Essay on Shoe Zoo

Words: 1115
Pages: 5

Task 1
1. A roll forward is an important test in relation to year-end balance of gross PPE. It is necessary for the auditor to have assurance about the amount on the year-end 2011 balance sheet. However, a majority of the dollar amounts on the balance sheet should have been tested in the previous year. Roll forward allows the auditor to asses any activity since the last recording on the balance sheet. The mathematical accuracy is crucial because if the numbers are off, the auditor could be tested additions and/or disposals information that is not right. The beginning balance after the roll forward must equal the amount from the audited balance from the previous year, and these must also agree to the lead sheet. This is because these are
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Task 2 Questions: 1) The audit team decided to perform analytical procedures to test Depreciation Expense because the Risk of Material Misstatement was assessed as low. The low risk of material misstatement would lead to a high Detection Risk which would allow the auditor to rely on less effective procedures (i.e. analytical procedure rather than substantive test of details). Also, the calculation of depreciation expense used the Gross PPE balances, which were audited by substantive test of details meaning we can rely on those balances because the test of details is a more effective procedure. There was also very minimal change to the Gross PPE balance used for depreciation calculations during the year. The two major expenditures during the year occurred after the 15th of December which means no depreciation will be taken on those assets for the current year. Because we can rely on our procedures and historical data we use the Gross PPE balances heavily in our expected depreciation calculation. Analytical procedures is appropriate for testing Depreciation Expense for Shoe Zoo, Inc. because of the combination of the three factors above, a low detection risk as well as reliable Gross PPE balances because of substantive test of details. 2) The error found in the PPE additions