ACC311 Fundamentals of Auditing GDB No. 1 Solution Fall Semester 2013

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ACC311 Fundamentals of Auditing GDB No. 1 Solution Fall Semester 2013


Audit Sampling Techniques and Verification of Expenses

Learning Objective: To enhance understanding regarding the sampling techniques in audit and verification of expense accounts.
Learning Outcome: After going through this activity, the students should be aware of the sampling techniques and the process applied to verify the expenses during audit.
The Case:
M/S Chartered Accountants (CA) - a well reputed audit firm with high QCR rating from ICAP provides its auditing and consultancy services to different business organizations in Pakistan. Limited Manufacturing Company (LMC) appointed CA as auditor of the company for the audit of FY2012. During the audit, CA used the judgmental sampling technique in order to find out any material misstatement that may have occurred in the financial statements of LMC.The similar sampling technique was also adopted for the valuation of two major building of the company located few miles apart. CA applied the sampling technique to verify the transactions that were expected to have high level of risk.

It was revealed during the course of the audit that the interest on loan borrowed for construction of the plant used for production purposes has been debited to the cost of that plant. Further, the accrued expenses were not recorded in the financial year under review as outstanding payments were made in the first week of the next financial year.
Required:
Keeping in view the above scenario; you are required to answer the following:
The judgmental sampling technique is appropriate for the auditing of buildings value and highly risky transactions or not? Explain with logical reasoning.
Interest is an expense but the accountant of the company has capitalized it as the value of plant. Being an auditor what do you think that this action of accountant is permissible or not? Explain with valid arguments as per relevant IAS.
You are required to evaluate whether treatment of accrued expenses by the accountant is justifiable? Support your evaluation with relevant accounting norm.

Important Instructions:

1. Your discussion must be based on logical facts.
2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
3. Obnoxious or ignoble answer should be strictly avoided.
4. Questions / queries related to the content of the discussion board, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of discussion board is over.
v For detailed instructions please see the discussion board announcement