Auditing and Assurance: Analysis and Discussion
VerifiedAdded on 2023/06/04
|10
|1957
|387
AI Summary
This article provides an analysis and discussion on auditing and assurance. It includes a trial balance of Amazonite Enterprises, materiality assessment, trend analysis of income statement, audit assertions, and recommendations.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Running Head: AUDITING AND ASSURANCE 0
AUDITING AND ASSURANCE
AUDITING AND ASSURANCE
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
AUDITING AND ASSURANCE 1
Contents
Overview....................................................................................................................................2
Analysis and Discussion............................................................................................................2
Question 2...............................................................................................................................3
Question 3...............................................................................................................................4
Question 4...............................................................................................................................5
Conclusion and the Recommendations......................................................................................5
References..................................................................................................................................6
Contents
Overview....................................................................................................................................2
Analysis and Discussion............................................................................................................2
Question 2...............................................................................................................................3
Question 3...............................................................................................................................4
Question 4...............................................................................................................................5
Conclusion and the Recommendations......................................................................................5
References..................................................................................................................................6
AUDITING AND ASSURANCE 2
Overview
Auditing the basic practice engaged in the dealings that requires the scrutiny of the financial
statements of the company, individual, firm and a lot more entities. The firm is the audit firm
which needs proper planning and the execution and for the same the trial balance has been
scrutinised the potential areas as well as the non-potential areas are verified for forming the
opinion (Louwers, et al 2015).
Analysis and Discussion
The trial balance of the Amazonite Enterprises is given below.
Amazonite
Enterprises
Trial Balance
Jul 1, 2015 -
May 31, 2016
Jul 1, 2014 -
June 30, 2015
Debit Credit Debit
Credi
t
Cash at Bank 99251 102503
Accounts
receivable 121820 112000
Inventory 189000 175000
Machinery 65000 65000
Accumulated
Depreciation
48317.996
3 24375
Overview
Auditing the basic practice engaged in the dealings that requires the scrutiny of the financial
statements of the company, individual, firm and a lot more entities. The firm is the audit firm
which needs proper planning and the execution and for the same the trial balance has been
scrutinised the potential areas as well as the non-potential areas are verified for forming the
opinion (Louwers, et al 2015).
Analysis and Discussion
The trial balance of the Amazonite Enterprises is given below.
Amazonite
Enterprises
Trial Balance
Jul 1, 2015 -
May 31, 2016
Jul 1, 2014 -
June 30, 2015
Debit Credit Debit
Credi
t
Cash at Bank 99251 102503
Accounts
receivable 121820 112000
Inventory 189000 175000
Machinery 65000 65000
Accumulated
Depreciation
48317.996
3 24375
AUDITING AND ASSURANCE 3
Motor Vehicles 65000 65000
Accumulated
Depreciation 27300 20150
Furniture 7500 7500
Accumulated
Depreciation 3075 2250
Bank Loan 216000
21600
0
Sales
223437.49
6
18745
0
Cost of sales 59918.0982 63595
Service fees
(revenue)
53854.533
3 58000
Other income 1100 25000
Interest income 44 50
Bank charges 319 350
Depreciation 31917.5963 15590
Interest expense 9899.637 10800
Printing 231 250
Miscellaneous 2200 0
Wages 51497.5963 53000
Superannuation 4891.78765 4770
Total 708445.715
573129.02
6 675358
53327
5
Motor Vehicles 65000 65000
Accumulated
Depreciation 27300 20150
Furniture 7500 7500
Accumulated
Depreciation 3075 2250
Bank Loan 216000
21600
0
Sales
223437.49
6
18745
0
Cost of sales 59918.0982 63595
Service fees
(revenue)
53854.533
3 58000
Other income 1100 25000
Interest income 44 50
Bank charges 319 350
Depreciation 31917.5963 15590
Interest expense 9899.637 10800
Printing 231 250
Miscellaneous 2200 0
Wages 51497.5963 53000
Superannuation 4891.78765 4770
Total 708445.715
573129.02
6 675358
53327
5
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
AUDITING AND ASSURANCE 4
The concept of the materiality is prevailing both in the auditing as well as the accounting and
it relates to the significant and the important amount of the transaction or discrepancy. Any
kind of the misstatement, error or omission in the financial statement, in the form of the
individual or in cumulative manner has the possibility to change the mind-set of the
stakeholders. The major assessment is on the basis of the material and the non-material
transactions (Simnett, Carson and Vanstraelen, 2016). The assement of the materiality is
given a range of the $15000 which is more than as determined by the IASB. There are certain
guidelines which are prescribed by the board of the IASB to determine the range of the
materiality. The benchmarks are set in the different manner as per the rule and regulations of
the IASB. The range have been decided as follows. For the purpose of the gross profit the
IASB has sent the range from 0.6 to 1.1%. The gross sales come under the bracket of the 1-
3%. The net profit and the shareholder’s equity are in range 6 to 10% and 3 to 7 %
respectively. In order to determine the auditor’s opinion on the financial statements there are
few accounts that are not looked after by the auditor and therefore some of the accounts are
missed by the auditor (Griffiths, 2016). The accounts which are left with the auditor to
scrutinise are the assets account, liabilities account, miscellaneous accounts and the super
annuation account.
Amazonite Enterprises
Base Range Level of materiality
Gross revenue 0.6-1.1% 1340.6 to 2457.81
Total Assets 1-3% 4688.78 to 14066.3
Gross Profit 1-3% 1635.19 to 4905.57
The concept of the materiality is prevailing both in the auditing as well as the accounting and
it relates to the significant and the important amount of the transaction or discrepancy. Any
kind of the misstatement, error or omission in the financial statement, in the form of the
individual or in cumulative manner has the possibility to change the mind-set of the
stakeholders. The major assessment is on the basis of the material and the non-material
transactions (Simnett, Carson and Vanstraelen, 2016). The assement of the materiality is
given a range of the $15000 which is more than as determined by the IASB. There are certain
guidelines which are prescribed by the board of the IASB to determine the range of the
materiality. The benchmarks are set in the different manner as per the rule and regulations of
the IASB. The range have been decided as follows. For the purpose of the gross profit the
IASB has sent the range from 0.6 to 1.1%. The gross sales come under the bracket of the 1-
3%. The net profit and the shareholder’s equity are in range 6 to 10% and 3 to 7 %
respectively. In order to determine the auditor’s opinion on the financial statements there are
few accounts that are not looked after by the auditor and therefore some of the accounts are
missed by the auditor (Griffiths, 2016). The accounts which are left with the auditor to
scrutinise are the assets account, liabilities account, miscellaneous accounts and the super
annuation account.
Amazonite Enterprises
Base Range Level of materiality
Gross revenue 0.6-1.1% 1340.6 to 2457.81
Total Assets 1-3% 4688.78 to 14066.3
Gross Profit 1-3% 1635.19 to 4905.57
AUDITING AND ASSURANCE 5
Equity 3-7% Not Available
Net Profit 6-11% 7053.67 to 12931.7
Question 2
The analytical review is again presented in the tabular format and depicts the trend analysis
of the Income Statement.
Particulars 2016 2015
Base year
2015
Trend
Analysis
Sales 223437.5 187450 35987.50 19%
Service fees 53854.53 58000 -4145.47 -7%
Interest income 44 50 -6.00 -12%
Total Revenue 277336.03 245500 31836.03 13%
Less: Expenses
Cost of sales 59918.09 63595 -3676.91 -6%
Bank charges 261 350 -89.00 -25%
Depreciation 31917.59 15590 16327.59 105%
Interest expense 9899.637 10800 -900.36 -8%
Printing 231 250 -19.00 -8%
Miscellaneous 2200 0 2200.00
Wages 51497.59633 53000 -1502.40 -3%
Superannuation 4891.787652 4770 121.79 3%
Total Expenses 160816.701 148355 12461.70 8%
Net Profit 116519.329 97145 19374.33 20%
Net Profit % 52.15% 51.82%
Equity 3-7% Not Available
Net Profit 6-11% 7053.67 to 12931.7
Question 2
The analytical review is again presented in the tabular format and depicts the trend analysis
of the Income Statement.
Particulars 2016 2015
Base year
2015
Trend
Analysis
Sales 223437.5 187450 35987.50 19%
Service fees 53854.53 58000 -4145.47 -7%
Interest income 44 50 -6.00 -12%
Total Revenue 277336.03 245500 31836.03 13%
Less: Expenses
Cost of sales 59918.09 63595 -3676.91 -6%
Bank charges 261 350 -89.00 -25%
Depreciation 31917.59 15590 16327.59 105%
Interest expense 9899.637 10800 -900.36 -8%
Printing 231 250 -19.00 -8%
Miscellaneous 2200 0 2200.00
Wages 51497.59633 53000 -1502.40 -3%
Superannuation 4891.787652 4770 121.79 3%
Total Expenses 160816.701 148355 12461.70 8%
Net Profit 116519.329 97145 19374.33 20%
Net Profit % 52.15% 51.82%
AUDITING AND ASSURANCE 6
Question 3
On the basis of the trend analysis there are numerous accounts that can be still possessing the
factor of the materiality and it requires the assessment by the auditor in order to find out the
variances and are prone to certain risks which needs testing, Some of the assertions are
outlined below.
Sales have been increased from the year 2015 in comparison to the 2016 which recorded the
sales at 223437.5. The auditor shall observe the change and verify whether the increase in
sales was due to the more number of units produced or due to the existing units added back in
the sales instead of the closing stock (Knechel and Salterio, 2016).
The cost of sales dropped by 7% as compared to the previous year and shall be scrutinised by
the auditor to check if there is any fluctuation in the prices while purchasing the materials
from the vendors or there is any change of the vendors (Arena and Jeppesen, 2016).
The service income has decreased form the year 2015 to 2016 so that the clients shall be
checked and also the auditor shall vouch for the rates of the services (Bumgarner and
Vasarhelyi, 2018).
The depreciation on the contrary have increased from the last year despite any change in the
list of the assets and this can be achieved when there is any change in the calculation method
of the depreciation and henceforth, the auditor shall verify for any change in the depreciation
method.
The interest expense and the printing expenses have decreased by 8% each and the main
probable reasons could be due to the utilisation of the more digital media and that the debt
Question 3
On the basis of the trend analysis there are numerous accounts that can be still possessing the
factor of the materiality and it requires the assessment by the auditor in order to find out the
variances and are prone to certain risks which needs testing, Some of the assertions are
outlined below.
Sales have been increased from the year 2015 in comparison to the 2016 which recorded the
sales at 223437.5. The auditor shall observe the change and verify whether the increase in
sales was due to the more number of units produced or due to the existing units added back in
the sales instead of the closing stock (Knechel and Salterio, 2016).
The cost of sales dropped by 7% as compared to the previous year and shall be scrutinised by
the auditor to check if there is any fluctuation in the prices while purchasing the materials
from the vendors or there is any change of the vendors (Arena and Jeppesen, 2016).
The service income has decreased form the year 2015 to 2016 so that the clients shall be
checked and also the auditor shall vouch for the rates of the services (Bumgarner and
Vasarhelyi, 2018).
The depreciation on the contrary have increased from the last year despite any change in the
list of the assets and this can be achieved when there is any change in the calculation method
of the depreciation and henceforth, the auditor shall verify for any change in the depreciation
method.
The interest expense and the printing expenses have decreased by 8% each and the main
probable reasons could be due to the utilisation of the more digital media and that the debt
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
AUDITING AND ASSURANCE 7
has been paid off in the year due to which the interest expenses have lowered down (AICPA,
2017).
The sudden increase in the miscellaneous expenses accounts for the proper scrutiny by the
auditor as there might be any expense of the 2200 which have been clubbed under the head if
the miscellaneous expenses that are actually of material nature.
The wages have been decreased by 3% and the super annuation funds have been increased by
the same percentage which may be due to the decrease in the labour count and the auditor
shall check if there is any labour that has left the organisation and apart from this the super
annuation increased for which the auditor needs to look after the employee register.
Question 4
The audit assertion shave been discussed in the detail and therefore there is an audit
procedure which can be adopted by the organisation to eventually find a way out to solve the
problem. Below are some of the solutions that can be employed in order to rectify the
assertion stated above.
In case of the sales and the cost of sales a complete list of the customers and the vendors
needs to be checked in order to find out the reasons of the variance. For this the same
category of the customers and the vendors are clubbed together to see the variance according
to the group. The products which are providing the maximum contribution can be placed
under one head and the non-potential customers and the suppliers shall be kept under one
group in order to cater their problems only. This will save the time and energy of the
organisation (Chan and Vasarhelyi, 2018).
The expenses such as the wages and miscellaneous expenses shall be observed first because
these small transactions are hidden under these heads. The rate at which the wages are
has been paid off in the year due to which the interest expenses have lowered down (AICPA,
2017).
The sudden increase in the miscellaneous expenses accounts for the proper scrutiny by the
auditor as there might be any expense of the 2200 which have been clubbed under the head if
the miscellaneous expenses that are actually of material nature.
The wages have been decreased by 3% and the super annuation funds have been increased by
the same percentage which may be due to the decrease in the labour count and the auditor
shall check if there is any labour that has left the organisation and apart from this the super
annuation increased for which the auditor needs to look after the employee register.
Question 4
The audit assertion shave been discussed in the detail and therefore there is an audit
procedure which can be adopted by the organisation to eventually find a way out to solve the
problem. Below are some of the solutions that can be employed in order to rectify the
assertion stated above.
In case of the sales and the cost of sales a complete list of the customers and the vendors
needs to be checked in order to find out the reasons of the variance. For this the same
category of the customers and the vendors are clubbed together to see the variance according
to the group. The products which are providing the maximum contribution can be placed
under one head and the non-potential customers and the suppliers shall be kept under one
group in order to cater their problems only. This will save the time and energy of the
organisation (Chan and Vasarhelyi, 2018).
The expenses such as the wages and miscellaneous expenses shall be observed first because
these small transactions are hidden under these heads. The rate at which the wages are
AUDITING AND ASSURANCE 8
distributed to the labours and the salaries that are given to the employees shall be taken into
the consideration to avoid any mixing of the transactions (Kumar and Sharma, 2015).
The value of depreciation increased and the auditor needs to vouch the same in order to find
out the variances. The major cause of the variances is the change if the straight line method to
written down value method and because of the change in the policy in the middle of the year
there is unbooked profit and losses arising. The physical verification of the assets is necessary
(Shu, Rosenberg, Upadhyay and Rao, 2018).
Conclusion and the Recommendations
From the above analysis it can be concluded that the audit partner is not in the alignment with
what the concept has been described in association with the auditors. The above analysis also
helps in understanding the fact that the professional attitude will be the criteria of the
judgement if the frauds are not taken into the consideration. There are several different
criteria that can solve the problem yet it is necessary to make the book of accounts to get a
good comparison of the company. The audit of the accounts is the mandatory practice and the
furthermore, when the analytical review was done it was found that there are certain
discrepancies which needs to be taken into consideration and shall be rectified. Due to the
above factors and the increase and decrease in the expenses without any note and it would be
typically unethical to not to have an analysis. Hence it is recommended that the analysis is
necessary and mandatory.
distributed to the labours and the salaries that are given to the employees shall be taken into
the consideration to avoid any mixing of the transactions (Kumar and Sharma, 2015).
The value of depreciation increased and the auditor needs to vouch the same in order to find
out the variances. The major cause of the variances is the change if the straight line method to
written down value method and because of the change in the policy in the middle of the year
there is unbooked profit and losses arising. The physical verification of the assets is necessary
(Shu, Rosenberg, Upadhyay and Rao, 2018).
Conclusion and the Recommendations
From the above analysis it can be concluded that the audit partner is not in the alignment with
what the concept has been described in association with the auditors. The above analysis also
helps in understanding the fact that the professional attitude will be the criteria of the
judgement if the frauds are not taken into the consideration. There are several different
criteria that can solve the problem yet it is necessary to make the book of accounts to get a
good comparison of the company. The audit of the accounts is the mandatory practice and the
furthermore, when the analytical review was done it was found that there are certain
discrepancies which needs to be taken into consideration and shall be rectified. Due to the
above factors and the increase and decrease in the expenses without any note and it would be
typically unethical to not to have an analysis. Hence it is recommended that the analysis is
necessary and mandatory.
AUDITING AND ASSURANCE 9
References
AICPA, (2017) Audit guide: Audit sampling. United States: John Wiley & Sons.
Arena, M. and Jeppesen, K.K., (2016) Practice variation in public sector internal auditing: an
institutional analysis. European Accounting Review, 25(2), pp.319-345.
Bumgarner, N. and Vasarhelyi, M.A., (2018) Continuous auditing—a new view.
In Continuous Auditing: Theory and Application (pp. 7-51). Emerald Publishing Limited.
Chan, D.Y. and Vasarhelyi, M.A., (2018) Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Griffiths, P., (2016) Risk-based auditing. California: Routledge.
Knechel, W.R. and Salterio, S.E., (2016) Auditing: Assurance and risk. Routledge.
Kumar, R. and Sharma, V., (2015) Auditing: Principles and practice. Phillipines: PHI
Learning Pvt. Ltd..
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C.,
(2015) Auditing & assurance services. Boston: McGraw-Hill Education.
Shu, J., M. Rosenberg, J., Upadhyaya, S. and Rao, H.R., (2018) The Internet of Things and
IT Auditing. Internet of Things A to Z: Technologies and Applications, pp.275-292.
Simnett, R., Carson, E. and Vanstraelen, A., (2016) International archival auditing and
assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.
References
AICPA, (2017) Audit guide: Audit sampling. United States: John Wiley & Sons.
Arena, M. and Jeppesen, K.K., (2016) Practice variation in public sector internal auditing: an
institutional analysis. European Accounting Review, 25(2), pp.319-345.
Bumgarner, N. and Vasarhelyi, M.A., (2018) Continuous auditing—a new view.
In Continuous Auditing: Theory and Application (pp. 7-51). Emerald Publishing Limited.
Chan, D.Y. and Vasarhelyi, M.A., (2018) Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Griffiths, P., (2016) Risk-based auditing. California: Routledge.
Knechel, W.R. and Salterio, S.E., (2016) Auditing: Assurance and risk. Routledge.
Kumar, R. and Sharma, V., (2015) Auditing: Principles and practice. Phillipines: PHI
Learning Pvt. Ltd..
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C.,
(2015) Auditing & assurance services. Boston: McGraw-Hill Education.
Shu, J., M. Rosenberg, J., Upadhyaya, S. and Rao, H.R., (2018) The Internet of Things and
IT Auditing. Internet of Things A to Z: Technologies and Applications, pp.275-292.
Simnett, R., Carson, E. and Vanstraelen, A., (2016) International archival auditing and
assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.
1 out of 10
Your All-in-One AI-Powered Toolkit for Academic Success.
+13062052269
info@desklib.com
Available 24*7 on WhatsApp / Email
Unlock your academic potential
© 2024 | Zucol Services PVT LTD | All rights reserved.