rationales 2.0 Part B: Sample selection 2.1 Explanation/demonstration of sampling technique 2.2 Benefits of selected sampling technique 3.0 Part C: Considerations in substantive testing and collecting audit evidence 3.1 Question 1 3.2 Question 2 3.3 Question 3 3.4 Question 4 3.5 Question 5 3.6 Question 6 3.6.1 6a 3.6.2 6b 3.6.3 6c 3.7 Question 7 List of references It is not necessary to include an overall introduction.