Audit and Assurance

Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of the Student:
Name of the University:
Author’s Note

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AUDIT AND ASSURANCE
Memo
To: Wayne Wiadrowski
From: The Audit Manager
Date: 8th May, 2019
Subject: Audit risks applicable to the business
Purpose and Scope
The main purpose of the memo is to bringing into light the audit risks which is associated with
the business and the same would be assessing the key financial ratios which are considered and
the internal control settings of the business. The memo would be identifying the weaknesses in
the internal control system of the business and the necessary audit procedures which the audit
needs to take for assessing the audit risks of the business.
Ratios Analysis Audit Risks Audit Procedures
Current Ratio The current ratio of
the business is shown
to be more than the
budgeted estimate of
the business but the
same is lower than
industry average.
This indicates that the
current assets of the
business has either
increased or it may be
due to decrease in
current liabilities of
the business.
The audit risk
associated with
current ratio is that
there might be
presence of material
misstatement in the
values which is
portrayed for current
assets or current
liabilities of the
business.
The auditor needs to
apply test of detail
analysis in order to
assess whether the
figures of current
assets and current
liabilities of the
business is showing
true and fair view
(Alles et al.,2018).
The auditor needs to
apply verification
procedures for the
purpose of
understanding the
values of the assets

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AUDIT AND ASSURANCE
and liabilities of the
business.
Quick ratio The quick ratio of the
business reflects the
ability of the business
to meet the ability of
the business to meet
the current
obligations of the
business (Vaitzblit et
al., 2018). The
estimate of quick
ratio also is shown to
have increased from
previous year which
may be due to
increase in the value
of the current assets
of the business.
The increase in quick
ratio of the business
might be due to
overvaluation of the
current assets of the
business while it may
also be due to
undervaluation of the
current liabilities of
the business.
The auditor in this
circumstance should
apply both test of
control and test of
details for better
assessment of risks
associated with the
business. The auditor
can check all the
current liabilities with
are of immediate
nature and ensure that
the management has
made payments
regarding the same
while at the same
time analysis of the
internal control
system is also
required so that the
auditor can estimate
whether proper
valuation policies are
adopted by the
management of the
company or not.
Return on Equity The return on equity
estimate is considered
to be an important
The main risk which
is associated with
such ratio is
The auditor in this
case needs to apply
test of details to

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AUDIT AND ASSURANCE
estimate for the
shareholders of the
business and the
same shows that there
is a tremendous fall
in the estimate which
can be a result of low
profits which is
earned by the
business during the
period.
misstatement in the
figures of profits or
misstatement in
equity estimates. The
profits of the business
might be shown
lower than the real
profits in case of
misstatement in
profits of the
business. In case of
misstatement in
equity values, the
same might be shown
a bit above the real
value.
understand every
aspect of the ledgers
relating to expenses
incurred by the
business and also the
revenue earned by the
business (Jans, Alles
& Vasarhelyi, 2013).
The auditor would be
conducting vouching
practices in the
business so as to
ascertain the items
presented in profit
and loss statement are
accurate.
Return on Total
Assets
The estimate of total
asset is considered to
be one of the
indicators of success
of the business. The
ratio analysis shows
that there is a
decrease in the
estimate which may
be due to low profits
of the business.
The major risks
which is associated
with the ratio is that
the profit of the
business might be
shown to be lower
while the assets of the
business might be
overvalued which
would affect the
financial position of
the business
drastically.
The auditor needs to
apply test of details
procedure in order to
appropriate check the
items of income
statement of the
business. The auditor
need to estimate
whether proper
valuation policies are
adopted by the
management of the
company for the
assets of the business
or not.