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Importance of auditing procedures in identifying financial strengths and weaknesses

Describe about the Auditing for Business Industry Benchmark.

1. The current ratio of the organization is one, which less than the industry benchmark of 1.8. As such, this indicates the existing financial strength of the organization is moderate and does not match the industry standards. Thus, Messier Jr (2016) stated that the auditing techniques adopted in the business enterprise shall help in identifying the financial strengths as well as the weaknesses of the business enterprise and taking pertinent measures for recovering the situation. As such, the management of the business enterprise has to take the necessary measures in using the auditing tools as an essential technique in presenting authentic and transparent financial statements for the business entity. The days in receivables, technique indicates 8 days, when compared to the industry benchmark of seven days. As such, the management of the business entity has to take review measures in reducing the amount of debtor’s period for the development of the organization goals and the objectives. In the context of inventory turnover, the audited period of the organization is 3 days and this is exactly the industry benchmark. According to Arens et al. (2012), the inventory turnover refers the number of times the inventory has been used in a particular year. In the context of Nirvana Pty Ltd., this is the same as compared to the industry benchmark of 3 days. In this regard, the auditing procedures in the business organization shall relate to the recognizing the financial constituents that has assisted the entity in its growth. Here, the internal audit department has to play a pivotal role in determining the financial constituents of Nirvana Pty ltd.

Therefore, the inventory ratio of the company has to be considered healthy. The debt equity ratio of the company is 0.50. Therefore, the percentage of the debt to the equity shall be called substantial. However, this is not a satisfactory debt equity ratio when compared to the industry of benchmark of 0.20. The management of  the  brand  shall has  to play a decisive role in  assessing the reasons behind such rising debt in the organization. Thus, the auditing procedures adopted in the business organization shall verify these issues which would have an influence on the inherent financial strength of the organization.

According to Biggs et al. (2012), there would be substantial business risk that a business entity can face where the portion of debt is greater than the presence of equity in the business entity. As such, this is a pertinent business risk that the company is facing in the context of the long-term organizational goals and the objectives of the business enterprise. Therefore, the total ratio analysis procedures of the business enterprise would reflect that the financial situation of the company can be shown as moderate. The current ratio of the company shows that the company does not have enough financial resource to pay off the short term loans of the company. In this regard, it can be stated that the auditors of the company has to pay an active in analyzing he ratio analysis techniques of the organization. Besides this, there are several sources that the company gathers external financing for the business organization.

Analysis of Nirvana Pty Ltd's financial situation compared to industry benchmarks


Through the auditing techniques implemented in  business entity  these sources of income has to be evaluated to measure the  financial condition of the business entity Therefore, the operational department of Nirvana Pty Ltd  has to ensure that there are no wastage of funds for the business entity. Lothe (2013) stated that on the basis of the ratio analysis of the company, the audit plan of the organization shall have to be implemented to identify the existing defiencies in the financial statements in the annual reports of the company. In this regard, it can be stated that the financial situation of the company is one of the considerations that has to be taken into account, while implementing the auditing policies in the business enterprise. In addition, the nature of the firm where the firm is operating is another determining factor on the auditing policies implemented in the business organization. According to Boritz and Huo (2013), the firms operation in the exclusive or the niche category segment shall have different auditing measure than in business organizations, which caters to the masses. The measure of accounting taken in assessing the existing financial assets of the company is another essential consideration that has to be revaluated in the auditing procedures of a business entity. In addition, Voiculescu and Bumbescu (2014) noted that the ratio analysis techniques offers the relevant financial information to the auditors to take essential financial decisions. Besides this, the ratio analysis techniques shall help in making financial decisions for the entity. In the context of the Nirvana Produce Pty ltd, the auditor has to understand that the change in the composition of the company would have an influence on the financial structure of the company.    Due to the  structural changes in the company, there shall be  enormous influence on the financial  strength of the company. Besides this, the company has to make the necessary alterations in the operational policies of the company. As such, activities like this would have additional expenses on the production, operational as well as manufacturing activities of the company.

Therefore, such factors shall have to be considered in assessing the financial position of the company at the end of the year. Lenz and Sarens (2012) stated that both current ratio as well as the debt equity ratio of Ni reflects the essential financial state of the company. Therefore, auditors have to consider such financial information of the company in giving essential advice to the company. Budescut et al.(2012) stated that the accounting measurement in the company can be classified as fair value method or the historical value method. The measurement of the assets of the business entity would have to be dependent on the nature of the measurement method chosen in the business organization. The Fair value method of accounting chosen shall measure assets based on their present value which is in contrast to the historical value method.

2. The internal control system is a systematic procedure of recording goods and buying the cash payments in the business entity. As such, the operational procedure in the business entity an effective manner, that would prevent any discrepancy in the operational procedures of the entity. Chandler and Edwards (2014) stated that the electronic funds transfer ( EFT) is an effective tool that would ensure that the payment of cash transactions can be easily achieved through the transfer of cash to another payment, in a negligible amount of time and effort. This method gives the additional time to the consumers to select goods as per their choices and preferences at the store. In addition, the bookkeeper plays a pivotal role in the recording of cash transactions in the books of accounts in the business organization. As such, the bookkeeper in the organization maintains the creditor’s ledger and reconciles the cash on a daily basis. The bookkeeper in the organization approves the payment of goods in the business enterprise and states the bank account on a monthly basis.

Influence of structural changes in the company on its financial structure

Contessotto and Moroney (2014) stated that the accounting software followed in the business organization comprises of order/sales, purchase / creditors as well as the payroll processes in the business organizations has to be correctly assessed to facilitate the organization goals and the objectives of the business entity. Therefore, the accounting software in the business organization has been playing a pivotal role in the recording of the cash transactions in a business enterprise. The warehouse staff in a business enterprise is to  maintain the goods in the operations procedure of the business organization.

The sales clerk in the business organization would take phone and email orders and would also develop the buying slips for the consumers coming into buy the goods. As such, the warehouse staff as well as the buying staff in the business organization have used these slips. Thus, the total process is a systematic procedure that would assist the business organization in maintaining authenticity of any  financial transactions implemented in the business organization.,

However, there are certain discrepancies present in operational as well as financial  processes of the business entity. In this regard, it can be stated that the customer payment as well as the cash recording procedure in the business entity have to be considered. Evetts (2014) stated that this is a very lengthy and time-consuming process and has a considerable impact on the operational processes of the business entity. In addition, there were a significant number of short payments, that can have an adverse influence  on the operational and the financial policies of a business enterprise. Besides this, the accounting software implemented in Nirvana Pty Ltd organizations shall have to match with the operational policies of the business entity. Furnham and Gunter (2015) mentioned that the accounting software that is implemented in the business organization should help in the financial analysis of the organization.

As such, the accounting software that is implemented in the case of this shall be helpful in analyzing the financial situation of the business entity and take corrective measures for organizational growth. This is not  possible in the case of the accounting software that is being implemented in the business entity. Besides this, Kumar and Sharma (2015), the electronic funds transfer that is being adopted in the business organization is not always authentic and would have an influence on the operational procedures implemented in the business entity.

The internal control system that is implemented in the business organization does not facilitate coordination between the various departments in the business organization. Griffith et al. (2012) stated that the auditing procedures of the business entity and have an impact on the operational procedures of  Nirvana Pty Ltd.  To facilitate the external procedure of the business enterprise, there must be proper coordination between the various department. In the internal auditing procedures, there is no system of external audit followed in the business organization.

Role of accounting software in financial analysis

The management of  business enterprise shall have to implement frequent monitoring measures implemented in the business organization. In addition, the auditing measures followed in a business enterprise would  have to take proactive measures in res olving organizational growth and prosperity in the international market. The audit risk in the business organization shall have to be reduced, in the context of the financial policies followed in the business organization. Hayes et al. (2014) stated that the auditing procedures implemented in the business organization should have to be re-innovated to ensure financial sustainability and growth in the international market. Using advanced accounting software shall help to considerably reduce the errors in the financial policies of the company (Srivastava and Shafer 2012). The recent structural changes in the business organization shall have to be considered in forming the financial strategies of the business entity.

The cash recording procedure in the business organization is a detailed process that shall consist of many steps. As such, it is a sequential flow of activities that is carried out by many parties in the organization. This increases the chance of any discrepancy towards the financial statements prepared in the annual reports . In this regard, it can be noted that the management of the business organization has to take proactive measures in assessing the existing financial position of the business entity. According to Johnstone et al. (2013), the business enterprise  have  to measure the past financial statements in a  business to understand the financial policies and trends of the business entity. There shall be discrepancies regarding the payment of taxes in the business organization. IF Nirvana Pty Ltd operates in multiple countries, the business entity shall have to payment of taxes, without arising of any legal issues in the business organization. The conversion of the partnership company into a proprietary limited company shall incur business expenses of the business entity. The business entity shall currently require external funding for rising of the company funds. As such, this situation of the company shall have to be assessed in a particular manner to help the company make maximum utilization of the available funds in the business entity. Therefore, the total financial structure of the company shall have to be re-innovated so that these financial policies so that any wastage of the financial losses of the company has to be prevented.

3. The audit approach in the case of the networked personal computer head accounting software shall depend on many factors. In this regard, it can be stated that the benefits of the accounting software in the business organization would have to be judged on its usage in preparing the year-ended annual statements of the. The audit procedure shall also be emphasizing in the cost of running the operations.

Importance of correctly assessing financial transactions in a business enterprise

The audit software that is implemented in Nirvana Pty Ltd. would consist of a number of functions like sales credit ledger as well as recording of transactions in the business entity. Thus, the accounting software has been playing a proper role for the development of the financial policies in a business enterprise. According to Porter et al. (2014), the auditing procedures followed  would have to be evaluated in the context of the organization procedures in the business entity. Besides this, the present financial issues of business entity have to be assessed in an appropriate manner to find out the causes of the discrepancies in the business organization. It is the responsibility of the auditor to verify each voucher of the daily financial transactions of the business entity.

Peters (2012) stated that this would reduce the capital expenses of the business organization and lead the business organization to a path of growth. In this regard, it can be stated that the auditors have to perform intensive audit research of the business entity. The CAAT audit procedure would help the business enterprise in attaining the audit objectives. These include the engagement management software as well as the generalized audit software. As such, the benefits of using such computer aided auditing techniques are as follows:

Facilitating sharing of information amongst the group members thereby ensuring reviewing of the work done

Proper workflow standardization

Due to the paperless nature of storing of data, data cannot be easily lost. In addition, there is no risk of losing the lost data due to the lower storage requirements.

According to Rust et al. (2011), the most common audit software are teammate, Pentana as well as APEX and MKInsight. In the context of Nirvana Pty Ltd, these audit softwares would be helpful in assessing the financial situation of the business entity The Generalized audit software has a pertaining function that is to store data. Chandler and Edwards (2014) stated that a generalized audit software can be used to identify and assess vast financial data to identify the errors in the year-ended financial statements present in the annual reports of the company. As such, it can be said that there are several benefits in using the generalized audit accounting software. These includes the following

Improving the efficiencies of the automating manual procedures in the business entity

More detailed insight of the financial statements can be achieved through implementing generalized auditing procedures.

More in-depth evaluation of the financial statements can be available to the auditor.

According to Evetts (2014), the generalized auditing softwares that are available to the audits software are TOPCAATs, ACL as well as IDEA. In the context of Nirvana Pty Ltd., the generalized audit software as well as the engagement Management software can be used in determining the operational policies of the business entity. The N P has an extensive financial policy that can be used in determining the financial strategies of the business enterprise. The generalized audit software and the can be used in establishment of the operational policies of the business entity.

In the context of Nirvana Pty Ltd., these CAATs techniques has been essential in gathering the total financial information of the business enterprise and preparing appropriate the financial policies that shall help the business information in attaining business growth and sustainability in the domestic and the International market. Besides this, the CAATs in the auditing process would assist  Nirvana Pty Ltd   in  structuring the  auditing process towards a specific objective. In conducting the audit approach of the network personal based-accounting the following auditing steps can be taken.

Assess the operational expense of the business organization-

The existing operational expenses of the organization should be accessed through the auditing expenses incurred in a entiy (Tabor 2013). In this context, it can be noted that auditing tools shall consist of the necessity features that shall help the business enterprise in recognizing the errors that would have an influence on the assessment of the financial position of a business entity.

b. Checking of vouchers - The vouchers in the organization would have to be regularly checked regularly to prepare authentic financial statements for the business entity. Chandler and Edwards (2014) mentioned that the vouchers in the organization have to be monitored, to assess the cash expenses of the organization. The monitoring of the vouchers assist the business entity in identifying the weaknesses in the total business functionalities of the organization

Use of technology - The technology has to be used in an appropriate manner to reduce manual workload. As such, the use of technology has been necessary for the business entity for the development of goals and the objectives of a business enterprise. According to Arens et al. (2012), the use of technology has been effective can bring down the auditing costs and the time. Therefore, technology would have to be extensively used in bringing about the necessary changes in the financial policies of the business entity.

Past financial reports – The past financial reports shall have to be assessed to assess the existing financial trends of the business and compare it with the past years financial records. The past years financial record shall provide a glimpse of the financial situation of the organization, and thereby leading the entity towards achieving greater financial sustainability.

References

Arens, A.A., Elder, R.J. &Beasley, M.S., (2012). Auditing &assurance services: an integrated approach. Prentice Hal l

Biggs, S.F., Mock, T.J. &Watkins, P.R., (2012). Auditor's use of analytical review in audit program design. Accounting Review, pp.148-161.

Boritz, J.E. &Huo, K., 2013. Business Models &Audit Risk Assessment: An Investigation of Alternative Information Presentation Techniques. In CAAA Annual Conference.

Budescu, D.V., Peecher, M.E. &Solomon, I., (2012). The joint influence of the extent &nature of audit evidence, materiality thresholds, &misstatement type on achieved audit risk. Auditing: A Journal of Practice & Theory, 31(2), pp.19-41.

Chandler, R.A. &Edwards, J.R., (2014). Recurring Issues in Auditing (RLE Accounting): Professional Debate 1875-1900. Routledge.

Contessotto, C. &Moroney, R., 2014. The association between audit committee effectiveness &audit risk. Accounting & Finance, 54(2), pp.393-418.

Evetts, J., (2014). The concept of professionalism: Professional work, professional practice &learning. In International Handbook of Research in Professional &Practice-based Learning (pp. 29-56). Springer Netherlands.

Furnham, A. &Gunter, B., (2015). Corporate Assessment (Routledge Revivals): Auditing a Company's Personality. Routledge.

Griffith, E.E., Hammersley, J.S. &Kadous, K., (2012). Auditing complex estimates: Understanding the process used &problems encountered. W orking paper, University of Georgia.

Hayes, R., Wallage, P. &Gortemaker, H., (2014). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.

Johnstone, K., Gramling, A. &Rittenberg, L.E., (2013). Auditing: A Risk-Based Approach to Conducting a Quality Audit. Cengage Learning.

Kumar, R. &Sharma, V., (2015). Auditing: Principles &Practice. PHI Learning Pvt. Ltd..

Lenz, R. &Sarens, G., (2012). Reflections on the internal auditing profession: what might have gone wrong?. Managerial Auditing Journal, 27(6), pp.532-549.

Lothe, R. (2013). Fish feed-research may help reduce world hunger, ScienceNordic, 17 Mar/13.

Messier Jr, W., (2016). Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education.

Peters, J.M., (2012). A knowledge-based model of inherent audit risk assessment.

Porter, B., Simon, J., & Hatherly, D. (2014). Principles of external auditing. John Wiley & Sons.

Rust, M., Barrows, F., Hardy, R., Lazur, A., Naughten, K., & Silverstein, J. (20110. The Future of Aquafeeds, NOAA/USDA Alternative Feeds Initiative, NOAA Technical Memorandum NMFS F/SPO-124.

Sarker, P.K., Kapuscinski, A.R., Lanois, A.J., Livesey, E.D., Bernhard, K.P., Coley, M.L. (2016). Towards Sustainable Aquafeeds: Complete Substitution of Fish Oil with Marine Microalga Schizochytrium sp. Improves Growth &Fatty Acid Deposition in Juvenile Nile Tilapia (Oreochromis niloticus). PLOS ONE, 2016; 11(6).

Seidel, T., 2014. The Effective Use of the Audit Risk Model at the Account Level. UNIVERSITY OF ARKANSAS.

Srivastava, R.P. &Shafer, G.R., (2012). Belief-function formulas for audit risk. Accounting Review, pp.249-283.

Tabor, R.H., (2013). Internal control evaluations &audit program revisions: some additional evidence. Journal of Accounting Research, pp.348-354.

Voiculescu, A. &Bumbescu, S.S., (2014). Explaining The Audit Risk &Its Components: A Comparative Case-Study Based On Audit Reports.Annals-Economy Series, 4, pp.138-148.

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