AUDIT AND ASSURANCE SERVICES

Running head: AUDIT AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student:
Name of the University:
Authors Note:

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Contents
Introduction:....................................................................................................................................3
Overview Memo:.............................................................................................................................3
Phase I -Planting and designing phase:...........................................................................................4
Acceptance of client and initial audit planning:..........................................................................4
Understanding the business of the client and the industry in which the client work:.................4
Performing preliminary analytical procedures necessary for the audit:......................................4
Setting the preliminary level of materiality and performing materiality tests for the audit:.......5
Identification of significant risks owing to the possibility of fraud and error:............................7
Assessment of inherent risk:........................................................................................................7
Verification of internal controls and assessing their effectiveness and efficiency:.....................8
Finalization of audit strategy and plan to conduct and efficient and effective audit of financial
statements:...................................................................................................................................8
Phase II –Substantive tests and test of controls:..............................................................................8
Necessary steps to reduce the assessed level of control risk:......................................................8
Performance of substantive test:..................................................................................................9
Assessment of the possibility of misstatements in financial statements:....................................9
Phase III –Substantive analytical procedures and tests of details of balances:.............................10
Substantive analytical procedures:............................................................................................10
Test of key items:.......................................................................................................................11

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Conducting additional tests of details of balances:....................................................................12
Phase IV –Complete the audit and issue an audit report:..............................................................12
Additional tests necessary for the presentation and disclosure:................................................12
Accumulation of final evidence:................................................................................................12
Evaluation of results:.................................................................................................................12
Issuance of audit report:.............................................................................................................12
Communication with audit committee and management:.........................................................13
Conclusion:....................................................................................................................................13
References:....................................................................................................................................14

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Introduction:
Columbia Sportswear Company was founded by Paul Lamfrom in the year 1938 as a sole
proprietorship company. However, it is only as recently as 1998 when the company decided to
go public with its shares by issuing initial public offer (IPO). In the year 2018, the company
completed its 80 years in business. As per the annual report 2018, the company has achieved
ground breaking results and exceeded its own expectations as its share price which was $18 at
the time of IPO has risen to $309 per share as in February, 2019. In fact considering dividend
reinvestment the shareholders who invested in the shares of the company at the time of its IPO
there has been a 2,000 percent on that investment.
Overview Memo:
The objective of this document is to prepare an audit plan for the company to assess whether the
financial statements of the company reflects the true and fair position of the company as on the
date of the financial statements.
An audit is about auditing the financial statements of an organization with the objective of
providing an appropriate opinion on the financial statements of the organization. The audit report
states whether the financial statements of an organization have been prepared in accordance with
the accounting standards applicable for such organization to reflect the true and fair picture of
the organization’s performance and position as on the date of the financial statements. The 2018
annual report of Columbia Sportswear Company contains the financial statements of the
company for the year shall be audited in accordance with the following audit plan to allow the
auditors to give appropriate opinion on the financial statements of the company. Collection of

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evidence to support the audit conclusion and opinion of the auditors by conducting an efficient
and effective audit is the prime objective of an audit plan.
An efficient audit must have four different and separate phases with each phase having specific
goals and objectives. An audit must be conducted in accordance with an efficient audit plan to
conduct an efficient and effective audit. A detailed discussion on the four different phases in an
audit in respect to Columbia Sportswear Company is provided below.
Phase I -Planting and designing phase:
Acceptance of client and initial audit planning:
An auditor before accepting an audit must carry out necessary pre-audit operations to decide
whether to accept the audit engagement or not. It is the responsibility of the present auditor to
communicate with the previous auditor of the company as to whether there is any reason for the
former to not accept the audit engagement. The present auditor shall also discuss whether there is
any audit fees due which has not been paid to the previous auditor along with other reasons if
any to not accept the audit engagement (Smith & Stephens, 2020).
On the basis of discussion with the previous auditor and other necessary steps the auditor should
decide whether to accept the audit engagement. In this case there is no reason for not accepting
the audit engagement of Columbia Sportswear Company thus, the auditor should accept the offer
of auditing the financial statements of the company (Sheshukova & Beresneva, 2017).
Understanding the business of the client and the industry in which the client work:
Performing preliminary analytical procedures necessary for the audit:
AS 2101 issued by the Public Company Accounting Oversight Board (PCAOB) on audit
planning provides detailed guidelines for the auditors to plan an efficient audit. In order to

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conduct an audit efficiently the auditor must have necessary knowledge about the business of the
client and the industry to which the client belongs. Columbia Sportswear Company (CSC) is
involved in manufacturing and distribution of sportswear, footwear, headgear, outwear, ski
apparel, camping equipment and other accessories (Kilgore, Radich & Harrison, 2018).
Setting the preliminary level of materiality and performing materiality tests for the audit:
AS 2105 provides extensive guidelines for the auditors to consider materiality in planning and
performing an audit. Generally, the auditor is responsible to set initial preliminary level of
materiality on the basis of his knowledge about the financial transactions of client’s business.
Generally percentages are used to set preliminary materiality level to preform materiality tests
for an audit. In case of audit of CSC each and every account balances shall be checked and
verified along with all transactions in excess of $1000 (Yakimova & Radomskii, 2017). In
addition the items of revenue and expenses which are 1% or higher in respect of overall sales of
the company shall be specifically tested and verified by conducting a throughput tests on such
transactions. Each asset and liabilities shall be verified with appropriate document to assess their
validity and correctness. In order to set the preliminary materiality level for the audit of items of
income and expenditures, the following balances from the income statement of the company
shall be used (Ismajli, Perjuci, Prenaj & Braha, 2019).
Income statement of CSC
All amounts are in US$ millions 2017-12 2018-12
Gross revenue earned 2,466.00 2,802.00
Less: Direct cost of revenue 1,306.00 1,416.00

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Gross profit 1,160.00 1,386.00
Less: Operating expenses
General and administrative expenses 911.00 1,051.00
Other operating expenses (14.00) (16.00)
Total operating expenses 897.00 1,035.00
Earnings before interest and taxes 263.00 351.00
Interest Expense -
Other income (expense) 4.00 10.00
Earnings before taxes 267.00 361.00
Less: Provision for income taxes 154.00 86.00
Profit after tax 112.00 275.00
Other (7.00) (7.00)
Net income 105.00 268.00
Net income available to common shareholders 105 268
Earnings per share
Basic 1.51 3.85
Diluted 1.49 3.81

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Considering that the initial materiality level for items of income and expenditures has been set at
1% of the gross revenue hence, any financial transaction in excess of $28.02 million ($2,802 x
1%) must be checked from its initiation to its recording phase, i.e. such transactions are subjected
to throughput test. In addition each transaction in excess of $1,000 shall be verified and checked
with supporting document to identify whether there is any fraud and error in the financial
statements (Sikka, 2017).
Identification of significant risks owing to the possibility of fraud and error:
The company is involved in manufacturing and distribution of sportswear and other accessories
including headgear, camping equipment and others. Conducting an initial assessment of client’s
business and the industry showed us the risks of constant changes in customer preferences and
tastes when it comes to sportswear and outwear apparel. Thus, the significant risk of obsolete
stock and the possibility of fraud and error in inventory valuation must be specifically verified
and tested by the auditor by using appropriate audit techniques and procedures (HIRST &
KOONCE, 2018).
Assessment of inherent risk:
AS 2110 discusses importance of identification and assessment of risks of material
misstatements in financial statements. Inherent risk is the risk inherent in audit, i.e. irrespective
of audit procedures and effectiveness of those procedures there would be some error in the
financial statements. However, the extent of inherent risk must be low or within the reals and
bounds to carry out the audit efficiently. In this case the inherent audit risk is quite low as the

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auditor has decided to use extensive analytical and substantive tests to conduct the audit
efficiently.
Verification of internal controls and assessing their effectiveness and efficiency:
The company has standard internal controls in place which have been in operation throughout the
previous financial year and earlier hence, the auditor can rely on these internal controls while
carrying out necessary audit procedures to conduct the audit of the company. The internal control
in respect of stock taking of the company is however not up to the scratch hence, extensive audit
procedures shall be used by auditors in respect of inventory valuation including physical
verification of inventories while carrying out the audit (HIRST & KOONCE, 2018).
Finalization of audit strategy and plan to conduct and efficient and effective audit of
financial statements:
Apart from vouching which includes verification of each voucher along with supporting
document to justify the payments and received the auditor will conduct detailed analytical test on
the account balances and various items of financial statements to identify abnormal fluctuations
in different account balances and transactions to determine the extent of substantive procedures
necessary for the auditing of various accounts balances, class of transactions and items within the
financial statements of the company (Ismajli, Perjuci, Prenaj & Braha, 2019).
Phase II –Substantive tests and test of controls:
Necessary steps to reduce the assessed level of control risk:
As already discussed that apart from the stocking taking and inventory valuation of the company,
there is no major control risk in the audit of the company. However, despite that the auditor has

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decided to conduct physical verification of assets including inventory of the company and cash
balances. Apart from that the following steps shall be taken to reduce the overall control risks.
I. Verification of each internal control.
II. Effectiveness of the internal controls verification.
III. Assessment of whether these controls have been in place throughout the year.
IV. Verification of accounting system and software used within the company.
V. Carrying out sample transactions in the accounting system and software to understand
how the system works.
Performance of substantive test:
Financial transactions and account balances of the company in accordance with the pre-
determined materiality level shall be verified along with supporting documents against these
transactions and account balances. The supporting documents along with vouchers must be
verified to check whither these have been recorded correctly or not (Hellman, 2019).
Assessment of the possibility of misstatements in financial statements:
The auditor must verify whether the applicable accounting standards have been followed or not
in preparation and presentation of the financial statements of the company. The company has
prepared a complete set of financial statements including income statement, financial position
statement, cash flow statements, statements of changes in equity and notes to accounts. The
annual report of the company clearly states that the company has complied with the applicable
accounting standards to prepare and present its financial statements. The verification of accounts
balances and financial transactions along with the accounting records show that the company has

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followed the accounting standards properly in preparation and presentation of financial
statements of the company (Heintz, White & Bedard, 2016).
Phase III –Substantive analytical procedures and tests of details of balances:
Substantive analytical procedures:
Substantive procedures include verification of supporting documents against the financial
transactions. Conducting throughput testing on different financial transactions to track such
transactions from initiation to recording is also included in the substantive procedures.
Analytical procedures include ratio analysis to assess the abnormal fluctuation in performance
and position yardsticks such as gross profit margin, operating margin, inventory turnover, net
profit margin, asset turnover and other such ratios.
Profitability 2017-
12
2018-
12
Tax Rate % 57.89 23.78
Net Margin % 4.26 9.57
Asset Turnover (Average) 1.17 1.22
Return on Assets % 4.97 11.71
Financial Leverage (Average) 1.36 1.42
Return on Equity % 6.61 16.28
Return on Invested Capital % 6.45 15.82

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Current Ratio 3.64 3.08
Quick Ratio 2.5 2.01
Financial Leverage 1.36 1.42
Efficiency 2017-
12
2018-
12
Cash Conversion Cycle 118.56 111.42
Receivables Turnover 7.06 6.88
Inventory Turnover 2.76 2.89
Fixed Assets Turnover 8.79 9.78
Asset Turnover 1.17 1.22
Test of key items:
The following key items shall be tested:
I. Inventory.
II. Items of revenue and expenses in excess of certain amounts.
III. Cash and bank balances.
IV. Fixed assets and their valuation.
V. Depreciation and the method used to charge the amount of depreciation.
VI. Amortization.

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VII. Revaluation of assets.
Conducting additional tests of details of balances:
Additional tests of details include test of accounts receivable and accounts payable balances
along with sales and revenue balances. This is specifically considering the importance of these
account balances (Farrar, 2018).
Phase IV –Complete the audit and issue an audit report:
Additional tests necessary for the presentation and disclosure:
Additional test include the test to check whether the financial statements have been prepared and
presented in accordance with the accounting standards applicable in the country.
Accumulation of final evidence:
Auditing working paper including evidence collected during vouching, verification of financial
transactions and account balances must be kept in a spate file to be used as final audit evidence
to support the audit option expressed by the auditors (Asare, Davidson & Gramling, 2018).
Evaluation of results:
The audit evidence collected by using analytical and substantive procedures must be evaluated to
assess the nature of these statements in disclosing the true and fair picture of the company as on
the date of the financial statements.
Issuance of audit report:
Subsequent to the completion of the audit the auditor / auditors shall issue an audit report to
express an opinion on the financial statements of the company audited.

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Communication with audit committee and management:
Necessary findings and conclusions made by the auditors over the course of auditing shall be
documented and communicated in a timely manner with the management and audit committee of
the company.
Conclusion:
Taking into consideration the discussion above it is clear that the audit of financial statements of
Columbia Sportswear Company must be conducted in a systematic and planned manner to
corroborate necessary audit evidence to express appropriate opinion on these statements. The
audit plan in this document shows the importance of different phases in an audit and how
effective it would be for the auditor to use each and every single steps mentioned in this audit
plan discharge the responsibilities of an auditor properly.

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References:
Asare, S., Davidson, R., & Gramling, A. (2018). Internal Auditors' Evaluation of Fraud Factors
in Planning an Audit: The Importance of Audit Committee Quality and Management
Incentives. International Journal Of Auditing, 17(5), 181-203. doi: 10.1111/j.1099-
1123.2008.00379.x
Farrar, F. (2018). Role and Function of the Public Company Accounting Oversight Board and
Auditing Standard No. 5 an Audit Internal Control Over Financial Reporting that Integrated
with an Audit of Financial Statements. SSRN Electronic Journal, 3(3), 177-180\. doi:
10.2139/ssrn.1564410
Heintz, J., White, G., & Bedard, J. (2016). The Effect of Data Reliability on the Influence of
Unaudited Values in Audit Analytical Procedures. International Journal Of Auditing, 7(3),
135-146. doi: 10.1111/1099-1123.00054
Hellman, N. (2019). Chief Financial Officer Influence on Audit Planning. International Journal
Of Auditing, 17(4), 247-274. doi: 10.1111/j.1099-1123.2011.00433.x
HIRST, D., & KOONCE, L. (2018). Audit Analytical Procedures: A Field
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3846.1996.tb00511.x
Ismajli, H., Perjuci, E., Prenaj, V., & Braha, M. (2019). The Importance of External Audit in
Detecting Abnormalities and Fraud in the Financial Statements of Public Enterprises in
Kosovo. Ekonomika, 98(1), 124-134. doi: 10.15388/ekon.2019.1.8

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Kilgore, A., Radich, R., & Harrison, G. (2018). The Relative Importance of Audit Quality
Attributes. Australian Accounting Review, 24(6), 253-265. doi: 10.1111/j.1835-
2561.2011.00141.x
Koskivaara, E. (2018). INTEGRATING ANALYTICAL PROCEDURES INTO THE
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Technology Management, 5(4), 331-346. doi: 10.4301/s1807-17752006000300005
Sheshukova, T., & Beresneva, A. (2017). About the analytical procedures concept in
audit. Auditor, 3(21), 28-33. doi: 10.12737/12751
Sikka, P. (2017). Audit reports on the financial statements of multinational companies. The
British Accounting Review, 27(7), 89. doi: 10.1016/0890-8389(91)90013-r
Smith, J., & Stephens, N. (2020). The Reel Wheel: Using Analytical Procedures as Substantive
Tests of Account Balances. Issues In Accounting Education, 35(1), 13-24. doi:
10.2308/iace-52584
Yakimova, V., & Radomskii, V. (2017). Using the analytical procedures to form audit sampling
in the audit of wage settlements. International Accounting, 20(15), 897-916. doi:
10.24891/ia.20.15.897

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