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Dear Sir,
When the question states that the only audit procedure performed for a loan transaction is agree the cash payment to the cash book, how can I comment about the sufficient of audit evidence obtained?
I know this evidence is not sufficient, but I do not know how to detail explain.Thanks
Here is the full question: Comment on the sufficiency of evidence obtained.
Weddell Co made a loan of $6,000 to Mawson (CFO) in Mar 20X5.The amount is recognised as a current asset at FV. The loan carries an interest rate of 4% which we have confirmed to be the market rate for short term loan and we have concluded that loan is at terms equivalent to an arm’s length transaction. Mawson has provided written confirmation that loan will be repaid by 31 Oct 20X5,
The only other audit work performed was to agree the cash payment to the cash book. Detail of loan have not been separately disclosed in FS.But where is this question? I can’t find this as a past exam question and it doesn’t read as one and “comment on the sufficient of evidence obtained” isn’t something I’d expect to see in AAA. Rather, that you would presented with some scenario within which you would identify a lack of sufficient evidence as a quality management issue. Or in a “completion” question with a requirement to comment on “matters….”, sufficiency might be one answer point.
This is question 3 of Pre Mock Sep 2022.
It is Jul 20X5. You are an audit manager and in charge of the audit of Weddell Co, which is nearing completion. The manger previously assigned to the audit of Weddel Co has been moved to another assignment and you have been assigned to take on the manager’s role for the remainder of the audit. Materiality has been set at $800.000 for asset and liabilities and $250.000 for income and expenses.
The audit supervisor has brought the following matter to your attention:
Weddell Co made a loan of $6,000 to Mawson (CFO) in Mar 20X5.The amount is recognised as a current asset at FV. The loan carries an interest rate of 4% which we have confirmed to be the market rate for short term loan and we have concluded that loan is at terms equivalent to an arm’s length transaction. Mawson has provided written confirmation that loan will be repaid by 31 Oct 20X5.The only other audit work performed was to agree the cash payment to the cash book. Detail of loan have not been separately disclosed in FS.
Require:
Comment on the sufficiency of evidence obtained and recommend any further audit procedures necessary.
Comment on the matter to be considered and explain any adjustment that may be necessary to FS.
Please help me to comment on the sufficiency of evidence obtained.
Remember you only need half as many comments as there are marks for 50% so just imagine yourself in the situation ….
You could use relevant assertions for the loan transaction to generate ideas E.g. for completeness is this the only transaction with M? What has still to be done to confirm this?
Thinking about the balance, it’s all very well that M intends to repay (valuation) but does he have the means to repay? (why did he need it in the first place?)
Related disclosure should be mentioned especially for UK variant, since there is none, it’s not complete.
You could comment on materiality (is relevant to sufficiency) – on the one hand it is such a small amount does it need any more evidence? But as he is CFO it is material by nature….
Or mention RP and RPTs and RoMM increasing the amount (sufficiency) of evidence.
I don’t think students generally would think about how the transaction/loan came to the auditor’s attention but if the auditor stumbled across it/it was not volunteered as a RPT, that further increases RoMM for RPTs. Was this transaction authorised by the board? If yes, minutes need reviewing… if not, does that say something about M’s integrity?
You might even go so far as to consider then the sufficiency of evidence in other areas where M has been the source of evidence.
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