Memorandum - Audit plan of Steelco Limited

Running head: AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Name of the Student
Name of the University
Author’s Note

AUDITING AND ASSURANCE1
MEMORANDUM
TO: Steel co Limited, CFO
FROM: CPA LLP
DATE: March 22, 2020
SUBJECT: Audit plan of Steelco Limited, (Manufacturing Co.)
This memorandum has been prepared to discuss the audit plan of Steel co Limited, for
2015 including the assessment of overall financial risk. There has been also a discussion of
materiality and audit approach along with the internal control deficiencies in the sales and
purchasing cycles in the memorandum. The following questions have been designed to get an
understanding of what happen in the current financial year 2015 and what are the future plans or
any changes are required to implement in their process:
1. Is there any plan to advance the inventory $ 3, 137, 000 in the upcoming year?
2. What is the reason behind the deterioration of the profitability of the Steelco Company
from 2014 to 2015?
3. Which depreciation method is charged on assets of the company marked at a net value of
$ 3,706,120?
4. Why the debt for the company for the year 2015 is much higher than that of 2014?
5. How the earning of the company fall during the year 2015?
6. Does the employee know the approval process for the purchase order?
The company is using its cash to purchase inventory because it does not have much inventory
or may get damaged or faulty. Its purchasing rate has increased from 2014 to 2015, even unable

AUDITING AND ASSURANCE2
to make any profit from sales. Cash outflow has reduced the earning of the company for the next
year. The company has to think about its sales and generating revenue from it so that it can retain
it's earning for future need. Moreover, the debt of the company is not higher than the equity of
the company which implies the company has to pay less in debt interest but has to depend upon
more on shareholder's equity which can be risky at a certain point. It implies that the company's
financial record is not in a healthy state to depend only on shareholder's equity. It must increase
its sales to increase the profitability rate of the company. The materiality factor of the different
scale of measures are benchmarked at 5% for Earnings (loss) before taxes, 0.50% for total assets,
1% for total equity and 0.50% for total revenue. The materiality amount for the respective scales
are $ (2.80), $58.37, $ 42.46 and $ 62.73. Hence, the deviation from the actual figures should not
cross the materiality amount.
Internal Control Assessment
The Steelco Limited follows a reform where customer’s remittance are made through
online transfer and the accounting clerk reviews it on a daily basis. In order to control
deficiencies in sales there are strong internal controls such as in this case, avoidance of having
one employee to handle the cash receipts, intake of cash, and bank reconciliation can be a great
idea. The duties can be divided so that each work of an employee can be checked by someone
else.
The Cheques of the Company basically requires one signature and is mailed by the
accounting clerk to the suppliers.
The accounting clerk prepares a monthly bank reconciliation that is filed and available for rev
iew upon request. There is a requirement of two signature on Cheques, at the time of purchase
during a certain amount so that it can be checked by other authority to ensure that the two signers