Audit and Assurance

This study provides an overview of audit and assurance, including the definition, tests of controls, and substantive procedures as per ISA 330. It discusses the major deficiencies in the sales system and provides recommendations to resolve them based on a case study. The study also explores the key substantive procedures that auditors should perform to confirm revenue. Additionally, it highlights the importance of auditing standards and their impact on information asymmetry.

Audit and Assurance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
(a).................................................................................................................................................3
(b).................................................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Auditor should follow auditing standard while conducting audit as to detect fraud or risk of
material misstatement in accounts. Primary responsibility of detection of risk and fraud in
financial statement is of management but auditor should apply all the possible measures to obtain
reasonable assurance that accounts of company is free from risk of material-misstatement (Quick
and Henrizi, 2019). The study consists of definition of Tests of controls and Substantive
procedures as per ISA 330. Further it evaluates the major deficiencies in sales system and
recommendation to resolve these deficiencies based on case study of Clean-vegan Co (CV). It
also discusses about key substantive procedures to be adopted by auditor in relation revenue of
respective company.
MAIN BODY
(a).
The central aim of ISA 330, through adequate approaches to these risks, is to provide
guidance for how auditing staff should collect ample evidence of risk measured by material
errors. In this regard following are two main approaches described under this ISA, as follows:
Test of control: An audit process to examine the quality of established controls in order to
avoid, or identify and address material defects at statement level. Though, definitive proof of its
operating efficacy must be collected over the entire or at minimum the bulk of audit duration in
order to consider these measures as the basis over minimizing the monitoring risk evaluated.
Substantive Procedure: An audit technique to find material defects at the point of claim.
Empirical approaches include extensive research and empirical analysis. Substantive procedures
include tests intended to provide evidence that data generated by an accounting system is
complete, reliable and appropriate. This is mainly classified as: Test of Details and Analytical
Procedure (Anderson, Hobson and Peecher, 2019).
Deficiencies in the sales system:
Lack of separation of duties: Companies are prone to fraud from their own staff, because they
may have few employees with multiple roles. As in case of Clean-vegan Co (CV), In hotel
business, company has sales clerk named Linda, who keeps all elements of such revenue stream
running. Linda collects orders from its clients, raises selling invoices and handles payments.

Job roles and responsibilities not clearly defined: Employees are the most valuable resource
and businesses are very dependent on employees. They're client representatives, distributors and
adversaries. Here in given case role of Linda’s job roles are not defined and performing various
roles so Linda or anyone with help of Linda can make fraud easily.
Lack of Authorisation Control: When invoices are raised, the sales program automatically
inserts consumer prices towards products for online trading. Each hotel client has contractual
rates that are cheaper than prices online. Linda edits invoices manually before dispatch. This
shows lack of authorisation control.
Lack of recovery from emergencies, backups including business continuity measures/plan:
The significance of backups and data security has been under-emphasizing several times.
Systems must be configured to conduct backups continuously and on daily basis. As in CV all
the entries are made in single master file and there is no back up of entire sale online trading
system (Eltweri, Sawan and Tahar, 2018).
No structured processes and ethical policies: This control does not appear vital to a company's
performance, but without specific rules for the utilization of corporate properties and priorities,
companies may be vulnerable to redundancies and misuse of resources in pursuit of employee
honesty and morals.
Lack of periodical review: CV conducts reconciliation of sales ledger control at yearly basis
which increase the chances of structured fraud and also at year end review or reconcile may not
be able to detect the error or fraud.
Recommendations:
1. CV should emphasise on proper separation of controls and segregate the more than one
controls assigned to single person within enterprise.
2. Company should define the specific roles and responsibility of each personnel to
establish effective control over processes and accountability.
3. At each process company should put proper authorisation of one or more different staff
members. Also, in sensitive areas like subsequent modification authorisation form top
personnel within enterprise should be compulsory.
4. Regular backup of master file and alternative systems should be placed in company to
handle risk of data loss and other contingencies related to online system.

5. CV should place formal policies for all the customers and employees to avoid the risk of
material misstatement.
6. For more strict control over sales system, company should conduct self-review and
reconciliation of sales control ledger at short interval not only at year end.
(b).
Substantive procedures the auditor should perform to confirm Clean-vegan Co’s revenue:
As discussed above company CV has multiple deficiencies in sales system which can lead to
risk of material misstatement in financial statement. Therefore, auditor should conduct audit of
entire sales system thoroughly. In this regard following are several key substantive procedures
that auditor should perform to ensure cleanness of CV’s sales figures, as follows:
1. Compare overall level of sales with previous years and budgeted figures, and examine
any substantial fluctuations. Also check that opening balances of sales and related
accounts have been properly carried forward.
2. To ensure level of accuracy of invoices, pick a list of random sales invoices or if possible,
all sales invoices and agree selling prices back to contract level. Main focus should be
placed on year-end sales invoices.
3. Review credit notes generated carefully, follow back to the initial invoice to examine
that invoice is withdrawn from sales appropriately and also any modification made in
sales invoices (Alduraywish, 2019).
4. Check client orders placed as well as agree to dispatch notes including delivery invoices
as well as accounting in company's sales control ledger for ensuring completeness
of sales.
5. Pick sample of dispatch notes both before and after end of year; apply them to revenue
invoices in relevant accounting cycle to confirm about cut-off has been implemented
properly.
CONCLUSION
From above study it has been articulated that auditor has to analyse the nature of monitors or
controls in order to determine the effectiveness of their assessment in achieving transactional
audit goals. Some data was gathered in favour of the specification and proof that controls are
applied in the comprehension process.

REFERENCES
Books and Journals:
Quick, R. and Henrizi, P., 2019. Experimental evidence on external auditor reliance on the
internal audit. Review of Managerial Science, 13(5), pp.1143-1176.
Anderson, S., Hobson, J. and Peecher, M., 2019. The Joint Effects of Rich Data Visualization
and Analytical Procedure Categorization on Auditor Judgment.
Eltweri, A., Sawan, N. and Tahar, A.R., 2018. The Harmonising of Auditing Standards in
Emerging Economies from The Stakeholders’ Perspectives. Corporate Ownership and
Control, 15, pp.201-212.
Alduraywish, Y., 2019, July. Auditing Standards, Increased Accounting Disclosure, and
Information Asymmetry: Evidence from the UK. In Academy of Management
Proceedings (Vol. 2019, No. 1, p. 13213). Briarcliff Manor, NY 10510: Academy of
Management.