Auditing case assignment Study Example | Topics and Well Written Essays - 500 words

Auditing assignment - Case Study Example The balance sheet accounts will substantiate or given ample evidence that the revenues reported in the income statements are valid and relevant. For, an increase in cash in the balance would indicate that a cash sales transaction occurred. However, an increase in cash could also be attributed to collection of accounts receivable and not a new sales transaction. In addition, an increase in receivables account would indicate a possible sales on account transaction. On the other hand, an increase in receivables account could be due to an reinstatement or reversal of an accounts receivable that had been written off. Accounts receivable are written off if there is a probability that the a certain amount of receivables can no longer be collected because the customer may be absconded or has filed for bankruptcy in the courts2. Yes, the substantive approach appropriately was applied in EM's audit of Maxall. First, EM determined that a violation of the auditing principle that segregation of incompatible functions occurred. Auditing principles state that incompatible functions of recording, keeping and approving should not be placed in the shoulders of one person.