Case 10
Total Computer, Inc.

As a whole, the evidence collected by the auditors was insufficient. The working papers were created by the client and the auditors relied heavily on conversation and correspondence from the client. While
Total Computer, Inc. may have been truthful in their discussions with the auditor, it is necessary that the auditor use professional skepticism and verify the given information. When dealing with inventory reserves, estimates are based off a lot of personal judgment instead of concrete estimates. AU Section
342.10 states:

In evaluating reasonableness, the auditor should obtain an understanding of how management

developed the estimate. Based on that understanding, the auditor should use one or a combination of

Review and test the process used by management to develop the estimate.

Develop an independent expectation of the estimate to corroborate the reasonableness of

Review subsequent events or transactions occurring prior to the date of the auditor's

The three approaches mentioned above could be the alternative procedures used to verify the accuracy of management’s estimates and figures.

1. The confirmation from ReadyTime.com serves as sufficient evidence. The confirmation was returned directly to the auditors and was correctly filled out by the client’s debtor. No additional audit procedures need to be performed.

2. The email received from Gary Jones at BigTime.com does not serve as sufficient evidence.
Betty, the Controller, appears to have contacted the client during the process of obtaining their confirmation. The email makes note to this and the email also does not specify the exact amount of money BigTime.com owes Total Computer, Inc. Some further audit procedures that could be conducted to verify this accounts receivable include resending another confirmation to the client. This may be