Auditing and Assurance Services

Auditing and Assurance Services

[Instructor's name]

Table of Contents

Audit Risk1

i.Accounts Payable1

ii.Commitments and contingencies1

iii.Inventory2

iv.Receivables2

Adjustments in the Auditing Plan3

Going Concerns Problems in Forest Ltd.6

Auditing and Assurance Services

TRIMESTER 1, 2012

INDIVIDUAL ASSIGNMENT 2

Required (a)

Audit Risk

The risk that errors will not be discovered by audit procedures and during accounting procedures material errors will occur is called audit risk. These risks involve both sampling and non sampling risks (www.ventureline.com).

Accounts Payable

Account payables are an entity's short term obligations that must be pay off to creditors. The audit risks related to accounts payables includes, inaccurate listing of accounts payables, unrecorded accounts payables, transactions processed in the wrong period (www.auditnet.org).

It might be possible that some of the inaccurate transactions in the accounts payable automatic system of the Forest Ltd. have been undetected by the accounting staff. So, the auditor must carefully examine all these transactions personally. Due to changes in currency conversion rates the amounts of accounts payable may be under or overstated. The auditor must check all the amount conversions.

Commitments and contingencies

A commitment is an expectation to confer bureau assets to a fate occasion that is ordinarily backed by a contract or citation, quantifiable and measureable, extendable over numerous reporting periods and tie gatherings to certain conditions.Contingencies are liabilities or (less usually) stakes that roll out from past or current occasions, and whose being can just be affirmed by the event, or non-event, of a destiny occasion outside the control of an office. It exists when payment may be accepted or payable to third gathering (www.treasury.qld.gov.au).

The result of sue by the injured protester is still uncertain and there is a huge chance that due to public pressure the court verdict will be in favor of the protestor. This damages claim could increase the liabilities of the Forest Ltd. The delay in shipment of woodchips to Japanese firm is also an audit risk as the company can deduct 20% from the total payment as compensation for delay in production.

Inventory

The goods that are considered to generate revenue and are current assets of the company. The audit risks associated with inventory includes, incomplete inventory records, process of inventory transactions may be in wrong periods, items do not exist, values may not be realizable, etc (docs.google.com).

Forest Ltd. may face inventory shortage as the current conveyor belt will last until December. The auditor must pay attention towards the useful life and condition of the conveyor belt. Another factor that can influence the auditor's report is the expected increase in the production cost.

Receivables

The audit risks related to receivables include, invalid bad debts write off, individual bad account receivable balances may not be accurate, process of transactions may be in wrong periods, receivables may not be the collectibles, etc (www.auditnet.org).

Due to delay in shipment the risk of uncollectable accounts will be increased and the previously recorded figures will not be reliable. Further, changes in currency conversion rates will also affect the amounts of receivables.

Required (b)

Adjustments in the Auditing Plan

To decrease audit risk to an acceptable level, the auditor ought to confirm for the most ...