Audit Control and Planning for Trunkey Creek Wines Ltd

This report assists in focusing upon the audit planning strategies of Trunkey Creek Wines Ltd. In relation to this, the auditing of this organization has been undertaken by MYH (Miller Yates Howarth) that is an accounting firm based in Australia. This report starts with the assessment part wherein ratio calculations have been undertaken for the accounts that are depicted as listed by the audit partners.

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Auditing

Audit control
Executive summary
When the processes of audit are properly explained and implemented, organizations develop
the strength to function effectively in such complicated environment. Therefore, pursuing
best audit techniques and measures are mandatory in addition to proper mechanisms of
internal control so that the material risks are mitigated. This report assists in focusing upon
the audit planning strategies of Trunkey Creek Wines Ltd. In relation to this, the auditing of
this organization has been undertaken by MYH (Miller Yates Howarth) that is an accounting
firm based in Australia. This report starts with the assessment part wherein ratio calculations
have been undertaken for the accounts that are depicted as listed by the audit partners.
Thereafter, this report focuses upon the audit risks, their assessment, and various steps that
can be undertaken to mitigate all material risks. Further, additional details of the company are
also accounted for so that the business risks can be evaluated. Lastly, the internal control
mechanisms, risk, and test control has been reflected in a table format. Nevertheless, there is
an inefficacy in the internal control mechanism of the company and the same has also been
highlighted.
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Audit control
Contents
Introduction...........................................................................................................................................3
1A. Evaluation of ratios..........................................................................................................................3
1B. Business risks that the company is more likely to encounter..........................................................6
2A. Internal control mechanisms...........................................................................................................7
2B. Justifications in relation to inefficacies in the internal control mechanisms.................................10
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14
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Audit control
Introduction
Audit control and planning are two significant segments of evaluating the material risk of an
organization that allows it to sustain in the competitive environment. In this report, the prime
significant has been asserted on such auditing techniques and measures. Besides, through this
report, illustration of methodologies of risk management in addition with the part played by
internal control mechanisms has been done. Nevertheless, an audit plan has been framed and
thereafter, an audit process will be undertaken for the audit of financial statements. Overall,
in the light of the scenario, basic and mandatory legal measures have been accounted for and
the same has been discussed, thereby shedding light on the relevance of internal control
mechanisms (Manoharan, 2011). Internal control mechanism is important as it helps in
driving the organization in the desired direction.
1A. Evaluation of ratios
This report primarily focuses upon various segments like assessment of ratios together with
the material risks that are related to the business of the company so that an audit plan can be
framed for overall effectiveness. If the ratios are considered and an in-depth on the same is
done it helps in knowing the deficiency and the stage at which the business stands (Livne,
2015). In addition, the effectiveness in the mechanisms of internal control together with the
disadvantages associated to the scenarios must be properly discussed. Based on the
company’s information, the following is the evaluation of significant risks and ratios related
to the same.
Account Evaluation Audit risks Audit steps to
minimize the risks
Investments The times income
attained from the
investments has declined
when compared to the
past tenure.
In relation to
investment, the audit
risk is that the same
may be undervalued or
there may be a material
misstatement whilst
recording their value
because their interest
has declined over the
The auditor must
scrutinize the reason
for a decline in the
earned interest.
Nevertheless, these
investments must be
tested in relation to
their disposal. In case,
the same has been
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Audit control
years. disposed off and
therefore, such
documentation must
be verified for the
disposal transaction
like receipts, broker
contract note, etc.
Further, the receipts
from investments sale
must be clearly
scrutinized by the
auditor (Livne, 2015).
Marketing cost Marketing expenses has
enhanced when
compared to the past two
years. This may be an
outcome of the
exaggerated exposure of
the organization towards
the beef segment.
In relation to marketing
cost, the major audit
risk is that the same
also comprise of
directors’ personal
expenses and other
disallowed costs
(Lapsley, 2012). This
can be presumed owing
to the reason that the
fraction of enhancement
in marketing costs does
not align with the
proportionate
enhancement in sales or
current year’s returns
when compared to the
past years.
The team of auditors
must scrutinize every
document of
marketing cost.
Furthermore, the
supporting documents
must be verified as
well.
Besides, the auditor
must see whether such
documents were
approved by
management
authorities or not.
The costs bill of
personal nature or
insignificant in
marketing costs that
must be of a
significant value, and
the same must be
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Audit control
noted by the auditors.
Property assets Return on property assets
has depicted the
following variations:
In relation to production
of beef, ROA (return on
assets) has depicted a
significant enhancement
that comes to 1.67% in
the year 2018. Besides,
the same was -0.82% in
the year 2017, and -
3.45% in the year
respectively.
In contrast to this, ROA
in the case of production
of wine and grape has
declined when compared
to the past year.
The risk of audit in
relation to property
assets is that the
organization must have
exaggerated the beef
sales to depict an
effective financial
situation. However, in
the past two years, the
company has been
attaining negative
returns in such segment
(Matthew, 2015).
The auditor must
scrutinize the
revenues and sales of
beef segments to
verify the cause
behind the immediate
enhancement in the
returns for production
of beef.
The ledgers of sales
must be scrutinized
with the sales order
register for the
attained orders
(Baldwin, 2010).
As a partner audit, the
return percentage of
company and its
aspects must be
verified so that the
figures ascertained
can be verified and, in
this manner, the team
of audit can arrive at
the efficacy of the
computation too
(Matthew, 2015).
The mechanisms of
internal control
associated to returns
and sales must be
scrutinized. This
ensures the auditors
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Audit control
whether effective
identification of sales
and revenue has been
conducted by the
organization.
Accounts
receivable
The number of days of
debt collection has
enhanced significantly in
2018 when compared to
2017.
The uncollectible or
bad debts can depict a
false reflection of the
organization’s
performance. The
debtors’ aging can be
misguided by the
organization too.
The debtors’ aging
register must be
checked by the
auditors. Further, bad
debts must be
scrutinized with bad
debts allowances as
approved by the
management (Kaplan
& William, 2013).
1B. Business risks that the company is more likely to
encounter
The organization has been focusing since several years to attain a speed in the local and
international markets. Even though, there is a massive competition in the overall industry,
TWC has been intending to establish its position by experimenting in distinct sectors of
market. From the aforesaid disclosure of ratios, there has been a decrease in the overall
organizational performance. The following factors must be accounted for clearly for better
understanding.
a. The net profit margin and percentage of gross margin has significantly declined in the
year 2018. This reflects that the organization has not been capable to attain its margin
of profit as before because of either decline in aggregate sales or potential
enhancement in the aggregate expenses. Further, the business risk is the deteriorating
company’s financial performance that may offend the users in the short-run
(Merchant, 2012).
b. The return on equity (ROE) has deteriorated which means that the organization has
not been able to serve the investors unlike the past two years. The ROE has declined
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Audit control
by approximately seven percent when comparison to the past years. Nevertheless, the
business risk is that the investors may start drawing from the organization because of
a lesser equity return (Kaplan, 2011).
c. The primary business affair of the company is the production of beef but the number
of days of collection has enhanced when compared to the past years. This means that
the organization has been incapable of recovering timely from its debtors. This sheds
light on the fact that the financial growth has not been effective in nature for the
company and the business risk in this case is that the amount of bad debts may
enhance, thereby becoming non-recoverable (Merchant, 2012).
d. The company’s current ratios have been enhancing that sheds light on the prevalence
of ample liquid resources in hand that can be utilized for repaying the short-term debt
obligations. However, too much enhancement in the current ratios is not a good sign
because it means negligence or laziness on the part of the company to utilize its liquid
resources, thereby paving a material business risk (Hoffelder, 2012).
2A. Internal control mechanisms
In relation to the operations of the company, it can be observed that the internal controls
which have been adopted are as follows:
Effective Control Risk alleviated Test of Control
The company has
adopted an effective and
automatic system of
Information Technology
within its framework that
includes strict protection
in the form of passwords
to facilitate in the
accessibility of
programs.
Even though there is an
information technology
framework within the
framework of the
company, yet the same has
not been efficiently
handled or supervises by a
professional who is
experienced in the IT field.
Besides, the company has
assigned such job to the
management accountant
who clearly does not
possess any type of
In relation to the test of control, it
is liable for the company to hire
an expert or professional who can
primarily engage in such work
with efficacy in the overall work
process. In addition to this, the
company must also hire an extra
management personnel who can
engage himself in the verification
of IT information in coordination
with the management accountant.
The reason behind this can be
attributed to the fact that this can
facilitate in detection of errors
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Audit control
experience and
professionalism in the IT
segment, and the same can
result in the creation or
generation of various
material risks or errors
(Geoffrey et. al, 2016).
In addition, there is no
presence of password
access for the IT bae that
pose a major threat to the
overall operations.
timely and pave a path for
corrective actions.
Furthermore, the database must
be safeguarded through a proper
password and the information of
IT must be verified manually
with the available documents to
facilitate double-checking.
The invoices of company
are being electronically
attained from the
suppliers and thereafter,
the same is aligned with
the orders received. This
is done by an accounts
clerk and the payments
are also monitored by the
management accountant
of the company.
There is a material risk in
relation to such invoices.
Even though the orders are
aligned with the invoices,
there may be an issue with
the orders for which the
payments for same must
be terminated or deferred.
Further, after matching or
aligning the order file and
the invoice, the file of
payments is then approved
and sent to the banking
authorities (Gay & Simnet,
2015).
The duty of payment procedures
must not be solely in the
obligations of a management
accountant and the same must be
jointly shared with other person
who is engaged in the payments
department (Mock et. al, 2013).
Furthermore, the payments in
relation to defective orders must
be significantly subtracted and
the same may not be depicted in
the software.
If repairs are needed in
the wine segment, the
obligation if the same
falls in the hands of the
department manager. It is
his duty to generate all
online orders and the
In relation to this, there is
a material risk that there
may be various undue
costs on the repairing
segments because there is
no monitor or supervision
on such requests that has
The function of repairing must be
doubly verified by the
management staff because it can
facilitate in having a proper check
on the requirement and costs
being incurred on the repair
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Audit control
final process of payment
is terminated or finished
by the management
accountant’s approval.
been done by the
department manager of
wine segment. The
management accountant
and accounts clerk shall
come into highlight only
when the services are
terminated and the service
provider has also raised an
invoice to the company
(Mock et. al, 2013).
operations (Mock et. al, 2013).
The management of
supplies are handled or
taken over department
wise
In relation to this, the
purchase managers of the
company may place
improper orders that is
below ten thousand dollars
because there is no doubly
verification procedure
below this order amount.
The requisition of purchase that
has been issued by the
departmental managers must be
doubly checked with the records
of inventory so that it can be
ascertained whether there is an
actual need of purchase or not
(Elder et. al, 2010).
The management staff
attains bonuses based on
the agreed fulfilment of
objectives like monthly
sales, etc. This can be
considered a very
effective approach to
engage the staff in
promotion of sales in a
justifiable and effective
manner.
There may be a feasibility
that the staff engaged in
the department is
personally involved in
unethical affairs so that he
can attain their monthly
targets, thereby achieving
additional profits (Niemi
& Sundgren, 2012). In
relation to this affair, it is
notable that the same may
facilitate in the destruction
of company’s goodwill
and reputation in the entire
industry.
In relation to this, it must be
noted that there must be a proper
verification on the affairs of the
staff engaged in the management
and whose primary duty is to
promote sales (Niemi &
Sundgren, 2012). Furthermore,
the same must be verified that the
staff is not making any unethical
assurances or promises to the
clients of the company that may
facilitate in the creation of
additional nuisance all over. The
reason behind this can be
attributed to the fact that the
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Audit control
company will not fulfil such false
assurances and therefore, it may
create a havoc and destroy the
company reputation on a whole.
The information of
suppliers has been stored
or gathered in the master
file of suppliers and the
placed orders are being
facilitated through an
ordering system from the
computers. Besides, the
same is done only to the
approved suppliers only
and if by mistake, any
order is provided to the
unapproved suppliers,
the same will be
terminated and thereafter,
is sent to the
management accounts
department for necessary
approvals.
In relation to this, there is
a prime business risk that
the approved suppliers
may alter their respective
rates that has not been
registered in the master
file of suppliers. This can
create a massive havoc in
the entire smooth
functioning of the
company and therefore,
corrective actions in this
scenario is very crucial.
In relation to this, it must be
noted that every time any order is
being placed to the suppliers who
are approved, there respective
rates must be confirmed prior to
placing of such orders. This can
facilitate in avoiding such havoc,
thereby paving a path for the
mitigation of another business
risk on the part of the company
(Roach, 2010).
2B. Justifications in relation to inefficacies in the
internal control mechanisms
In relation to the aforesaid risk factors, the following are the justification for prime
inefficacies or weaknesses in the accounts payable and purchases department:
Accounts payable
Weakness Justification
There are no
reconciliations to the
In relation to this, the management accountant is under an obligation
to rely totally on the system of information technology for the
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Audit control
payment made and to
the accounts payable
segment
generation of payment file and other affairs. However, no ledgers for
accounts payable and their reconciliations are being prepared.
There is no proper
supervision and
monitoring by the
superior management
in relation to the
process of payment
approval.
In relation to this, the management accountant must be primarily
responsible for approving the payment file and uploading it to the
bank later. The system may create a problem and hence, it is
essential to have the manual system present so that contingencies
can be met with ease and flexibility (Coram et. al, 2011).
There is no daily
verification of the
payment files
In relation to this the payment files must be usually verified at least
once a week and the same must be undertaken by the management
accountant himself.
Purchases
Weakness Justification
There has been extra
or unwanted
dependence on the
approved suppliers.
The suppliers in relation to this are offered orders based on their
previous goodwill or reputation. Furthermore, other crucial factors
like variation in prices, variations in terms and conditions, etc have
not been considered (Carcello, 2012). Hence, this lacking point as
such information might play a leading role in the process of decision
making.
There is no
verification with the
registers present in
the stores.
In relation to this, the purchase orders are not verified independently
with the goods present in the stock that may result in over or extra
stocking of items in the storage place. Hence, differences can be
observed in this regard and the same needs to be considered while
aiding decision making process (Roach, 2010).
There are no separate
files that have been
prepared for the
defective orders and
low-quality items.
The accountant or clerk aligns the details of the order and the
invoice and thereafter, sends the same to payment register. There
may be few items that are of lesser quality or are defective in nature,
and the same are not considered by such clerk (Blay et.a l, 2011).
Nevertheless, only paper documentation is being done.
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Audit control
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Audit control
Conclusion
There has been over-reliance on the management accountant that is a negative indicator.
Further, the duties of payments, placement of purchase orders, etc must be proportionately
assigned betwixt various officials to avoid errors and frauds. Moreover, if every department
is taken control over by one single person, then there are higher possibilities of errors and
frauds. Nevertheless, there must be effective delegation of duties for every department. In
addition, the present standard of evaluation of data by one single person cannot be efficient to
obtain the objective and therefore, such data assessment by more than one individual must be
a significant corrective action. This can assist the company in warding off loopholes and
frauds. Overall, it is notable that a proper risk management framework can assist in
mitigating material risks in the prevalence of internal control mechanisms. Besides, it is also
crucial for auditors to report all the risks threatful to the business so that corrective actions
can be taken in due course of time. Therefore, the auditors role is crucial when it comes to the
process of decision making because the interested parties act only after the verdict provided
by the auditors.
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Audit control
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