(ACCT 460)-Principles of Auditing Assignment 2 Version C: Risks in Handling Accounting Records

ACCT 460: Principles of Auditing
Assignment 2, Version C

TABLE OF CONTENTS
Question 1..................................................................................................................................3
A.............................................................................................................................................3
B.............................................................................................................................................3
Question 2..................................................................................................................................4
Question 3..................................................................................................................................5
A.............................................................................................................................................5
B.............................................................................................................................................5
C.............................................................................................................................................5
References..................................................................................................................................7

QUESTION 1
A
The risk associated with the current method of handling accounting records at Frankincense
Machining accounts
Audit standards specifies inherent risk as the susceptibility of assertion relating to the class of
a transaction or account balance or disclosure to a misstatement which could be material prior
considering related controls. Inherent risk is significantly associated in the present method of
accounting as all the records are handled at one place and it has become easy to manipulate
books of accounts or to make any fraud. Another issue which exists in the present case in the
absence of audit trail, i.e. no evidence is available of initiating the transaction as well as
ending transaction due to which it could not be assessed that when the transaction initiated
and accomplished as well. Internal control can be referred to as a procedure which is
designed in order to accomplish the objective of the reliability of financial reporting and
effectiveness of operations. In present case risk relating to internal control also exists as the
reliable financial reports are dependent on the efficiency of new accounting suite. Risk
relating to duplication of the invoice is one the main issue to be assessed while application of
an accounting suite. Thus, in order to assess same, it should be checked that no invoice is
entered twice.
B
The main objective of auditor is to ascertain and assess the risk relating to material
misstatement due to error or fraud in accounting records and at assertion level through
understanding the nature of entity along with its internal control. Activities which can be
conducted by Frank in order to handle sales, accounts receivable, cash disbursement and
payroll:
As per assertions, cancelled and returned check is not a normal business activity. Thus the
same should be assessed in detail in order to ascertain its validity and appropriateness of
sales.
An average of payments to a particular vendor should be ascertained, and the amount above
same should be checked in detail manner.