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ACC305 Auditing and Assurance Business Proof Reading Services
There is detailed study regarding the issues that occurred in the Audit planning. Audit planning basically includes all the activities which are to be executed while planning an Audit, during planning certain issues arises, in this report there will be a detailed discussion regarding the audit issues in various areas. The discussions of the types of audit approach and the assessments of the risk factors involved in the different audit approach. Further, this report will include the discussion over the Relationship between the communications of the accounting reports among the individuals of an Organization. Maintenance of integrity is also very much important in the business. Overall, there will deep analysis of the importance of auditing in the Organization for achieving of the goals and objectives of the organization.
Case Study 1
a. City ltd is a property developer. The main work of the organization is to develop and to buildvariousbuilding and office complexes. Due tosuddendownturn in the Construction industry especially in the commercial sector property, the industry is facing uncertainties in terms of sales and profits (Bierstaker, et. al., 2010).
The main auditing issues in the project are as follows-
Ascertainment of the value of the projects underlying construction or existing pending project- Due to sudden downturn in the Commercial property, the prices of the projects gone down and therefore stock valuation cannot be ascertained properly.
Due to decrease in the values of the Commercial properties, the sudden occurrence of losses cannot be justified by the auditors and the impact of these losses in the next few years, cannot be justified by the auditors.
Auditors will find difficulty in mentioning in the books of accounts regarding the excess of cost of manufacturing of the project than the market valuation of the building projects of the construction company (Bierstaker, et. al., 2010).
Valuation of land is always critical task for an auditor. There is always various discrepancies exists in the valuation of land. Determination of valuation of land is conflicting in nature due to its fluctuating nature.
As there is huge black money involved in the property and construction business, there is always vulnerability of threat to the auditor to determine the actual or correct financial position of the business.
Valuation of buffer stock of properties make a trivial issue for an auditor while auditing and commenting on the financial reports of the organizations as the reliability on the management figure is always doubtful (Millichamp & Taylor, 2012).
b. With the installation of the software of management financial analysis and for quality management reporting for the Web Ltd there arises certain issues which will be faced in auditing in a computerized environment of Webltd.
Auditor might not be aware or knowledgeable to know each type of the software’s used by various clients. Programming of customized software are very different and it outlaw and way or methodology of working on it is different which might creates issue in performance of audit procedures
Auditor cannot physical observe the movement of transition it is a background process of the internal software capabilities
Sometimes client or its employees with its fraudulent motive change the source code and programming of the software which might provide the bias result, such errors cannot be easily detected. Audit procedure should be planted in such manner to check over this authenticity and integrity issues (Millichamp & Taylor, 2012). This can be done by implementation of CAAT tools to verify the authenticity of the data and generate the report accordingly
While business auditing in a computerized environment using software it creates issue of lacking in the audit trail, which means it is difficult to investigate a transaction from its source code to its completion.
c. Beauty Pvt. Ltd. Is a manufacturer of varieties of Beauty and skin products? An opening of the branch overseas
The Main Auditing issues in the auditing planning in this scenario are as follows-
Issues in calculating the revenue due to currency fluctuations- Cross border transactions faces a big problem of currency fluctuation. The fluctuations of exchange rate highly affects in valuation of the revenue earned from the overseas branch of the Beauty Private Ltd. this is one of the most common problem faced while having branches in the overseas. Therefore, the auditors will find huge problem in addressing the revenue of both the branches.
Another major problem in front of the Auditors will be the evaluation of the stock. The stock which belongs to the head office of the organization is utilized by the overseas branch in order to initiate the sales as soon as possible, this is also one of the marketing strategy of the organization, the stock evaluation of the both the branches of the organization will be quite difficult (Millichamp & Taylor, 2012). Therefore proper documents for the appropriation of the stock would be required.
Case study 2
What are the general issues related to deciding whether to use a test of controls approach or a substantive approach?
Utility factor of approaches
Substantive approach(direct verification approach or vouching approach)
Where there is requirement to audit on critical information or data, here auditor analyze each and every transaction without following the principles or theories of sampling, using internal control information. Where there are great vulnerabilities to the possibility of frauds in the organization there is always a need of deep check without reliance of internal management data.
Test of control approach
Where there is requirement exist to test the internal control system in the organization, if found effective internal control system in the organization than auditor will go for the test of control approach else will follow substantive approach where each and every element of the complete population of data is observed. Test of control can be performed by enquiry, making observations etc.
How do the risk assessments above relate to the choice of audit approach?
Basically there are four type of approaches on which risk is to be assessed. These are
Balance sheet approach
System based approach
Risk based approach
Substantive procedure approach
Reasons of adopting the approach
With medium level of inherit ant control and detection risk in making disclosure of the leased asset
Primary use of test of control approach and use of substantive approach on balance sheet date
As there is medium level of risk involved in the control and detection test of control can be beneficial while auditing the leased asset. An auditor here can rely on internal management information (Nichols, 2013)
With low level of inherit ant &control risk and high level of detection risk in measuring depreciation expense
Major use of test of control approach and use of substantive approach on minor part
as there is a high detection risk associated with it but low inherit ant and control risk depreciation can be accounted or audited using test of control approach but at the yearend due to high detection risk additional purchase and sale, with check over placing of asset in correct block is audited using substantive approach (Nichols, 2013)
With low level of inherit ant risk, medium level of control risk and high level of detection risk in rights and obligations in relation to the vehicles
Major use of test of control approach and use of substantive approach on minor part
Vehicle purchase right and obligations in form of loans or mortgages over vehicle can be tackled using test of control approach as auditor can rely on documentations and declaration given by the company
With high level of inherit ant &control risk and low level of detection risk in valuation of vehicles
use of substantive approach only
Valuation of asset requires high level of detail investigation reports which can only be possible by following substantive way of audit.
If you adopted the approach set out in the planning summary, what audit procedures would you use for the accuracy and completeness of depreciation expense?
While auditing for the depreciation expense and to check its accuracy proper recalculations are made according to the applicable accounting standard that is IAS 16 of IFRS.
The use of analytical procedures to cope up with the significant risk associated with the depreciation accounting. Depreciation is calculated using block method and there always exist an inheritant risk of adding the asset to the wrong pair. Further there should be a check over the rates of the deprecation and check over the additions and inclusions of assets in the middle of the year also check that there is any sale of asset. Internal policies of the organisation are kept into consideration while auditing depreciation accounting. As in our case of depreciation accounting of Vroom ltd there is high risk of detection of fraud and errors so proper compliances are taken into force to control the same (Leung, et. al., 2015).
Case Study 3
Importance of Auditing
Auditing basically means to make an analyzes and examination of the financial statement of an organization to ascertain whether the information of the Accounting reports represents true and fair value or not.
With the increase in the complexities in the accounting reports and financial reports in all types of organizations such as medium sized or large scale sized organization, the necessity of auditing of the financial reports organizations has increased a lot (Leung, et. al., 2015).
Auditing is necessary, to check the integrity and authentication of the documents, so as to detect any kind of fraud or manipulations which can be done on the part of the Organization. There are numerous auditing such as Cost auditing, Finance auditing.
Communication of the Accounting Information
Communication of accounting information is very necessary to derive the conclusion from the financial statements of the Organization.
Through communication of the financial report, prediction regarding the financial position of the organization in the coming future can be analyzed and measures which are to be taken to improvise the financial systems can also be analyzed.
Through communication of financial reports, the non- finance users also knows about the financial aspect of the Organization, most importantly the shareholders, suppliers, customers, government authorities etc (Hay, 2014).
It is very important for every to remain up dated with the financial information for the organization.
Relationship between the Auditing and Communication of financial reporting
Through auditing, various vital aspects regarding the Organization financial reports arises, which are needed to be communicated with all the Key managerial persons of the Organization.
Timely communication of the information with the respective personnel is required for the timely decisions and to take measures for improvement in the financial aspect of the organization.
With the completion of the Auditing report, the various manipulations or defects in the working of the Auditing can be detected and prompt solution for these can be found out (Weirich, 2012).
The proper communication of the auditing report is very vital for knowing the exact position of the organization. If any fraud or wrong picture comes out of the auditing procedure, it must be well communicated with the stakeholders such as Shareholders, government, debenture holders, media, suppliers, customers, banks, financial institutions and other key managerial personnel like Company Secretary, Independent Directors etc (Weirich, 2012).
With the thorough analysis of the various aspects of the auditing, it provided deep information about the auditing planning issues that occur in the different business scenario and the best solutions which can be provided in such scenario. This report gives a detailed analysis of the different approaches of the auditing which can used in the auditing and the risk element which are associated with these approaches and also related with the various audit procedure. There is also a thorough analysis of the importance of the understanding and communication development of the accounting report among the officials of the business or of an organization. Communication of the accounting report is very much required in a business and maintenance of the integrity and authentication of the accounting work is also important at the same time. At the end, it can be said that, the report provided thorough description of the Auditing process.
Bierstaker, J., Abbott, L. & Parker, S. 2010, "Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on IIA's Exposure Draft of 2010 International Standards for the Professional Practice of Internal Auditing", Current Issues in Auditing, vol. 4, no. 2, pp. C1.
Hay, D. 2014, "Auditing, International Auditing and the International Journal of Auditing: Editorial", International Journal of Auditing, vol. 18, no. 1, pp. 1-1.
Leung, P., Coram, P., Cooper, B.J. & Richardson, P. 2015, Modern auditing & assurance services, 6th edn, John Wiley and Sons Australia, Milton, Qld.
Maravic, P. 2011, Auditing.
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