Auditing Theory and Practice: Analysis of Audit Risk and Financial Ratios for TCW

Running head: AUDITING THEORY AND PRACTICE
Auditing theory and practice
Name of the Student:
Name of the University:

1AUDITING THEORY AND PRACTICE
Abstract
The paper examines about the audit risk that includes issue that the auditor aces while
recognizing the material misstatements. This may happen because of fraud or error. The most
ideal approach to examine the business risk faced in audit process is to the examination of the
key financial ratios that would help in getting a speedy measurement of the performance of
the firm. It would assist the administration to find put the limitations and the benefits from
with different strategies and initiatives can be framed. The organization of TCW has been
investigated in the below paper. For the company in order to examine the operational
effectiveness and efficiency the internal control has been focused upon that slo complies with
the assurance objectives of TCW.

2AUDITING THEORY AND PRACTICE
Table of Contents
Solution to Question 1A.............................................................................................................3
Solution to Question 1B.............................................................................................................6
Solution to Question 2A...........................................................................................................10
Solution to Question 2B...........................................................................................................13
Reference list............................................................................................................................15

3AUDITING THEORY AND PRACTICE
Solution to Question 1A
The mechanism of Ratio analysis is the financial statement assessment in order to
obtain the financial performance measurement of the organization in the major areas of
business. In case of the chosen company Trunkey Creek wines the accounts that are to be
assessed are investments, Accounts receivables, property assets and marketing expense. In
this section, audit risk that deals with the barriers that the auditor would encounter during
material misstatement analysis is to be detected of the company (Alles, Brennan &
Vasarhelyi, 2018). Fraud and error are the two main reasons for the misstatement as
identified. The table below would help in analyzing the mentioned accounts of the
organization of TCW and find out the audit risks that are associated and recommend the
remedies that would help in the reduction of the risk:
Account Analysis Audit Risk Audit Steps to reduce
risk
Account Receivable The account
receivable is the
amount that the chosen
company of TCW is
owing to the clients. In
the organization, the
accounts receivable
ratio of wine segment
is 60.65 days and for
the segment of beef is
36 days. The represents
data the number of
As the TCW sells their
commodities on credit,
the associated risks to
this account are
occurrence risk, risk of
completeness and the
risk of Existence
(McLean, 2018). The
existence risk or the
risk of occurrence is
the risk due to debt
validity. Similarly, the
In case of the
occurrence and
existence risk, the
auditor of the company
for reducing the risk
identify various
unreturned and
suspicious
confirmations of the
various recording of
financial data in the
accounts. On the other