Audit Planning and Internal Control

Audit Planning and Internal Control

Executive Summary
In the present era, business units lay focus on conducting audit with the motive to assess
frauds and taking strategic measure for improvements. For this project, Big Machine Ltd (BML)
has been considered which leases and offer mining machinery services to the gold mines in the
region. It can be summarized from the report that strategic actions need to be undertaken for
making improvement in the profitability aspect as it currently lower as compared to the industry
benchmark. Further, it can be presented that liquidity and solvency position of BML was good in
the respective years and in line with the benchmark. It can be depicted from the study that by
applying substantive and test of control process audit risk can be mitigated to a great extent.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
QUESTION 1 A..............................................................................................................................3
Analyzing ratios and additional information associated the with four accounts for assessing
potential audit risks......................................................................................................................3
QUESTION 1 B...............................................................................................................................6
Analyzing ratios and additional information to outline the business risks that BML faces........6
QUESTION 2 A..............................................................................................................................7
Identifying internal controls in the system that are potentially effective and helps in controlling
undesirable act.............................................................................................................................7
QUESTION 2 B...............................................................................................................................9
Identifying the weaknesses in internal control for contract payroll............................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Audit plan implies for specific guideline which need to be followed while evaluating
financial statements of the business unit. In the context of business organization, audit plan is
highly significant which in turn assists in identifying frauds and taking strategic measure for
improvements. Audited financial statements are prominent which provides suitable and accurate
view of financial information. By taking into account audited financial statements stakeholders
would become able to take suitable decisions for the near future. The present report is based on
the case scenario of Big Machine Ltd (BML) which leases and offer mining machinery services
to the gold mines in the region. In this, report will provide deeper insight about the potential
audit risk associated with the plant & equipment, machinery finance liabilities, accounts
receivable and lease income. Further, report also depicts tests which can be used for alleviating
audit risk. It also entails weaknesses which take place in the internal control system.
QUESTION 1 A
Analyzing ratios and additional information associated the with four accounts for assessing
potential audit risks
Ratio 2017 (Unaudited) 2016 (Audited) Industry average
Return on equity % 15 22 26
Profit/lease income % 8 12 No data
Return on total assets
%
14 17 20
Gross margin % 25 25 30
Net profit margin % 14.5 18.5 20.27
Times interest earned 1.90 3.51 4.10