Audirt

4.5

It is the manager’s responsibility to provide important information regarding to the financial status of the company and to prepare the financial report with true and fair view. However, the auditor should not fully rely on the information provided by the manager because the auditor is also responsible to discover material misrepresentation by management according to ASA200. The issues listed in the comments including obsolescence of inventory, collectability of accounts receivable and continued usefulness of machinery and equipment are difficult to be detected, but the auditor should contribute reasonable effort to discover these problems in other ways in addition to expecting managers providing truthful response.

Obsolescence of inventory means the value of the stock is lower than it is shown on the balance sheet because of overstocking or lack of demand for it(). This kind of stock may be unsalable but commonly not recorded until it is actually removed. There are several strategies auditors can adopt to identify the obsolescence of the inventory. Observation which requires the auditor visit the place of stock stored is an effective way to discovering obsolescence of inventory(). If the place is far from the shipping dock, it may indicate the product is obsolescence or at least slow-moving. Also, check the dust on the inventory, check if the container is water-damaged, check the date on packaging or any physical count tag and any rust on the product can help auditor to identify obsolescence of inventory. In addition, auditor may have an informal chat with the warehouse staff and get some information that the manager does not provide.

The collectability of account receivable should be examined from four aspects including existence, completeness, valuation and allocation and rights and obligation according ASA315. The auditor should firstly make sure the account receivable existed at balance date. In order to do that, the auditor can confirm the transaction...