Cloud 9 Assignment 3.docx - ACC562 Cloud 9 u2013...

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Megann Gulrud ACC562 Cloud 9 – Assignment 3 Dr. Bunney Schmidt
Cloud 9 – Continuing Case When Cloud 9 opened their first store some of the accounts that were affected included; accounts receivable, inventory, sales revenue and cash at bank. Careful planning an consideration is required by the auditor because of the potential problematic areas likely to increase the audit risk. These areas require more attention and detailed substantive testing to be carried out. For instance, existence of bad and doubtful debts in relation to account receivable which would require the auditor to carefully determine the adequacy of suck provision. The auditor can examine evidence justifying the provision of bad debts by reviewing the payment records of the debtors. The auditor’s objective regarding inventory is to ensure that the inventory has a properly calculated net realizable value and that it is recorded in the company’s books at a lower cost and net realizable value. The existence of provision for obsolete, damaged and slow-moving items which reduces the inventory value, increases the audit risk because of the subjective basis to which their value is determined. Therefore, the auditor will have to ensure that they are not excessive or inadequate. The auditor may be guided by existing market conditions, age and nature of the inventory items. Potential irregularities that are likely to affect the audit risk in relation to sales revenue is the invoicing errors which lead to exposure to misstatements, misappropriation of cash and disputes with customers. The presence of such errors will call more

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