Auditing Report

This auditing report analyzes Fandango Enterprises' financial statements, examining materiality assessment, income statement trends, accounts at risk of misstatement, audit procedures for assertions, and the appropriateness of the audit partner's suggestions. The report identifies potential areas of concern and recommends appropriate audit procedures to ensure the accuracy and reliability of the financial information.

Auditing

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Preliminary assessment of materiality for the financial reports..............................................1
2. Analytical review of income statement items..........................................................................2
3. Income statement account that appear to be at risk of material misstatement.........................5
4. Audit procedure for assertions.................................................................................................6
5. Appropriateness of audit partner's suggestions........................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Auditing is a process of analysing financial statements of an organisations and finding
out the relevancy of transactions recorded in books. An auditor is a person who is responsible to
examine annual reports of a company and provide judgement whether reports are transparent or
not. Owner of a business enterprises hire external auditors to study financial reports and give an
independent opinion of performance and financial status of the company. In Australia companies
are directed to follow Australian accounting standards and corporation act 2001 (Arens, Elder
and Mark, 2012).
In this project report different topics are discussed such as preliminary assessment of
materiality, analytical review of income statement, trend analysis of income to appear the risk of
material misstatement, audit procedure to evidence identified assertion and appropriateness of
the audit partner's suggestions.
MAIN BODY
1. Preliminary assessment of materiality for the financial reports
Preliminary assessment: It is a process of measuring and reviewing the information
which has been provided by managers or owners of a company. It can also be defined as
investigation in which an auditor is responsible to figure out material misstatements in financial
reports that are done knowingly or unknowingly (Preliminary assessment, 2018).
In this case the audit partner has suggested that the budget for whole process of
preliminary assessment of materiality is $15000. The budget for this process is sufficient as the
auditor will not have to study the reports deeply, but only have to find out misstatement of
materials whether that are done deliberately or unknowingly. In this process the auditor does not
have to analyse all transactions, just have to find that what are the misstated transactions.
Evidence for this process is as follows:
Particular Amount
Initial meeting $350
Preliminary survey $7000
Advice and informal communication $150
Discussion draft $4000
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Final material misstatement report $3500
Total $15000
From the above table it is evidenced that the budget of $15000 is sufficient for the
preliminary assessment of materiality.
If the client wants to make changes in preliminary assessment, for example the client
chooses to conduct a whole audit rather than preliminary audit for materiality, in this situation
client has to increase the budget because it will increase auditor's responsibilities and work. For
this purpose, auditor will demand more amount as liabilities for examination process get
increased (Louwers and et. al., 2015).
2. Analytical review of income statement items
Trend analysis: It is a method which is used to estimate future by comparing current
trends of a business. In this case trial balance of Fandango Enterprises is used for analytical
review.
Analytical review of sales:
Year Sales
2015-16 187450
2016-17 97263
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From the above chart it has been identified that sales of the organisation have been
decreased as compare to previous year. In 2015-16 sales was $187450 and in year 2016-17 it was
$97263.
Analytical review of cost of sales:
Year
cost of
sales
2015 63595
2016 29525
From the above chart it has been observed that cost of sales of year 2015-16 has been decreased
as compare to year 2016-17 which is $29525.
Analytical review of inventory:
Year Inventory
2015 174000
2016 164500
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From the above chart it has been analysed that inventory of year 2016-17 has decreased
from $174000 to $164500.
Analytical review of expenditures:
Year Expenditures
2015 70,760
2016 35,612
From the above chart it has been observed that expenditures for year 2016-17 has reduced
as compare to year 2015-16.
Analytical review of incomes:
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year Income
2015 57,050
2016 29,649
From the above diagram it has been analysed that incomes of year 2016-17 has declined
up to $29649 from $57050 which is for year 2015-16 (Yang and Jia, 2013).
3. Income statement account that appear to be at risk of material misstatement
From the trend analysis it has been identified that inventory, sales and expenditures
account are appearing to be at risk of material misstatement. These accounts need to be audited
significantly because there are many chances to make errors in such accounts. It may be possible
that in sales account the actual amount of sales is not recoded by the managers or other members
of the company. Managers can show less amount of sales in books to misguide the auditor and to
reduce the tax liability which needs to be paid. In expenditures account, it may be possible that
exact expenditures are not recorded but these are recorded on decreased value to get tax rebate.
Income in incomes account can be shown on high value to show that company is earning good
profits but in reality company is facing high losses, it is done to misguide the society that
company is at higher level of profitability (Zadek, Evans and Pruzan, 2013).
Assertion in accounts:
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Assertion: It is a form of fake representation made by the concerned management who is
responsible for the formulation of financial reports of an organisation. In assertion,
appropriateness of various elements of financial statements is affected. Following are the
assertions made in different accounts:
Occurrence in sales account: It is a type of assertion in which concerned managers do
not record exact amount of sales in financial statements to save tax. It is very important for an
auditor to check each account significantly to identify error in sales account.
Completeness of expenditures account: Most of the company’s record fake expenses to
get rebate in tax and show higher expenses which will reduce their profits as well as tax liability.
Disclosure and presentation of incomes account: There are so many companies who
show present higher incomes or do not disclose right income in financial statement. Higher
incomes are shown by the companies to attract investors and customers by fake presentation of
profitability. Some of the companies do not disclose their actual income in financial statements
for tax savvy purposes (Knechel and Salterio, 2016).
4. Audit procedure for assertions
Procedure of audit for occurrence in sales account: In this process first of all the
auditor identify the cause of assertion in sales account. Next step which is taken by the auditor is
to find out that it is done purposely or unknowingly. In last the auditor communicates for this to
the managers and provide judgement for the same and mention it in audit report.
Procedure of audit for completeness of expenditures account: The auditor firstly
observes all the accounts and then find out the completeness of expenditures and check that the
recorded expenditures are relevant or not. Next step which has been taken by the auditor is to
find out the purpose of recording fake expenses or high expenses. At last the auditor provide
independent opinion and mention it in audit report of whole organisation (Nigrini, 2012).
Procedure of audit for disclosure and presentation of incomes account: For this
assertion first of all auditor analyse the financial reports and then identify the sources of all
incomes. By identifying all the sources, the auditor will have the information of all the accurate
incomes. If the auditor finds any misstatement of incomes than it will be mentioned in the audit
report which is going to be provided to the directors and other stakeholder of the organisation
(Sookhak and et. al., 2017).
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5. Appropriateness of audit partner's suggestions
The audit partner has suggested that fraud risk should not be considered for this client as
the staff if very trust worthy. This suggestion is not appropriate because it is not possible legally
to trust on a person and do not consider the fraud risk. Auditing is a process in which auditor is
responsible to give fair judgement on financial statements by checking all the recorded events
personally. The audit partner's suggestion should not be reasoned because the trial balance of the
client is not matching. As it is analysed that the staff is not trustworthy and recorded wrong
transactions in trial balance hence the trial balance does not match. It has been analysed from the
analytical review that transactions that are recorded in trial balance are not relevant. It has been
also identified that presented transactions of year 2016-17 are not for a whole year but they are
for 11 months this is another error which has been made by the staff of client. The client has
made various frauds which has resulted in mismatch of trial balance (Hall, 2015).
CONCLUSION
From the above project report, it has been articulated that Auditing an effective part of
company to examine the various financial statements which are been prepared during the period
of time. For this purpose, preliminary assessment of materiality is analysed effectively. Whereas,
evaluation of the income statements items by the use of trend line to see the impacts on future
time. All those accounts those are appears to be at risk in the statements are analysed accordingly
to manager them before taking future decision. Essential process which is associated with the
assentation is done to control the impacts on gain at the end of accounting period.
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REFERENCES
Books and Journals:
Arens, A. A., Elder, R. J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Hall, J. A., 2015. Information technology auditing. Cengage Learning.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Louwers, T.J. and et. al., 2015. Auditing & assurance services. McGraw-Hill Education.
Nigrini, M., 2012. Benford's Law: Applications for forensic accounting, auditing, and fraud
detection (Vol. 586). John Wiley & Sons.
Sookhak, M. and et. al., 2017. Dynamic remote data auditing for securing big data storage in
cloud computing. Information Sciences. 380. pp.101-116.
Yang, K. and Jia, X., 2013. An Efficient and Secure Dynamic Auditing Protocol for Data
Storage in Cloud Computing. IEEE Trans. Parallel Distrib. Syst. 24(9). pp.1717-1726.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice
in social and ethical accounting and auditing. Routledge.
Online
Preliminary assessment. 2018. [Online]. Available through:
<https://www.partneresi.com/services/preliminary-assessment>.
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