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ACC 301 - Assignment On Audit & Factors That Affects

   

Added on  2020-02-24

11 Pages2503 Words65 Views
By student name ProfessorUniversityDate: 25 August 2017.

1ContentsQuestion no 1..............................................................................2Question no 2..............................................................................6Question no 3..............................................................................8Refrences....................................................................................101 | P a g e

2Question no 1While accepting the audit of the client, the auditor needs to understand the business, internaland external business environment, the industry in which it is operating, the management and itsassertions. It is important that the auditor apply his professional skepticm and judgment before takingmajor decisions. Audit is conducted with the objective of determining the risk of material misstatementsgiven the assumption that the management has tried to identify and mitigate all the types of risks. Oneof the important aspects of auditing is studying and mitigating the risks posed by the related partytransactions by adequately disclosing the same in the financials[ CITATION Rai16 \l 1033 ]. The auditormust also provide the reasonable assurance to both the internal and the external users, the auditorneeds to check the going concern assumption, consistency, etc. The various procedures which theauditor undertakes for completion of the substantive audit includes observation of the key controls inpractice, inspection of the books of accounts and supporting and evidence on the basis of whichincomes and related expenditure are recorded in the books etc. It also includes using differentprocedures to conclude on the existence of the asset and liabilities on the reporting date, whether thesame has been properly disclosed in the notes, whether proper valuation of the intangibles andinventory has been done, and whether the completeness of the accounts is being ensured. An exampleof the same would be to check the outflows of cash and bank from the bank statements and the cashledger book and reconciling the same at the period end[ CITATION Kne16 \l 1033 ]. Once the substantive procedures are went through, the auditor also makes makes use of theanalytical procedures before making an audit plan. This generally includes comparison of the client’sfinancial numbers with the industry data, the numbers in the previous period in the last year and justpreviously ended quarter, analysis of key financial ratios, trend analysis, budgeted and forecastingprocedures and finally concluding with the trends of the non-financial data. Besides all this, the auditoris also responsible to check the method and procedure being followed to book the expenses, recognitionof the revenue in the books, whether the same has been done on a reasonable basis or it is overstatedor understated. Based on all the above procedures and the effectiveness of the internal control existingin the organization, the auditor plans the audit steps to be taken and the nature of the procedures to befollowed, the time to be allocated and extent to which the checking will be done by establishing theaudit materiality-planning threshold. In case the internal control is weak, the risk is more and thereforeless reliance can be placed on what is reported. Similarly, if the internal control being established andpracticed within the entity is strong, more reliance can be placed on it and therefore the audit plan need2 | P a g e

3not be revisited. Misstatements in the financials can be of various types like specific errors, immaterialerrors or projected frauds. All this needs to be taken into consideration before expressing an opinion ofthe financial statements and laying the audit strategy[ CITATION Jon171 \l 1033 ].Stewart and Kathy are the auditors who will be auditing the client DIPL limited and they aretaking over from the old auditors Jay and Associates. There has been manychanges, which DIPL hasundergone in the recent past like change in the IT system, implementing it without testing and properplanning, changes in the policy of reporting, the depreciation method, etc. Besides this, there is hugeconcern as some of the transactions have been recorded in the period to which it does not pertain. Inthe likes of above discrepancies, the responsibility of the new auditor has multiplied and therefore itneeds to bring in front of the management the summary of the major observations noted. In theabsence of Industry data, the comparative analysis with industry was not possible and hence theanalysis has been restricted only to the ratio analysis for the last 3 years. Results201320142015Total current assets5,385,9387,509,1509,600,929Total current liabilities3,780,0005,120,2506,397,500Result1.421.471.50Negatve201320142015Total current assets - Inventory - Prepaid expenses3,129,7504,837,7885,420,429Total current liabilities3,780,0005,120,2506,397,500Result0.830.940.85Negative1. Short term solvency or liquidity RatiosCurrent Ratio = Total current assets/ Total current liabilitiesLiquid ratio /Quick Ratio = (Total current assets - Inventory - Prepaid expenses)/ Total current liabilitiesResults201320142015Total Debts3,780,0005,120,25013,897,500Total Assets5,120,25015,903,90026,147,991Result74%32%53%Positive201320142015Total Debts3,780,0005,120,25013,897,500Total owners' equity9,150,00010,783,65012,250,491Result41%47%113%Negative2. Debt Management RatiosDebt ratio = (Total Debts / Total Assets) or ((Total assets- total owners' equity)/total assets)Debt to Equity Ratio = (Total Debt/Total owners' equity) or ((Total assets- total owners' equity)/total owners' equity)3 | P a g e

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