Audit Report to Managing Partner, John Richards

Running head: AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 1
Audit Report to Managing Partner, John Richards
Name
Professor
Institution
Date
Introduction

AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 2
As the manager in the audit division at Miller Yates Howarth (MYH), I have gathered
information for the primary purpose of preparing the audit plan of Trunkey Creek Wines (TCW)
Limited, which is one of our most significant and longstanding business clients. The primary
activities carried out by Trunkey Creek Wines (TCW) Limited are growing of grapes for
production of wine, production of beef cattle, investment of surplus funds and production as
well as distribution of white, red and sparkling wines. This report seeks to analyze and discuss
various areas and accounts with regard to the audit of Trunkey Creek Wines (TCW) Limited.
These are investments, accounts receivable, marketing expense and property assets.
Question 1A
Audit risk refers to the risk of the possibility that the financial statements of a company
may still be misstated materially, even though it has been stated in the audit opinion that the
financial statements and financial information presented therein are free from any material
misstatements and errors (Institute of Chartered Accountants in England and Wales, 2010).
Upon analyzing the ratios and additional information that is associated with the four accounts
listed above, there are various potential audit risks which have been identified with regard to
each account. The table below gives an explanation of each of these audit risks, as well as audit
steps and procedures that need to be undertaken for reducing the audit risks.
Account Analysis Audit Risk Audit Steps or
Procedures
1. Account
Receivable
The ratios that are
directly or
indirectly related
There is a risk of
existence of the
account receivable
With regard to risk of
existence of account
receivable, the auditor

AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 3
to accounts
receivable are:
i. Days in
accounts
receivabl
e – wine
ii. Days in
accounts
receivabl
e – beef
iii. Current
ratio
iv. Quick
asset ratio
for Trunkey Creek
Wines (TCW)
Limited. This is
because the
company’s accounts
receivable are
composed of many
smaller amounts
which are
aggregated to arrive
at the account
receivable’s figure
or amount.
Additionally, the
company’s accounts
receivable are at a
significant risk of
completeness since
the company may
not have recorded all
the account
receivables.
Besides, there is a
must consider sending
confirmations to the
various customers of
Trunkey Creek Wines
(TCW) Limited with a
view to verifying the
terms of payment as
well as the debt’s
validity. These
confirmations must be
sent by the auditor under
his control and should
make a follow up on any
confirmations which
may not be returned or
may seem suspicious.
For those confirmations
which remain
unreturned, the auditor
will need to carry out
alternative audit
procedures such as
phone or fax

AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 4
risk of valuation and
allocation of account
receivable. This is
because Trunkey
Creek Wines (TCW)
Limited should hold
the account
receivables as net
realizable value.
There is a potential
risk that the
company has not
properly estimated
the collectability of
the receivables and
may not have
reduced the balance
by an allowance for
doubtful accounts.
correspondence as well
as examining subsequent
cash receipts of the
company.
With regard to
completeness, the
auditor must look at
transactions of Trunkey
Creek Wines (TCW)
Limited around the cut
off dates of its operating
period, since he cannot
test the records of the
company for what is not
there. The risk of
completeness of
accounts receivables is
reduced by making an
assessment of the
company’s sales process
and confirming that the
company is able to
process transactions in

AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 5
the period of operation.
With regard to valuation
and allocation, the
auditor must consider
determining and
evaluating whether
Trunkey Creek Wines
(TCW) Limited uses a
reasonable methodology
for estimating allowance
for doubtful accounts
and he must also carry
out an audit of the
underlying information
which is used in making
the accounting estimate.
2. Investments The ratios that are
directly or
indirectly related
to investments
are:
i. Return
on
The main audit risk
related to
investments is
existence since
Trunkey Creek
Wines (TCW)
Limited owns
There are several audit
procedures that should
be performed by the
auditor in an effort to
reduce audit risks
associated with
investments. For

AUDIT REPORT TO MANAGING PARTNER, JOHN RICHARDS 6
equity
ii. Net
profit
margin
iii. Debt
to
equity
numerous
investments which
need to be verified
by the auditor.
Additionally, there is
a risk of
completeness of
investments since
these may not be
recorded in the
books of Trunkey
Creek Wines (TCW)
Limited in correct
amounts.
instance, regarding
existence assertion risks,
the auditor must
consider requesting a
confirmation from the
custodians used by the
company for
safeguarding the
securities. The
confirmation must seek
to address the types of
investments and
securities owned by
Trunkey Creek Wines
(TCW) Limited. The
auditor must also
examine physically the
investments of Trunkey
Creek Wines (TCW)
Limited if the company
maintains custody of its
securities.
With regard to