Audit and Assurance

This document provides information on audit and assurance, including topics like independence, internal control weaknesses, and steps to be taken prior to appointment. It also discusses internal control weaknesses in Everyday Suppliers, Retro's, and MyPet Pty Limited. Test recommendations for inventory systems are also provided.

Running head: Audit and Assurance
Audit and Assurance
Name of the Student
Name of the University
Author Note

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Audit and Assurance
Table of Contents
Answer No 1..............................................................................................................................2
1A...........................................................................................................................................2
1B...........................................................................................................................................2
Answer No 2..............................................................................................................................3
Answer No 3..............................................................................................................................4
Answer to 4................................................................................................................................6
Answer to 5................................................................................................................................7
5 A..........................................................................................................................................7
5 B..........................................................................................................................................8
References..................................................................................................................................9

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Answer No 1
1A
Independence in actual means that auditor should not perform any audit of the
company where there is any interest of the auditor or family is there (Lennox, Wu & Zhang
2014). The importance of the independence is that it help the auditor to perform their job
independent and help them to give a true and fair opinion.
Independence in perceived means that the auditor should maintain a professional
distance from the management of the company (Vincent et al., 2014). The importance is that
it help the auditor to make a clear distance and help to make an individual opinion regarding
the financial statement.
1B
1. It breached the confidentiality concept of professional standard as it should not use
any information of the company to any another company. As the company
information should not be used by the auditor for any other company. So as it have
used so it broke the concept of confidentiality (Groomer & Murthy 2018). The auditor
can also save this breach if it would have asked the management of the company
named Club Casino, about using their information as a part of his service to another
client and should have taken the permission of the company than it would not breach
the concept of confidentiality.
2. It breached the professional service of audit as it provide the non – audit services to
the company which should not be provided by the auditor. The auditor should not
provide any service except the audit service as the auditor should have professional
gape with the management and to do that it should maintain a gap and if it provide
them service of company secretaries than it may affect the independence decision of

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the auditor (Ettredge, Fuerherm & Li 2014). It can avoided if it does not provide them
any additional service and instead it could recommend some other person for the
required job in the company.
3. It is breached of professional behaviour as it have taken the son of the client in
pursing the audit procedure of the company as if the audit is carried by Leo and as it is
the owner son so it will look out all the matters related to the internal control and as a
result auditor will not able to give a fair opinion upon the financial statement of the
company. The auditor can stop these by not putting Leo in the company and should
change its company and appoint it as an intern in audit for some different company.
4. It is breached of professional service as it include the self-interest threats. As the
company offer the auditor share in the other company as a gift which can result in
change in the opinion of the auditor as getting cash benefits may affect the overall
decision of the company (Christensen et al,. 2016). It can discharge this
responsibilities by not taking the share and furniture and should only ask for the
required cash which is due with the company and should go for legal purpose to take
their money but should not take share in return for the audit fees.
Answer No 2
As per the given case study the audit procedure should be accepted by the company
and before accepting the audit, the outline regarding the issue related to ethical, legal and
other factors which should be consider are as it should check whether all the necessary
adjustments have done in regards of previous audit company (Badolato, Donelson & Ege
2014). It will check about all legal formalities which are done in respect of the audit company
in regards with the case and how the company deals with it and in regards with the other
factor it should do a market research of the company to know the goodwill and market value
of the company.

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Steps to be taken prior the appointment are:
 First it will have taken approval of old audit firm and ask all the necessary details
about the firm.
 It will see all the details of the case happen and the reason regarding the case
 It should enquire about the details from the statutory body.
 It should talk with the management and ask about the audit procedure
 Should know in details of the industry norms and how to plan the audit procedure.
 Should take advice from the experts in regards with the matters
So by completing above mentioned all the steps than the auditor should agree upon the audit
process of the company and should send their audit engagement in regards with same which
have all the details regarding the audit process and how the audit will be carried by the
auditor in the company.
Answer No 3
The five internal control weakness in Everyday Suppliers in regard with the cash receipt and
billing functions are:
1. The weakness in the cash receipt is they do not check the contractor goodwill and by
assuming the reputation the manager passed by the order. It is clearly a weakness as
the manager should check the client before giving them the order as if the client is
unable to pay than the company may have to suffer loss which in result will affect the
financial position of the company (Tepalagul & Lin 2015). So the company should
check each person financial and goodwill before doing any big business with them.
2. The second weakness in the internal control is that the account are been transferred
electronically and the manager does not have checked the entries and without
rechecking and re-conciliation withy the account receivable control account the

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Audit and Assurance
supervise have passed the entries. It is consider as a weakness as may error and
omission take place and the supervisor has not re-conciliated so it cannot be known
whether all the transaction have been recorded or not. So it can affect the account
details and can make a material misstatement in the balance sheet.
3. The third weakness in the internal control is that the cashier does not check the cash
balance daily as it should have check the it daily and also it supervise many process of
the person will not able give full concentration upon the cash and as a result it may
lose some vital information regarding the cash. It is consider as a weakness as if the
cashier does not check each day balance than it may happen that any error or omission
can take place which will directly affect the cash position of the company and it will
also affect the financial position of the company.
4. The fourth weakness in the internal control is that the cashier is not able to check the
journal and ledger of the company so as result it will not able to check and verify the
balances which may affect the position of the company (Agyei-Mensah 2016). It is
consider as a weakness as if the cashier need not able to see the books of accounts
how it will make sure that the accounts are showing the correct position and as it is
not able to check so it will not able to rectify any error which had happen in regards of
the bank balance.
5. The fifth and last is only one person have the right to record the transaction so it is
also is a weakness of internal control as only the book-keeper records so it may
happen that due to human error or necessarily it does not record any transaction to
avoid the implications in the balance sheet. It is consider to be a weakness of internal
control as if only one person is authorise than many material misstatement can take
place and also error and omission can take place which will result give affect in
financial statement of the company.

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Audit and Assurance
Answer to 4
The seven internal control weakness in Retro’s in regards with purchases and payments
functions are:
1. The first internal control weakness is that it does not check the purchase requisition so
it may happen that overstock of goods are there in the business (Jha & Chen 2014). It
is treated as internal control weakness as if company have overs stock goods t will
block their money and also it show how poor the management works in regards with
the stock.
2. The second internal control weakness is that it does not select the supplier s it only
send how the supplier selected should also be there as it should be selected
considering all the factors like price, terms (Balsam, Jiang & Lu 2014). It is consider
as internal weakness as it may happen the supplier charge high price from the
company.
3. The third weakness is that it only checked the shipment lo and not the goods, as it
should have checked the goods which are there in the box (Newton et al,. 2014). It is
treated as a weakness in the internal control as company should check each product as
each product will affect the business of the company.
4. The fourth weakness is that it only checked the purchase invoice and not check the
original price outside so it does not compare the price with other suppliers (Lin et al ,.
2014). It is treated as an internal control weakness as it does not checked properly the
price and term while doing payment to the suppliers
5. The fifth weakness is that it does not verify each invoice from the respected person as
it should verify each document from the party (Xu & Tang 2015). It is consider as
internal control weakness as no third party verification have done by the account
payable department.

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Audit and Assurance
6. The sixth weakness is that it does not check the details of the supplier and whether the
product of the company. It is treated as weakness as the company should check
whether all the party process have done or not.
7. The seventh weakness is that the assistant accountant check the transaction in a month
but it should be checked within 15 days. It is treated as weakness as the company
should check the transaction details within 15 days so no misstatement can occur and
also if any error occur due to checking in short term will make the management to
know why the error has happen in the company.
Answer to 5
5 A
The six weakness in the internal control of MyPet Pty Limited are given below:
1. The first weakness is that the purchase order is computer generated so it does not see
the price and the quality (Donelson, Ege & McInnis 2016). It is considered to be a
weakness as the company does not check the price an terms in regards with other
suppliers.
2. The second weakness is that they do not record the scanning process if the code does
not match as a result company does not able to get proper record of stock in the
company. It is considered to be a weakness as without scanning the company will not
able to match it record as a result it will not able to maintain the records.
3. The third weakness it automatic generate they production order and does not consider
the demand and need of the customer as a result the company may lose the business
(Brown, Pott & Wömpener 2014). It is consider to be weakness as if it increase the
production and not able to sale it will affect the financial position of the company

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4. The fourth weakness is it does not record the finished stock properly as if the bar code
does not match with master file it does not record the same (Vovchenko et al,. 2017).
It is consider to be weakness as if they do not record the finished goods properly than
how the company will able to manage the finished goods.
5. The fifth weakness is that the computer automatically select the suppliers so the
company does not check the term and the reputation of the suppliers. It is consider to
be a weakness as if the company will not check the reputation than the quality of the
product may affect in the business.
6. The sixth weakness in the internal control is that the only specific person have access
to the printing so it can be that it is misused by them for their own personal space. It is
consider to be weakness as if one person have the access so no clarification an
verification can be done as a result it will affect the company financial statement.
5 B
The two test which should be perform in respect of Inventory systems are
1. Arithmetical Accuracy will be checked by the auditor
2. Comparison of assets to records

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References
Agyei-Mensah, B. K. (2016). Internal control information disclosure and corporate
governance: evidence from an emerging market. Corporate Governance: The
international journal of business in society, 16(1), 79-95.
Badolato, P. G., Donelson, D. C., & Ege, M. (2014). Audit committee financial expertise and
earnings management: The role of status. Journal of Accounting and
Economics, 58(2-3), 208-230.
Balsam, S., Jiang, W., & Lu, B. (2014). Equity incentives and internal control
weaknesses. Contemporary Accounting Research, 31(1), 178-201.
Brown, N. C., Pott, C., & Wömpener, A. (2014). The effect of internal control and risk
management regulation on earnings quality: Evidence from Germany. Journal of
Accounting and Public Policy, 33(1), 1-31.
Christensen, B. E., Glover, S. M., Omer, T. C., & Shelley, M. K. (2016). Understanding audit
quality: Insights from audit professionals and investors. Contemporary Accounting
Research, 33(4), 1648-1684.
Donelson, D. C., Ege, M. S., & McInnis, J. M. (2016). Internal control weaknesses and
financial reporting fraud. Auditing: A Journal of Practice & Theory, 36(3), 45-69.
Ettredge, M., Fuerherm, E. E., & Li, C. (2014). Fee pressure and audit quality. Accounting,
Organizations and Society, 39(4), 247-263.
Groomer, S. M., & Murthy, U. S. (2018). Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and
Application (pp. 105-124). Emerald Publishing Limited.

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Jha, A., & Chen, Y. (2014). Audit fees and social capital. The Accounting Review, 90(2), 611-
639.
Lennox, C. S., Wu, X., & Zhang, T. (2014). Does mandatory rotation of audit partners
improve audit quality?. The accounting review, 89(5), 1775-1803.
Lin, Y. C., Wang, Y. C., Chiou, J. R., & Huang, H. W. (2014). CEO characteristics and
internal control quality. Corporate Governance: An International Review, 22(1), 24-
42.
Newton, N. J., Persellin, J. S., Wang, D., & Wilkins, M. S. (2015). Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), 603-623.
Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), 101-121.
Vincent, J. L., Marshall, J. C., Ñamendys-Silva, S. A., François, B., Martin-Loeches, I.,
Lipman, J., ... & Jimenez, E. (2014). Assessment of the worldwide burden of critical
illness: the intensive care over nations (ICON) audit. The lancet Respiratory
medicine, 2(5), 380-386.
Vovchenko, N. G., Holina, G. M., Orobinskiy, A. S., & Sichev, R. A. (2017). Ensuring
financial stability of companies on the basis of international experience in
construction of risks maps, internal control and audit. European Research Studies
Journal, 20(1), 350-368.
Xu, L., & Tang, A. P. (2015). Internal control material weakness, analysts accuracy and bias,
and brokerage reputation. Handbook of Financial Econometrics and Statistics, 1719-
1751.

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