Developing an Audit Program

This presentation focuses on developing an audit program and understanding the entity and identification of business risk. It discusses the Shaver Shop Group Limited, a leading specialty retailer of beauty appliances and personal grooming company. The presentation covers the computation of audit risk, performing analytical procedures of the statement of financial position, identification of material accounts balances, and concludes with a summary and references.

DEVELOPING AN AUDIT
PROGRAM

UNDERSTANDING THE ENTITY AND
IDENTIFICATION OF BUSINESS RISK
 Shaper shop group limited is leading specialty retailer of
beauty appliances and personal grooming company.
 The company is engaged in offering differentiated customer
proposition and providing excellent customer services through
online and store network.
 They have more than 115 stores across New Zealand and
Australia (Investors.shavershop.com.au 2019).
 Development of audit program is done by analytical and
substantive procedures for each of the identified material
accounts balances.

 Deterioration in the general economic conditions and
retail environment-
 Change in trends and customer buying habits
 Increase in competitiveness
 Exclusivity arrangement and product innovation
 Disruption in product sourcing

DETERMINING THE AUDIT RISK
The audit risk is computed by the formula
Audit risk= Control risk * detection risk*
Inherent risk
 Inherent risk- High
 Control risk- Medium
 Detection risk- Low

PERFORMING ANALYTICAL
PROCEDURES OF THE STATEMENT OF
FINANCIAL POSITION:
2018 2017 2016
Particulars Amount Amount Amount
Total debt 30,98,700 1,42,81,722 67,00,313
Total Equity 5,89,94,177 5,90,82,572 5,20,45,163
Total assets 89765756 87984652 71770513
Debt to Equity Ratio 5% 24% 13%
Equity Ratio 66% 67% 73%
2018 2017 2016
Particulars Amount Amount Amount
Total Revenue 15,49,36,604 14,25,67,549 10,67,11,001
Total Assets 89765756 87984652 71770513
Gross profit 64016166 59472457 4,53,37,406
Shareholders' Equity 58994177 59082572 52045163
Gross Profit Margin 41.32% 41.72% 42.49%
Return on Equity 109% 101% 87%
Return on assets 71% 68% 63%
2018 2017 2016
Particulars Amount Amount
sales 154936604 142567549 106711001
Total assets 89765756 87984652 71770513
Total non current assets 58785118 5,45,76,473 4,64,09,451
Asset turnover 1.73 1.62 1.49
Fixed asset turnover 2.64 2.61 2.30
2018 2017 2016
Particulars Amount Amount
Current Assets 3,09,80,638 3,34,08,179 2,53,61,062
Current Liabilities 2,76,72,879 1,46,20,358 1,30,25,037
Inventory 2,38,94,168 2,91,22,762 18114692
Current Ratio 1.12 2.29 1.95
Quick Ratio 0.26 0.29 0.56

IDENTIFICATION OF MATERIAL
ACCOUNTS BALANCES
 The computation of materiality in the planning process of
audit is done by selecting the profit that is earned by the
organization before tax as it is usually viewed as the metric
against which the performance of group is measured (Ruch
and Taylor 2015).
 . The auditor has used his judgment about the level of
materiality in a manner that results in inherent limitations in
the process of auditing (Minnis and Shroff 2017).
 Based on the professional judgment, the materiality has been
selected at 5% ensuing that the percentage is within the range
of threshold that is accepted commonly.

 In the planning stage, the materiality was based on the
information that is available at the stage of evaluation.
 The sufficiency of the audit procedures is reevaluated by
the auditor when evaluation of audit findings can be
done by using significantly lower materiality levels.
 To anticipate all the circumstances would have influence
on the materiality in evaluating the finding and
completing the audit is not regarded as ordinarily
feasible for the auditors (Bananuka et al. 2017).

IDENTIFICATION OF MATERIAL
ACCOUNT BALANCES
 Carrying value of goodwill
 Carrying value of inventory
 Trade receivables
 Rebates to suppliers
 Expenses
 Related party transactions

CONCLUSION:
 It has been inferred that the company has higher level of
inherent risk compared to control and detection risk.
 There are some accounts balances that have been found
to be material and the materiality of such accounts in the
planning of audit.
 Auditor has mostly relied on the probability sampling
technique to test the effectiveness of the accounts
balances.

REFERENCES:
 Bananuka, J., Nkundabanyanga, S.K., Nalukenge, I. and Kaawaase,
T., 2018. Internal audit function, audit committee effectiveness and
accountability in the Ugandan statutory corporations. Journal of
Financial Reporting and Accounting, 16(1), pp.138-157.
 Investors.shavershop.com.au., 2019. Investor Centre | ShaverShop.
[online] Available at:
http://investors.shavershop.com.au/Investors/?page=annual-
reports [Accessed 15 May 2019].
 Minnis, M. and Shroff, N., 2017. Why regulate private firm
disclosure and auditing?. Accounting and Business Research, 47(5),
pp.473-502.
 Ruch, G.W. and Taylor, G., 2015. Accounting conservatism: A
review of the literature. Journal of Accounting Literature, 34,
pp.17-38.