Planning an Audit for Financial Statements - Accounting

Accounting 1
ACCOUNTING: PLANNING AN AUDIT FOR FINANCIAL STATEMENTS
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Accounting 2
Executive Summary
For any business, whether large, medium-sized or small sized enterprises, preparation of
an audit report is very significant in providing an overview of the entire audit process. The audit
process involves a critical analysis of an enterprise performance from its financial statements to
ascertain whether the records or the reports present an accurate and fair reflection of the business
performance in accordance to accounting and auditing standards. It is, therefore, the
responsibility of the enterprise management to prepare the financial statements while on the
other hand, it is the responsibility of the auditor to express his or her opinion which should be
unbiased on the financial statements and issue an audit report. This report, therefore, presents the
findings of an audit process. The story will be limited to the understanding of materiality,
analytical review, selection and justification of accounts and assertions, design and description of
audit procedures as well as the presentation of an audit discussion in preparation for an audit
process for our client the Coral Enterprise.
Introduction
Preparation of an audit process requires a preliminary survey which helps the auditor to
become familiar with the procedures and policies which might impact the areas being audited. A
proper audit plan helps in identification of the critical accounts that need to be examined to
disclose any fraud in the company financial statements. Bellof and Wehn (2018) argue that the
audit plan involves a collaborative effort of the audit team with the client to develop an
appropriate approach that will help the senior auditor in addressing the various issues raised from
the findings of the report. The results of the story will be based on the financial information
obtained from the client’s trial balance.

Accounting 3
Materiality Discussion
The planning of an audit process requires the auditor to consider the things which would
make the financial report materially misstated. The preliminary assessment of materiality is
therefore conducted before the audit and acts as a critical guide to the planning of the review
(Choudhary, Merkley & Schipper, 2018, p. 12). The auditor can, therefore, decide to set the level
of materiality higher or lower depending on the audit risk factors to the client. There is,
therefore, a relationship between the level of a client audit risk and materiality in that the higher
the audit risk, the lower the materiality level while the lover the audit risk the more senior the
materiality level. In this case, the materiality level suggested by the Audit partner of $ 15000 can
be established by using the constant percentage method of materiality determination as provided
below.
Using the company current assets, materiality should be based on a percentage level of 3
% to 8%. For the financial period ending June 30th, the materiality level would be set as follows;
Cash at Bank $ 73000 x 8 % (using upper limit) = $ 5840
Accounts receivable $ 122750 x 8% = $ 9820
Inventory $ 174000 x 8% = $ 13920
Taking the Average (29580/3 = $9, 860).
Therefore the amount suggested for $ 15000 as the materiality level is appropriate based
on the above threshold where the client has low risk, and consequently, the auditor was to set a
higher materiality level. The preliminary assessment is made with the aim of helping the auditors