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Audit Techniques Money Laundering Detection

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In order to select seven accounting for the purpose of auditing an innovative approach has been used to enhance the effectiveness of auditing process. A fluctuation model has been created on the basis of the figures containing in trial balance to measure the fluctuation in debit and credit items of the organization (Abbottet al. 2016). This has helped us to identify abnormal fluctuations in certain items and accordingly the selection of such seven accounts have been made to check the reason for such abnormal fluctuation in these items. Here are the fluctuations in the trial balance items with percentage of fluctuation taking the balances of June 30, 2016 as a base.

Cerise Enterprises

Trial Balance



Fluctuation in %


Debit ($)

Credit ($)

Debit ($)

Credit ($)

Cash at Bank





Accounts receivable















Accumulated Depreciation





Motor Vehicles




Accumulated Depreciation









Accumulated Depreciation





Bank Loan









Cost of sales





Consultancy fees





Interest income




Bank charges










Interest expense









Repairs and Maintenance















Owner's Equity






Analytical Review:

Analytical review include use of different mathematical and statistical techniques such as use of fluctuation model to find out the accounts which have shown abnormal fluctuation in the current year; use of ratio analysis to assess whether there has been abnormal changes to profitability, liquidity and solidarity ratios of an organization (Arenset al. 2016).

In case of Cerise Enterprise, the sales of the organization in the year ending on June 30, 2017 has only increased by a mere 0.83% from the sales of previous year. However, the cost of sales for the same period of $69500 has increased by almost 10%, 9.29% to be precise, financial the cost of sales of the previous year of $63595. Thus, normally the gross profit ratio of the organization has certainly dipped by almost 9% from the previous year. Finding out the reason for the same is also one of the objectives which an efficient audit system will be able to achieve (Badolatoet al. 2014).

Preliminary judgment of materiality:

In case of Cerise Enterprise the materiality has been judged taking into consideration a certain percentage of an item’s amount to the overall amount of revenue, expenditures, asserts and liabilities of such an item is concerned. Thus, in case of an item of income if the same is at least 5% of the total revenue of the2.1 Rationale for selection:

The main reason for selecting this account is the increase by 20.80%. This account is also selected to verify that no fraud sales is included in the account for inflating sales figure.

Assertion and explanation:

The Accounts receivable; the balances of accounts receivable ledger has increased by almost 21% from the previous year thus, this shall be audited properly. The audit procedure is performed on account receivable to verify the audit assertion of existence of sales.

Recommended Audit procedure:

The Accounts receivable of the organization has shown substantial increase in a year. A 21% increase in accounts receivable balance can be a very positive thing but it can also be a concerning one. The increase in accounts receivable balance will be justified and more than welcome if the same is corresponded to substantial increase in sales. Thus, if the sales of an organization remain more or less similar to previous year’s sales then an increase of 21% in accounts receivable balance is certainly not a welcoming change (Caoet al. 2015).

The credit sales recording procedure firstly has to be checked and verified. The whole credit sales procedure in the organization will have to be checked to ensure that the standard credit sales procedure is followed. In case of any deviation in the procedure the same shall be noted and reported to the management (Coderre 2015). The system of payments to be received from the customer is to be checked to find out whether there is any loophole in the system which can be sued by the employees to rob the organization. Assessing the due time allowed to the customers and whether the management is able to collect the dues within such time are also to be checked and reported accordingly.  


Rationale for selection:

The deprecation account is selected for increase in the expenditure in the current year. The deprecation is non-cash expenditure therefore sudden increase in depreciation indicates that the company is trying to show decreased profit.

Assertion and explanation:

The depreciation accounting is an important element in a financial statement. In case of this organization the annual depreciation has increased by 37.84% from the previous year thus, depreciation account has also been selected in this document for the auditing purpose. The assertion that is tested in this is the accuracy. 

Recommended audit procedure:

Firstly, the method followed by the organization will have to be checked to see whether the method is appropriate for the operations (Gambettaet al. 2016). The consistency of following such method of depreciation is to be assessed and it is to be seen whether the organization has changed the method of providing for depreciation in recent years, if yes, the reason for such change has to be verified.

Third account selected:

Repair and maintenance account.

Rationale for selection:

This account is selected because there have been rapid decline in the expenditure. The rapid decrease in this expenditure requires significant attention.


Assertion and explanation:

Repair and maintenance is one of the accounts that is most prone to misuse due to its generality. In addition, the fluctuation in the accounts in the current year is significant though, the expenditure under this head has reduced substantially but the reason for the same shall be assessed. The assertion that should be tested is the occurrence of the repair and maintenance.

Recommended audit procedure:

Firstly, it is to be seen that whether the organization has any annual contract with any organization to conduct repairing and maintenance related works within the organization, if yes, then the contract shall be verified to check whether the payments have been made in accordance with such contract (Gaynoret al. 2016). In case no such annual contract exist then it is to be checked whether the management follows the standard procedure of inviting quotations and accordingly, gives the repairing and maintenance contract to the lowest bidder. The method of payment is also to be checked and assessed to ensure there is no misuse of funds in the name of repair and maintenance.

Inventory has been selected for its sheer importance to the smooth functioning of the organization.

Rationale for selection:

The account is selected because inventory has increased by 4.36%. It is an important account and has impact on the profit.

Assertion and explanation:

Inventory is the most important resources required by an organization to run its operations and functions. Considering its huge important it is of utmost importance for the organization to manage the inventory efficiently hence, it has been selected for auditing purpose to assess the control of the management on inventory. The assertion that should be checked in the inventory is the completeness of the recording of the transaction related to inventory.

Recommended audit procedure:

As an auditor,it would essential to know the system that is in place and used by the management to manage the inventory of the organization. FIFO, LIFO, average cost are few of the most used methods followed by management around the globe for inventory control. The auditor will have to check whether the management follows the appropriate method to manage inventory and the same method has been followed throughout the year or not (Karimet al. 2017).

Assertion and explanation:

Fixed assets are used for long period of time and essential to the long term future of an organization. Considering the importance of keeping proper control on fixed asset, it has been decided that the auditing procedure shall be conducted on the fixed assets including physical verification. The assertion that is checked is the existence and the accuracy is verified in performing the audit procedures.

Recommended audit procedure:

Fixed assets are assets which are generally used for more than a year to run critical business operations within an organization. Conducting physical verification of fixed assets to be sure of their existence and ownership to the organization is an important aspect of auditing and thus, to be followed in this case (Shandellet al. 2017). The audit procedure shall also include verification of the related documents certifying the ownership of such assets as well as the condition and situation in which these have been stored.

Wages owing to its importance to an organization.

It is selected as the expenditure has declined by 9.43%

Assertion and explanation:

Wages are paid to the workers of an organization. It is important for an organization to continue operation in the long run and to do that it must give the workers their dues on time and in accordance with the minimum wage rate the workers deserve. Thus, auditing process would not only check the wages as an account but also as a liability of the organization (Suryanto 2016). The assertion that is tested in performing audit procedure is the completeness.


Recommended audit procedure:

The organization should keep a proper register which shall contain the details about all the workers of the organization. The auditor apart from checking such register shall also check the attendance register of workers to see whether the organization has make payment to the workers in accordance the attendance register. The payment method is also to be assessed and checked for any loophole. Whether the wages are paid directly to the bank accounts of the workers or by cash is also to be checked. In case cash payment the organization should be advised to make the payments through bank accounts of the workers.

Seventh account selected:

Cash in hand and at bank for the vulnerability of it.

Rationale for selection:

This account is selected as there has been increase in the balance.

Assertion and explanation:

One of most prone areas to fraud and error is cash in hand and at bank due to its liquidity and immense value. Thus, simply to ensure that the management of the organization has due control over its cash resources, cash in hand and at bank has been selected for auditing propose (Wahlenet al. 2014).  The assertion that is tested is the existence.

Recommended audit procedure:

The cash management system of the organization firstly has to be verified to assess whether the system is standard or not. It is to be seen that the cashier is not allowed to maintain the accounts and the vice a versa. Periodic physical verification of cash has to be conducted by the management thus, the auditor should check whether the management has conducted such physical verification or not. Periodic reconciliation statement shall be prepared and the auditor shall check such statement to assess the control of the management over its cash resources.    



Abbott, L.J., Daugherty, B., Parker, S. and Peters, G.F., 2016. Internal audit quality and financial reporting quality: The joint importance of independence and competence. Journal of Accounting Research, 54(1), pp.3-40.

Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services. Pearson.

Badolato, P.G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2), pp.208-230.

Bierstaker, J., Janvrin, D. and Lowe, D.J., 2014. What factors influence auditors' use of computer-assisted audit techniques?. Advances in Accounting, 30(1), pp.67-74.

Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons, 29(2), pp.423-429.

Coderre, D., 2015. Gauge your analytics: by addressing people, processes, and technology, internal audit can ensure a successful data analytics initiative. Internal Auditor, 72(4), pp.41-46.

Gambetta, N., García-Benau, M.A. and Zorio-Grima, A., 2016. Data analytics in banks' audit: The case of loan loss provisions in Uruguay. Journal of Business Research, 69(11), pp.4793-4797.

Gaynor, L.M., Kelton, A.S., Mercer, M. and Yohn, T.L., 2016. Understanding the relation between financial reporting quality and audit quality. Auditing: A Journal of Practice & Theory, 35(4), pp.1-22.

Karim, A.M., Shaikh, J.M., Hock, O.Y. and Islam, M.R., 2017. Creative Accounting: Techniques of Application-An Empirical Study among Auditors and Accountants of Listed Companies in Bangladesh. Australian Academy of Accounting and Finance Review, 2(3), pp.215-245.

Shandell, R.E., Smith, P. and Schulman, F.A., 2017. The preparation and trial of medical malpractice cases. Law Journal Press.

Suryanto, T., 2016. Audit Delay and Its Implication for Fraudulent Financial Reporting: A Study of Companies Listed in the Indonesian Stock Exchange. European Research Studies, 19(1), p.18.

Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.

William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.

Yuen, J., 2014. ACC 626 Computer Assisted Auditing Techniques Money Laundering Detection.


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