Get Instant Help From 5000+ Experts For
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
myassignmenthelp.com
loader
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote
wave

You are an intermediate member of your firm’s audit team and the audit partner has asked you to assist with the planning stage of the audit for a small client. You have access to the preliminary trial balance for the client and would like to use this to identify accounts that are likely to require significant audit attention. To access the trial balance for your client, open the document named ‘Trial balances for task 2’ and follow the directions to the appropriate worksheet.

Prepare a report for the audit senior, which addresses the 5 issues below.

  1. The audit partner has suggested that the preliminary assessment of materiality forthe financial report as a whole be set at $15,000. Comment on the appropriatenessof this figure for your client. Provide evidence to support your view. Include a briefdiscussion of the effect that changing the preliminary assessment would have on theaudit budget.
  1. Prepare an analytical review (in the form of a trend analysis) using the incomestatement items from the trial balance. Note: Present your analysis in table format;comments on the results are not required for requirement 2.
  1. Use the trend analysis to identify 3 income statement accounts that appear to be at riskof material misstatement. Provide justification for why these accounts shouldbe subjected to significant audit testing. In your explanations, identify an assertionthat is likely to be at-risk for each account
  1. For each account and assertion identified in requirement 3, design and describe anaudit procedure that would provide relevant evidence for this (i.e. describe 1procedure for each account; 3 procedures in total). Note: you need to explain theprocedures in your own words with as much detail as possible (for example, ifapplicable, identify the sampling frame and specific documents required for yourprocedure).
  1. The audit partner has suggested that fraud risk should not be considered for thisclient, as he feels that the client’s staff are all very trustworthy. Comment on theappropriateness of the audit partner’s suggestion. Identify whether there are anyindications of fraud evident in the analytical review.

Feldgrau Enterprises

Trial Balance

Jul 1, 2016 - Feb 28, 2017

Jul 1, 2015 - June 30, 2016

 

Debit

Credit

Debit

Credit

Cash at Bank

     89,750

     83,000

Accounts receivable

   109,850

   103,585

Inventory

   164,500

   174,000

Machinery

     64,000

     64,000

Accumulated Depreciation

     29,517

     24,000

Motor Vehicles

     66,000

     66,000

Accumulated Depreciation

     38,700

     21,000

Furniture

        7,400

        7,400

Accumulated Depreciation

        2,700

        2,220

Bank Loan

   240,000

   240,000

Sales

   129,683

   187,450

Cost of sales

     39,367

     63,595

Consultancy fees

     39,500

     57,000

Interest income

              32

              50

Bank charges

           232

           350

Depreciation

     23,697

     15,738

Interest expense

        7,667

     12,000

Printing

           247

           375

Miscellaneous

           960

               -   

Wages

     35,047

     53,000

Superannuation

        3,330

        5,035

Analysis and Discussion

Fredgrau Enterprises is a small company for which the audit planning needs to be done and therefore the audit partner of the company has asked to the course of action to be taken about the same. Based on the trial balance given by the company the audit procedure to be taken has been designed besides identification of the key and critical accounts, which shows the huge deviation (Axelsen, et al., 2017). Materiality level for the company has also been determined and the comparative analysis of the company for 2 years 2016 and 2017 has been done via the trend analysis and the common size income statement. This preliminary analytical review has helped the company in determining the audit risk and thus audit procedures have been deigned accordingly. In the end, the fraud risk analysis has also been done for the client to check if it was a privy to any of the fraud transactions.

The trial balance of the company Feldgrau Enterprises has been given below and the same shows a difference in the debit as well as the credit side totals. The same can be taken as suspense account and it has not been considered in any of the calculations further as the nature of the missing line items is not known as to whether it is an assets, liability, income or expense (Bennouna, et al., 2010).

Feldgrau Enterprises

Trial Balance

Particulars

Jul 1, 2016 - Feb 28, 2017

Jul 1, 2015 - June 30, 2016

Debit

Credit

Debit

Credit

Cash at Bank

      89,750

      83,000

Accounts receivable

    109,850

    103,585

Inventory

    164,500

    174,000

Machinery

      64,000

      64,000

Accumulated Depreciation

      29,517

      24,000

Motor Vehicles

      66,000

      66,000

Accumulated Depreciation

      38,700

      21,000

Furniture

         7,400

         7,400

Accumulated Depreciation

         2,700

         2,220

Bank Loan

    240,000

    240,000

Sales

    129,683

    187,450

Cost of sales

      39,367

      63,595

Consultancy fees

      39,500

      57,000

Interest income

               32

               50

Bank charges

            232

            350

Depreciation

      23,697

      15,738

Interest expense

         7,667

      12,000

Printing

            247

            375

Miscellaneous

            960

                -   

Wages

      35,047

      53,000

Superannuation

         3,330

         5,035

Total

    612,045

    480,133

    648,078

    531,720

  1. Materiality has been asked to be determined in the first part of the audit plan. An item can be said to be material if it in individual or in aggregate with the similar nature line items can change the decision of the user of the financial statements. It is something which is very critical and important to determine from audit perspective as it helps the auditor in knowing which all areas needs to be checked anyhow and what all areas can be ignored for the time being(Fukukawa & Mock, 2011). Furthermore, in the given case, the audit partner has determined the materiality to be at $ 15000, which is very high considering the trial balance of the client. There are global accounting bodies and committees all over the world like those of AASB and IASB as well as the reputed audit and consulting firms like Big 4’s which have suggested that the materiality can be determined as a % of sales, or Net profit or gross profit or total assets, or total fixed assets balance or as percentage of shareholder’s equity. Based on these percentages the same has been calculated to be between the range of $1105 to $ 1296 as it would help the auditors to check several other accounts as well which were not covered earlier like those of Interest expenses, superannuation expenses and the Furniture account (Delone & Mclean, 2004).

(in $)

Feldgrau Enterprises

Quantitative estimate of materiality

Criterion

Base

 Amount

Materiality level/range

0.5% to 1% of gross revenue

Gross Revenue

    129,683

648.42 to 1296.83

1% to 2% of the total assets

Total Assets

    430,582

4305.82 to 8611.64

1% to 2% of the gross profit

Gross Profit

      55,270

552.7 to 1105.4

2% - 5% of the shareholders’ equity

Equity

 NA

NA

5% to 10% of the net profit

Net profit

      58,670

2933.5 to 5866.99

  1. As part of the preliminary analytical review the trend analysis and the common size income statement has been prepared for the given companies for the 2 years namely 2016 and 2017.

Feldgrau Enterprises

Income Statement

Particulars

2017

% of sales

2016

% of sales

Sales

    129,683

76.6%

    187,450

76.7%

Consultancy fees

      39,500

23.3%

      57,000

23.3%

Interest income

               32

0.0%

               50

0.0%

Total Revenue

    169,215

100.0%

    244,500

100.0%

Less: Expenses

Cost of sales

      39,367

23.3%

      63,595

26.0%

Bank charges

            232

0.1%

            350

0.1%

Depreciation

      23,697

14.0%

      15,738

6.4%

Interest expense

         7,667

4.5%

      12,000

4.9%

Printing

            247

0.1%

            375

0.2%

Repairs and Maintenance

            960

0.6%

                -   

0.0%

Wages

      35,047

20.7%

      53,000

21.7%

Superannuation

         3,330

2.0%

         5,035

2.1%

Total Expenses

    110,545

65.3%

    150,093

61.4%

Net Profit

      58,670

34.7%

      94,407

38.6%

Feldgrau Enterprises

Income Statement

Particulars

2017

2016

 Variance

Sales

    129,683

    187,450

-      57,767

Consultancy fees

      39,500

      57,000

-      17,500

Interest income

               32

               50

-               18

Total Revenue

    169,215

    244,500

-      75,285

Less: Expenses

Cost of sales

      39,367

      63,595

-      24,228

Bank charges

            232

            350

-            118

Depreciation

      23,697

      15,738

          7,958

Interest expense

         7,667

      12,000

-         4,333

Printing

            247

            375

-            128

Miscellaneous

            960

                -   

              960

Wages

      35,047

      53,000

-      17,953

Superannuation

         3,330

         5,035

-         1,705

Total Expenses

    110,545

    150,093

-       39,548

Net Profit

      58,670

      94,407

-      35,737

Net Profit %

34.67%

38.61%

  1. Based on the above analysis, several key accounts have been selected for further review and audit considering the criticality of the variations. Some of these are:

Sl. No.

Account Name

Audit Assertion and risk

1.

Sales

The sales has decreased by almost 31% as compared to the last year even though as a percentage of the overall receipts, it has been almost the same, it needs to be properly evaluated and checked for reason of significant drop in sales. The profit has been further impacted due to this and dropped 38% (Zhou, 2018).

2.

Depreciation

When all the expenses has dropped as a result of fall in sales the depreciation expenses have increased drastically by 51% as compared to the last year. All the management assertions with respect to the same like the useful life, the rate and method of depreciation needs to be validated in order to find the issues (Bumgarner & Vasarhelyi, 2018).

3

Interest

The interest expenses has fallen by 36% as compared to the last year despite the bank loan balance being same. It needs to be checked if the company has booked the cost correctly and not shifted the same to future accounting years (Lessambo, 2018).

  1. Based on the key accounts to be audited the next year, below mentioned are few of the steps to be undertaken to audit the same:
  2. Sales: For checking the sales the vouching of the invoices need to be done and checked if the total is matching with the ledger and journal posting. It needs to be determined that if the sales has fallen due to fall in quantitative sales or the selling prices or due to competitive pressure. Furthermore, the auditor should also be testing the revenue recognition criteria followed by the entity for few of the sample cases(Mock, et al., 2018).
  3. Depreciation: About this, it needs to be checked what is the method and rates of depreciation being used by the entity, how the company has classified its assets and whether the annual review of the fixed assets impairment and depreciation is being done. The auditor should check the physical verification report in order to establish the existence of assets and completeness in recording of assets(Knechel & Salterio, 2016)
  4. Interest: The interest expenses during the year needs to be cross verified from the bank statement of the company and it needs to be checked why the same has decreased in spite of non-repayment of the loan during the year, what the terms of the loans and whether it is a fixed rate or floating rate interest loan(Gooley, 2016).

Conclusion & Recommendation

  1. As per the professional ethics and the standards being set in APES 110 and the concept of professional scepticism, the auditor must check the client in all the respects and basis the trust and past relationship, any of the checking procedure should not be ignored. In the given case, the audit partner of the company has suggested that the client should not be checked on the criteria of fraud risk analysis as the same is trustworthy(Kuhn & Morris, 2016). However, this is against the principles mentioned above and therefore the client should be subject to audit and fraud risk analysis. There are a few accounts which show the possibility of fraud in the financial statements, some of which are interest account and depreciation account for the reasons mentioned above, the cost of sales which has declined by 38% as compared to the last year and therefore it needs to be checked if the prices of raw materials and input has fallen or this is an instance of cost shifting. Furthermore, the superannuation expenses account also needs to be checked as the same has fallen by 34% and the reason for the same needs to be studied (Mubako & O'Donnell, 2018).

References

Axelsen, M., Green, P. & Ridley, G., 2017. Explaining the information systems auditor role in the public sector financial audit. International Journal of Accounting Information Systems, 24(1), pp. 15-31.

Bennouna, K., Meredith, G. & Marchant, T., 2010. Improved capital budgeting decision making: evidence from Canada. SCHOOL OF BUSINESS AND TOURISM, 48(2), pp. 225-247.

Bumgarner, N. & Vasarhelyi, M., 2018. Continuous auditing—a new view.. Continuous Auditing: Theory and Application, 20(1), pp. 7-51.

Delone, W. & Mclean, E., 2004. Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. International Journal of Electronic Commerce, 9(1).

Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A Journal of Practice & Theory, 30(1), pp. 75-99.

Gooley, J., 2016. Principles of Australian Contract Law. Australia: Lexis Nexis.

Knechel, W. & Salterio, S., 2016. Auditing:Assurance and Risk. fourth ed. New York: Routledge.

Kuhn, J. & Morris, B., 2016. IT internal control weaknesses and the market value of firms. Journal of Enterprise Information Management, 30(6).

Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and Forensics, 3(1), pp. 183-202.

Mock, T. J., Ragothaman, S. C. & Srivastava, R. P., 2018. Using Evidential Reasoning Technology to Enhance the Audit Quality Assurance Inspection Process. Journal of Emerging Technologies in Accounting, 15(1), pp. 29-43.

Mubako, G. & O'Donnell, E., 2018. Effect of fraud risk assessments on auditor skepticism: Unintended consequences on evidence evaluation. International Journal of Auditing, 22(1), pp. 55-64.

Zhou, C. &. P. A., 2018. Developing creativity and learning design by information and communication technology (ICT) in developing contexts. Encyclopedia of Information Science and Technology, pp. 4178-4188.

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2019). Audit Planning For Feldgrau Enterprises: Essay For Audit Senior.. Retrieved from https://myassignmenthelp.com/free-samples/acc321-communication-internship-b.

"Audit Planning For Feldgrau Enterprises: Essay For Audit Senior.." My Assignment Help, 2019, https://myassignmenthelp.com/free-samples/acc321-communication-internship-b.

My Assignment Help (2019) Audit Planning For Feldgrau Enterprises: Essay For Audit Senior. [Online]. Available from: https://myassignmenthelp.com/free-samples/acc321-communication-internship-b
[Accessed 16 July 2024].

My Assignment Help. 'Audit Planning For Feldgrau Enterprises: Essay For Audit Senior.' (My Assignment Help, 2019) <https://myassignmenthelp.com/free-samples/acc321-communication-internship-b> accessed 16 July 2024.

My Assignment Help. Audit Planning For Feldgrau Enterprises: Essay For Audit Senior. [Internet]. My Assignment Help. 2019 [cited 16 July 2024]. Available from: https://myassignmenthelp.com/free-samples/acc321-communication-internship-b.

Get instant help from 5000+ experts for
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

loader
250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Plagiarism checker
Verify originality of an essay
essay
Generate unique essays in a jiffy
Plagiarism checker
Cite sources with ease
support
Whatsapp
callback
sales
sales chat
Whatsapp
callback
sales chat
close