Auditing Essay Example | Topics and Well Written Essays - 1500 words - 7

Auditing - Essay Example 2). Inventories should always be stated at the lower cost and the market prices or the net realizable value. The net realizable value is the amount that the asset can fetch as at the reporting date, less the estimated costs required to complete the transaction. These could include selling costs and overhead costs. The values stated in the inventories of Abbey Plc. in the annual report for the year 2014 should be tested adequately to ensure that they are the correct market values of such inventories. Fixed assets are critical items, which the auditor should ascertain and ensure that values attached to them are their correct fair values to be disclosed to the shareholders (Rittenberg et al. 2011, p. 626). Disclosing the values of the fixed assets in excess of their correct fair values would make the financial statements to be overstated; thus provide shareholders with a wrong financial position of their company. Trade and other receivables should be recognized and carried at the lower cost of their original invoiced value and the recoverable amount. In case the time value of money is material, receivables should be carried at the amortized cost. The company should make provisions in situations where there is some adequate evidence that the amount would not be recovered in full. The balances should be written off when the chances of recovery are assessed as being remote (Henning et al. 2007, p. 313). Adequate audit procedures should be done to ensure that the company did not make too much or too little provision to cater for trade and other receivables, which could not be recovered. Also, before writing off bad debts, all the relevant procedures should be followed since some managers may decide to write off debts, which could not be written off with the objective of hiding the correct amount of revenue collected by the company