Stan Ross Department of Accountancy Harvard Case Solution & Analysis

Stan Ross Department of Accountancy Case Study Solution

Test of Control

The Stan Ross Accountancy, is a financial organization who’s all of the audit procedures are performed at the year end. The risk of material misstatement related to the accuracy & completeness is assessed as low. But as in case due to the nature of controls as they are mostly automated, we refer to AU-C 330. 08, that provide the following guidelines

The Auditor should design & perform test of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls as,

1. The assessment of the risk of material misstatement at the assertion level is assessed as low, and the controls are operating effectively, but due to the nature, timing & extend of transactions,
2. Substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level

Therefore we as auditor rely more on alternative audit procedure as controls are automated and it would not be possible for us being auditor that we could obtain appropriate audit evidence by performing substantive procedure alone.

In designing and performing tests of controls we,

• Perform audit procedures in combination with requests to obtain audit evidence about the operating effectiveness of the controls including.
• Assess how the controls were applied at relevant times during the period under audit.
• The consistence with which they were applied.

Substantive procedures

As in the case of valuation of complex securities as of year-end is a significant risk. The auditor should perform substantive procedures that are specifically responsive to that risk, when the approach is to substantial risk consists, the auditor should perform test in detail. AU-C 330. 18 provides the following guidelines:

.18       Irrespective of the assessed risk of material misstatement, the auditor should design & perform substantive procedure for all relevant assertions related to each material class of transactions, account balance & disclosure.

• Asin this case the substantive procedures are performed for the interim period than the substantive along with test of controls should be performed for the intervening period.
• As the investment securities contains 10 items with very high values and they constitute a high proportion of total value of securities the auditor may select specific items with in a population on a sample basis as they are of very high value and exhibit some other characteristics.
• The auditor may also decide to select items over a certain amount, to examine those items whose values recorded in the books of account exceed a certain limit
• As the controls in this area are designed and operated effectively and risk of material misstatement related to securities is also assessed at year-end as moderate, the auditor should determine a materiality level for high proportion of low value items and if the items are above the materiality level than the auditor should perform further alternative audit procedure on them..................

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