Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 26

Using the audit process to plan and perform the audit. You are in charge of planning the audit for a large bookstore selling CDs, DVDs, and books. Follow the steps discussed in the chapter. Assume that you have agreed to perform the audit and an engagement letter has been signed. The client has a December 31 year-end.
You are planning the audit in September. The company expects revenue to be $1,675,000,000 and total assets to be $1,235,000,000 at year-end. Use these numbers to calculate materiality.
a. Describe an audit strategy appropriate for planning the audit.
b. Calculate the bookstore's materiality. Describe how you will use it in the audit.
c. Identify significant accounts and relevant assertions for them. How will you assess inherent risk and control risk for the significant accounts Assume that the bookstore leases its retail site and has no long-term debt.
d. Describe at least two analytical procedures you would perform during the planning process. What will you do with the results
e. Assume that control risk for inventory has been assessed at 0.50. How will you support this assessment What will happen if the results of the tests do not support an assessment of control risk at 0.50
f. What impact does the control testing have on substantive testing
g. Assume that during substantive testing, you found misstatements in net income equal to $2,837,000. What decision would you make regarding the financial statements What action would you take
h. Describe how you would determine the appropriate audit opinion for the client.