In confirming accounts receivables existence, the auditor can decide to use either management statement regarding balances or confirm balances from clients. However, it is reliable to confirm the balances from the clients. This is because the management may have received money from clients and put it under personal use to pay it later thus failed to write off some debts (Millichamp, 2002).
In confirming inventory existence, it is more reliable for the auditor to count inventory than to allow the client to count it. This is because the client’s staff may collude to show that the counted inventory is equal to the amount showed in store records and closing stock. Thus, the auditor will be unable to discover any obsolete stock that may be included in closing stock if he relies on client’s staff to count stock (Millichamp, 2002).
In determining completeness of expense, it is more reliable to use vendor invoices than client journal print-outs. The use of vendor invoices avoids errors incurred in recording expenses. Moreover, client’s staff may enter a non-existing entry in the journal to claim some money from the firm (Millichamp, 2002).
In the valuation of fixed assets and depreciation expense, it is more reliable for the auditor to use purchase contract and auditor recalculations of depreciation than client’s depreciation schedule. The auditor use of purchase contract and his recalculations gives an opportunity to cross-check the accuracy of client’s computation of depreciation. Moreover, the auditor can check whether the stated depreciation policy is the one applied in calculating depreciation of each class of assets (Millichamp, 2002).
Part Two
A recalculated depreciation schedule should contain several characteristics to be considered good audit documentation. First, it should contain the rate of depreciation charged in each class of assets. Second, it should show the balance brought forward at the start of the year and respective accumulated depreciation. Third, it should show the balance carried down at the end of the year. Fourth, it should show assets bought during the year and their depreciation. Lastly, it should show assets sold during the year (The global body for professional accountants, 2005).
References
The global body for professional accountants. (2005, March 3). Audit evidence and specific
considerations for certain items. Retrieved March 02, 2016, from http://www.accaglobal.com/us/en/discover/cpd-articles/audit-assurance/specific-considerations.html
Millichamp, A. H. (2002). Auditing. London: Continuum.
