Question Tag: Substantive Test

Expert Ltd (Expert) is a wholesaler of furniture (such as chairs, tables, and cupboards). Expert buys the furniture from six major manufacturers and sells them to over 1,000 customers ranging from large retail chain stores to smaller owner-controlled businesses. The receivables balance includes customers owing up to GHȼ200,000 to smaller balances of about GHȼ20,000, all with different due dates for payments and credit limits. All information is stored on Expert’s computer systems, although previous audits have adopted an ‘audit around the computer’ approach.

You are the Audit Senior in charge of the audit of the receivables balance. For the first time with this client, you have decided to use audit software to assist with the audit of the receivables balance. IT staff at Expert are happy to help you, the Auditor. However, they cannot confirm the completeness of systems documentation and warn that the systems have very old operating systems, limiting file compatibility with modern programs.

To limit the possibility of damage to Expert’s computer files, a copy of the files will be provided by Expert’s IT staff for the Auditor to use with their own audit software.

Required:
a) State SIX (6) substantive tests that should be carried out using audit software on the receivables balance of Expert Ltd. (9 marks)

b) Identify FOUR (4) potential problems of using audit software at Expert Ltd. For each problem, explain how it can be resolved. (8 marks)

c) Explain the concept of “auditing around the computer” and discuss why this increases audit risk for the Auditor. (3 marks)