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Audit Planning and Internal Control- A Case Study

   

Added on  2020-04-01

15 Pages3037 Words406 Views
Audit Planning and Internal Control- A Case STUDY1

Executive SummaryThis management report is made for the audit partner of MYH John Richards to highlightdifferent domains of financial information to make the next audit plan for year ended on 30thJune, 2017. The client of MYH is GPSA who are engaged in different activities in the fields ofresearch and development of technologies related to medical equipments, production anddistribution of medical equipments, investment of surplus fund and investment in the propertymarket. Main concern for the audit planning is to find out the areas related to audit risks,business risks and the implementation of tighter internal control. For this purpose my partner,John Richards had asked for a management report on different areas of financial information likeaccounts receivables, current investments property assets, intangible assets and capitalization ofresearch and development process. The financial controller has implemented some new ITapplication for the company earlier which has taken shape with the staffs and now it runssmoothly. Main objective of this report is to analyze different financial ratios as retrieved fromthe financial report of the company for the last three years. The financial reports to be consideredhas the credential of audited status for last two years- 2015 and 2016, while for 2017 thefinancial ratios are of unaudited status. By analyzing those financial ratios, the present financialcondition of the company will be projected on the core areas of derivation of audit risks, businessrisks and enhanced level of internal control to make the financial activities of the company moreprofessional and full proof.2

Table of ContentsIntroduction.................................................................................................................................................4Audit Risk.....................................................................................................................................................4Accounts Receivables..............................................................................................................................4Current investments................................................................................................................................5Property assets........................................................................................................................................6Intangible assets......................................................................................................................................7Research and development capitalization...............................................................................................8Business risk................................................................................................................................................8Return on equity (ROE)............................................................................................................................9Times interest earned..............................................................................................................................9Current ratio............................................................................................................................................9Debt to equity ratio...............................................................................................................................10Potential Internal Controls........................................................................................................................10Weaknesses in Internal Control for Sales and Trade Receivables..............................................................12Conclusion.................................................................................................................................................12References:................................................................................................................................................143

IntroductionGPSA is engaged in different level of business with good profit. This report is meant fordetection of audit risks as per financial ratio analysis of the company by MYH, the audit firm ofGPSA. Before starting the audit, audit plan is required and this is to be made with theconsultation of Audit partner, Mr. Richards. As per his requirement, this management report ismade to highlight five accounting heads namely accounts receivables, current investments,intangible assets, property assets, research and development capitalization. The report willconsist of discussion of audit risks of these five heads, relevant business risks as per ratioanalysis, general internal control for good business practice and internal control for sales andreceivables for GPSA [ CITATION Mya16 \l 1033 ]. This report is required prior to proceeding ofaudit plan for the financial year ended on 30th June 2017. The audit report of the company is tobe submitted to the Board at the end of August 2017. The audit report will obviously contain theauditing process with the finalization of accounts along with the proposed internal control to beimplemented in order to make the business sustainable in long run [ CITATION Mya161 \l 1033 ].Audit RiskThe audit risks for the company are to be detected are of the following heads with proper ratioanalysis, audit risk detection and steps to reduce audit risk:Accounts ReceivablesRatio Analysis- As per days in accounts receivable ratio, the receivable ageing is gettingincreased in respect of average turnover. The trend of this ratio for the company is observed asupward which depicts that the blockage of blockage of working capital is there through thisloophole. The company has latest trend of 83 days of 2017 as days on accounts receivable. Itmeans that the company can recover receivable beyond 83 days which is to be justified by thecompany policy of credit sales4

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