Question: Omitted Audit Procedures.
The following are independent situations that have occurred in your public accounting firm, Arthur Hurdman11.
Case 1 During the internal inspection by a regional office of Arthur Hurdman, one of its clients, Wildcat Oil Suppliers, was selected for review. The reviewers questioned the thoroughness of inventory obsolescence procedures, especially in light of the depressed state of the oil exploration industry at the time. They believed that specific substantive procedures, which they considered appropriate, were not performed by your audit team.
Case 2 Top Stove, one of your clients, installed an automated system in July 2014 to process part of its accounting transactions. You completed the audit of Top Stove's December 31, 2014, statements on February 15, 2015. During the April 2015 review work on Top Stove's first quarter financial information, you discovered that during the audit of the 2014 statements, only the manual records had been investigated in the search for unrecorded liabilities.
Required: a. Without regard to the specific situation given, answer the following questions:
1. What are the proper steps auditors should take if it is discovered, after the report date, that an important substantive procedure was omitted?
2. How are auditors' decisions affected if, after review of the audit documentation, they determine that other substantive procedures produced the sufficient appropriate audit evidence?
3. If, in subsequently applying the omitted procedure, auditors become aware of material new information that should have been disclosed in the financial statements, how should they proceed? b. Describe the proper action to take in each of the preceding situations, given the following additional information:
Case 1. You thoroughly consider the scope of the audit of Wildcat Oil Suppliers and made a detailed review of the audit documentation. You have concluded that sufficient compensating procedures were conducted to support the valuation of inventory.
Case 2. Your subsequent investigation of the automated system's records of Top Stove revealed that material liabilities were not recorded as of December 31.