Delivery in day(s): 3
BUS306 Financial Management Oz Assignments Help
The case study is pertaining to Cloud 9 Pty Ltd which is focused in manufacturing and selling of customized shoes for basketball. The company tends to procure most of the inventory from the plant located in China and the remaining of the inventory is procured from the US. The company has a policy of procuring the goods as free on board, this tends to state that the company holds the ownership of the goods when the supplier places the goods for delivery. The goods then sent to the warehouse in Sydney and they are accounted in the inventory system which enables the customers to place the orders. The company tends to procure the goods when the stock levels become less, the company also uses their own logistics and then ensure that the entire process and activities are under proper control.
The company is now looking to appoint a new auditor BUS 306 partners from the existing auditor of W&S partners. This is because the management is currently having various conflicts of interest with the existing auditor and therefore the change in auditor is suggested. Now, before taking up the new audit assignment the BUS 306 had a detailed conversation with the existing auditors.
Due to the change in the auditor for Cloud 9, the new audit team BUS 306 partners has made a detailed conversation with the current auditor W&S partners and has noted the following audit issues
Uncertainty: This audit issue may arise due to the constraint which is faced while performing the audit work, for example, certain activities may bot be recorded or not made available to the auitors for performing the audit. During the conversation with the partners it is noted that the W&S partners were not fully aware of the procedures which involves the customers in placing the orders through online. Also for the normal business transactions all the orders are managed through software called Swift, which the auditor is not fully aware of. So, managing the inventory and accounting them in the books is based on extensive judgement. Also the auditor does not possess the overall ability in gathering the evidence which is mainly concerned with the doubt may be destroyed or lost or the management has not provided the information in a clear and concise manner.
Disagreements: The next aspect to be considered is the diasgreements which is mainly occurred due from the discrepancies on the factual representation. The existing auditor relies too much on the technology and the software and does not verify the authenticity of the information through various modes. The W&S partners were not completely aware of the inventory system called Swift, the entire functioning of the inventory system were not completely verified by the auditor. Moreover, the W&S partners does not posses the correct judgement in understanding the price of the products, the W&S partners has stated during the conversation that the prices are mainly dependent on the market and the auditor is not completely aware of the frequent changes in the prices.
Therefore BUS 306 need to understand the importance of such discrepancies so as to understand the overall impact of such aspects in auditing the works, the partners should be possessing a material evidence on the quantity of goods being held, possessing pervasive effect on the fundamental aspects and the experts opinions.
The other aspects to be considered are
The except for opinion need to be understood in order to provide the overall effect which is material but not considered for uncertainity or which is in disgreement. It is identified that the warehouse manager will understand and gather the reports on th pending sales orders which is analysed through technological devices. The employees then understand the items which is being stocked and once the goods are being scanned then the dispatch note is created and the delivery order is printed. So, this is the only source that the orders are being made to the customers.
The auditor may need to also consider an adverse opinion when the matter is mainly in disagreement with the fundamental concept, like performing the bank reconciliations on a daily basis and understanding the inventory control in a more efficient manner than relying only on technology etc. These aspects will enable the management and the audit firm to perform their responsibilities in an efficient manner.
The thid aspect is the disclaimer opinion of the auditor which involves in the overall presence of the different uncertainities which may be very difficult for the auditor to clearly understand and forma clear opinion on the outcome. (Myers, 2013)
Inadequate internal controls: The management may not be keen in maintaining key internal controls which is necessary for getting the needed assurance on the outstanding balance. The same is noted in the inventory management of the company were in all the individuals are more concentrated to gather the output based on the software called Swift. Therefore the auditor needs to understand these aspects while analysing the valuation of the key financial transactions and other key aspects. Also noted is that there is poor internal control in maintaining the list of goods which are undelivered. The current auditor has mentioned that the goods which are not delivered will be retained by the drivers and there is no proper method in having the proper control for managing the undelivered products. (Brown, 2008)
The budget based reserves are not reported in a proper format this enables in having difficulties in comparing the budgets with the actuals. Also the company is not having a clear focus in determining the prices, because the representative of W&S is not sure on the prices and how these are being ascertained, this may possess serious challenges in the compilation of the income statement and the preparation of balance sheet.
The existing audit team were not completely aware of the procedures which are involved in the sale of the goods, they are entirely dependent on the management team to state the total values of the goods currently in stock and the valuations. Also the audit team is not aware of the total goods procured from various countries like China, US etc and the transfer pricing method which is applied
The accounting procedures which is currently implemented by the audit team is inadequate and the new audit team must focus in creating, maintaining an monitoring various internal control measures so as to provide a clear and concise representation of the accunting statements and other key financial aspects to all the stakeholders. The auditor need to understand the current policies implemented and need to take suitable procedures in strengthening the overall reporting process and procedures so that a periodical review and reconciliation of various statements and balances can be performed.
Also, the final aspect is the key reasons which have enabled the management of Cloud 9 to change the audit team from the existing W&S partners to the new team. Also it should be identified whether it is mutual consent and the changes are approved in the annual general meeting of the company etc. These aspects need to be strictly addressed so that the new audit team can perform their work in an efficient manner. The new audit team has noted that the adequate controls were not placed so that all the activities are presented for the audit which includes the sales invoice, ledgers, sub ledgers etc. The audit team needs to understand the current situation and take concise steps for understanding the current internal control procedures and ensure that the preparation of the financial statements and other key accounts is in relevance to the Australian auditing standards. The new audit team of BUS306 need to involve in understanding the overall internal control procedures which has been implemented by the previous team and identify any flaws so that suitable actions can be taken so that the company can disclose the financial reports in a correct manner. (Feldmann, 2010)
Revenue: The measurement of revenue of the company could not be determined in a clear manner, this is because price of the each products is not ascertained in certain. Also the company is offering credit to the customers on the purchase however the revenue recognition is made even before the income is realised by the company. The company has posted revenue of 59910912 in 2014 whereas the income has increased to 60572216 in 2015, which showed an increase of 1%, however the company has set the goal of increasing the sales by more than 3% from 2014. However, the current situation is that the budgets are not provided so the audit measures in comparing the actuals with the budgets could not be measured.
Secondly the income which is generated through the online stores could not be measured at the correct value, this is mainly because the management is entirely dependent on the software which enable in understanding the inventory and the revenue recognition is not ascertained properly. Also the company has stated that the revenue recognition on the proceeds of disposals were stated to be at 1.5 million is being stated as the income. Moreover in the income statement the revenues are stated in negative values and the expenses are stated in positive values, this may affect the perceivers mind as the net loss ay be considered as the net profits. (Kaplan, 2012)
Expenses: The company has not clearly spcified in detail the advertising cost and expenses which tends to be incurred by the company. In the financial information report the management has stated that the management has decided to create a customer loyalty program which will enable in enhancing the onlise sales and also in the retail sales, the loyalty program will enable the customers to achieve 1 point on purchases for 10, this will enable the customers to redeem them and can be exchanged in merchandising the stores. However, such aspects are not clearly mentioned or stated in the expenses statement. Also, the policy is very unclear on how to account such aspects in the financial information, whether to treat them as expenses or discounts or whether to deduct at the time of purchase and then add back to sales when the points are redeemed. Also, the policy is unclear on when the customers can redeem the points and when this will get expired. Similar aspects were also noted in the airline companies where in the customers can redeem the travel points while travelling. It is also noted that the cost of sales is mainly attributed based on the goods procured from various countries, the stock is purchased from two countries mainly from China and the other from US, however the company tends to account the stocks in US dollars, which the firm tends to procure by applying the forward contracts, therefore the company will use these contracts to procure the goods. However, in order to account the forward contracts the company needs to include the mark to market gains in the other comprehensive income statement. Also the company needs to perform the valuation on the cash flow hedge and fair value hedge. The next aspect is that the company provides warrenty on the products which involves in the manufacturing and distribution of the products covering a span of 1 year. (Perreault, 2011). The company has predicted that the warranty is estimated to be around 2% of the entire sales made in a year, therefore provisions need to be accounted on warranty and other expenses.
Independence is a core concept - the credibility of the essential element in the audit work. If the users of financial statements need to believe and trust the auditor's opinion, it is important that the auditor is independent and independent of the company and its management. Capital Investments is the engine of the financial mechanism to finance the development of new business ... and the employment opportunities for ten million workers ... investors continues to invest ... can not be accepted by itself ... public confidence begins and ends with respect for the integrity of the figures used by the public for investment decisions. C .. an independent audit report for investors, a critical declaration. Provides that the financial statements submitted by a qualified, independent, impartial and thorough investigation of qualified investors to provide investors credibility, add value to the process and the investors should be issued by a person or company that the investor understands the collision which may affect or may affect them , They affect the auditor's assessment of whether the figures are correct, partial or indirect. "He said Bartlett, regardless of that it is not in control and financial reports throughout the audit period, is an unbiased mental attitude, the control has no value, should result to audit keeps being an independent audit environment and professional ethics, but the current is very fast, increased strongly independent.
If it is independent of the body, it can still be called physically independent, independent or outer surface of independence. The auditor should take the role of independent auditor for third parties. And this is direct proof that the audience assesses the independence of auditors. Because reporting users believe that the accountant has current or potential relationships that interfere with the independence of the interference, such as employment, business partner, family or dear, this will in any case reduce the audit function. Students do not need to be in a specific relationship to the company and can not take corporate action and can not be at the top of the company. In order to avoid misunderstandings and increase confidence, the auditor should reduce or reduce the risk to an acceptable level. The mind is difficult to improve the independence, and the public can not conclude that the body is independent of the students, as the relationship between the organization and other interested parties. In fact, even if the auditors' independence into account, because the public believes that your party or other parties entity, regardless of the accuracy of the results of the verification, do not you earn revenues. As for the other independent, there is no internal interest between the auditor and the sender. During the audit process, the auditor should maintain an impartial attitude that gives business decisions and does not fall into external pressures. There is a greater requirement on the audience's mental condition. (Chen, 2013). In fact, these two concepts are different, but complete. They reflect both outer and inner sides. Only the rest of the body and the mind can guarantee independence convincing results. Additionally, the control function and the value is performed.
The controls to maintain independence
Firstly, users are hesitant about the nature of addiction, if they believe that the student and the sender belong to the same party. If the auditor is unable to maintain its impartiality state of mind is closure statement completely false. For example, to audit not in a position to determine whether the information has been prepared and submitted an unqualified opinion. This can easily challenge users reporting when they make decisions. They can suffer damage because they are addicted to control their own views. Because the situation differs from one player to another, the analysis that follows regardless of body and soul is important, based on different actors.
Shareholders are directed directly to companies and get more bonuses when companies succeed. As a result, shareholders get a strong demand for the independence of the audit. In fact, when the shareholder is in trouble, controlling shareholders do not want to disclose the truth and harm the interests of minority shareholders. Shareholders' audit does not encourage the use of senior independent auditors, and this phenomenon is called perfect perfection. Since the owners' rights are different from the right to drive, the owners do not own the day-to-day management of the company. Apply the team to continue your business and enjoy the benefits. Generally, shareholders are very interested in profitability, profitability, concern and solvency, and so on. These indicators reflect the manager's direction. In addition, shareholders can evaluate managers' performance with additional information. (Cheney, 2009). Usually, they receive information from the reports from the administration. The report may contain fraud, because the administrator makes these reports. Leaders can report to cover their mistakes, poor performance and other situations that they are not responsible for. Currently, the inspector answers the question of how to report users that rely on information from the exposure. But if the student can not remain independent, they are likely to threaten doubt on the report. In a general opinion there is no report in an objective and impartial audit, users can not get useful information on the assessment of the state leadership and business performance. When the shareholders lose control of the company, this business mechanism will surely get lost because leaders are likely to absorb their own profits, own resources and powers and whatever rules and laws. Finally, the company is likely to be liquidated or bankrupt.
Blay, A. D., Geiger, M. A., and North, D. S. 2011, “The Auditor’s Going-Concern Opinion as a Communication of Risk”, Auditing: A Journal of Practice & Theory American Accounting Association, vol. 30, no. 2, pp. 77–102.
Brown, H. L., and Wright, A. M. 2008, “Negotiation research in auditing”. Accounting Horizons, vol. 22, no. 1, pp. 91-109.
Chen, C., Martin, X., and Wang, X. 2013, “Insider Trading, Litigation Concerns, and Auditor Going-Concern Opinions”, The accounting review, vol. 88, no. 2, pp. 365–393.
Cheney, G. 2009, “Connecting the dots to the next crisis”, Financial Executive, vol. 25, no. 3, pp. 30–33.
Feldmann, D. A., and Read, W. J. 2010, “Auditor conservatism after Enron”. Auditing: A Journal of Practice & Theory, vol. 29, no. 1, pp. 267-278.
Humphrey, C. 2008, ”Auditing research: a review across the disciplinary divide”, Accounting, Auditing & Accountability Journal, vol. 21, no. 2, pp. 170– 203.
Kaplan, S. E. and Williams, D. D. 2012, “The changing relationship between audit firm size and going concern reporting”, Accounting, Organizations and Society, vol. 37, no. 5, pp. 322-341.
Knechel, W. R. 2007, "The business risk audit: Origins, obstacles and opportunities", Accounting, Organizations and Society, vol. 32, no. 4, pp. 383-408.
Love, V. J. and Lawson, C. 2009, “Auditing in Turbulent Economic Times”, The CPA Journal, vol. 79, no. 5, pp. 30.
McCracken, S. and Salterio, S.E. 2008, "Auditor-client management relationships and roles in negotiating financial reporting", Accounting, organizations and society, vol. 33, no. 4/5, pp. 362-383.
Myers, L.A., Schmidt, J. & Wilkins, M. 2013, "An investigation of recent changes in going concern reporting decisions among Big N and non-Big N auditors", Review of Quantitative Finance and Accounting
Perreault, S. and Kida, T. 2011, "The relative effectiveness of persuasion tactics in auditor–client negotiations", Accounting, Organizations and Society, vol. 36, no. 8, pp. 534-547.