Amazonite Enterprises Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Amazonite Enterprises Case Study Solution

Selection of accounts:

The seven accounts that have chosen from the trial balance of Amazonite Enterprise are cash at bank, accounts receivables, inventories, sales, and cost of sales, Depreciation and wages.

Materiality:

10% of PBT, 5% of non-current assets and 2% of revenue is determined as the materiality levels, any amount equals or exceeds from this benchmark will be considered as material.(evidence, 2016)

Cash at bank:

Analytical review:

The cash balance at bank of Amazonite have been increased by almost 3.17%, it can be said that the increase in the cash balance is not so drastic but due to the inherent risky nature of this account this needs to be investigated. Moreover, there are many reasons which can motivate the management of Amazonite to manipulate this account which further increases the sensitivity of this account.(audit, 2016)

Rational for selection:

Due to the inherent risky nature of the account and materiality the account is selected for further audit testing. Moreover, there will be very adverse consequences of misstatement in this account.

Amazonite Enterprises Harvard Case Solution & Analysis

Assertion:

The assertion of completeness appears to be reasonable for the cash balance at bank. This assertion states that the all transactions that should have to record in the financial statements are recorded by the management and the cash balance should not have to be over or understated.(assessment, 2016)

Audit Procedures:

Obtain direct conformation from bank regarding the account balance to ensure that all the transactions have been recorded.
Review the list of transactions and compare them to the bank statement to ensure the completeness of the cash balance.

Accounts receivable:

Analytical review:

There is a high increment in the accounts receivables as compare to the previous year, they have been increased by almost 8.77%. Although there are many legitimate reasons for the increase in accounts receivables such as increase in sales and change in company’s policy. However, some large discrepancies have occurred in the accounts receivables in many companies and there are many complexities involved regarding the calculation of bad debts which makes this account complex and risky thus, further testing needs to be performed.

Rational for selection:

The accounts receivable balance requires many assumptions and judgements from management regarding the bad debts estimates. The management can alter the assumptions and judgements depending on the needs to improve the financial results of the company. Thus, the risk of material misstatement is very high in this regard.

Assertion:

The relevant assertion for the accounts receivable account is classification, according to this assertion all the transactions should be recorded in their correct account. Accounts receivable amounts should be recorded in accounts receivable accounts and bad debts amount should be recorded in bad debt account.

Audit Procedure:

Obtain receivable journal ledger and compare the amount of each debtor against the individual debtor ledger to ensure that receivables are recorded at their correct amount.

Inventory:

Analytical review:

Same as accounts receivables the inventory has been increased by 8.00% which can be consider as high. Furthermore, due to the calculation of NRV and various adjustments to inventory because of damage to inventory the risk of material misstatement is increased.

Rational for selection:

The drastic increase in the inventory level is the main reason for selection and the complexities in determining the value of inventory also requires substantial judgements of management which makes this area inherently risky. Thus providing reasonable basis for verification of this account.

Assertion:

The appropriate assertion for inventory is accuracy, as per this assertion the inventory should have to be accurately valued and the inventory valuation should be free from any error and the physical inventory count should have to be accurately recorded as well.

Audit Procedures:

Conduct a physical inventory count at Amazonite to ensure the accuracy of the inventory valuation.
Check the physical condition of inventory to ensure any damaged inventory is recorded at its NRV.

Sales:

Analytical review:

Some extreme increment in sales have been seen, it can be said that this account includes significant risk of material misstatement. There are many reasons due to which the management can increase the sales revenue wrongfully such as their own rewards and bonuses. Furthermore, due to the pervasiveness of this account further testing will be performed.

Rational for selection:

The sales are always subject to further audit testing regardless of any analytical procedure or analytical review. Furthermore, due to the complexities and opportunities of management to deliberately misstate the sales figures the sales are always selected to conduct detail audit testing in order to conclude that sales are free from any material misstatement.

Assertion:

The relevant assertion for sales is occurrence, as per the assertion of occurrence only transactions and events are recorded in the financial statements, this must have actually occurred in the relevant accounting period and are also related to this organization only.................

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