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Finance and Auditing Assignment

   

Added on  2019-12-03

15 Pages4585 Words141 Views
Finance andAuditing

TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1...............................................................................................................................................31.1 Purpose and use of accounting records..................................................................................31.2 Fundamental Accounting Concepts: Importance and Meaning.............................................41.3 Factors which influence the nature and structure of accounting systems..............................5Task 2...............................................................................................................................................62.1 Components of Business Risk...............................................................................................62.2 The control system in place in a business for the purpose of identification of fraud............72.3 Risk of fraud within a business and methods for detection of fraud:....................................8Task 3...............................................................................................................................................83.1 Plan an audit with reference to scope, materiality and risk...................................................83.2 Use of appropriate audit tests.................................................................................................93.3 Audit process.......................................................................................................................10Task 4.............................................................................................................................................114.1 Auditors' report of manufacturing company:.......................................................................114.2 Management report of manufacturing company:.................................................................12conclusion......................................................................................................................................13References......................................................................................................................................142

INTRODUCTION Audit helps in determining that the accounts made are as per the specific criteria.Finance deals with study of time value of money. It talks about the resources which are availablewith business. In this report, auditing and financial accounting has been discussed in detail alongwith the importance of effective accounting system in a business. business risk is analysed andrisk prevention using management control system is also discussed.TASK 11.1 Purpose and use of accounting recordsAs per the basic accounting system, book keeper is required to organise books,documents and record of day-to-day business transactions. There are various kinds of accountingrecords that organisations are required to maintain (Gramling, Johnstone and Rittenberg, 2012).These records and their importance are stated below:Journals: There are thousands of transactions which a business may undergo in a year.These transactions need to be recorded in the form of journal entries. Journal is the initialstep which helps in recording all the accounting and financial transactions. It has twosides: one is the debit side and another is the credit side (Noy, and Ellis, 2005). Journalsalso show how specific accounts are affected by every single transaction. Ledgers: Once journal is prepared, it is transferred into separate ledger accounts. Thistransfer of ledger accounts is known as posting in ledger. Ledgers helps in ascertainingwhich accounts have debit balance and which have credit balance (Giove, 2015). Theyreflect total monthly transactions.Trial Balance: After posting in journals, reconciliation of accounts is done. This helps indetermining that debit and credit sides are equal or not. Any difference in both sidessimply means that there is some fault in books of accounts. It determines the position ofbusiness on a particular day (Doff, 2008).Balance Sheet: Balance sheet is a summary of all the assets and liabilities of thecompany at a certain point of time. It is also known as position statement as financialposition of any business or person is depicted by these statement at the end of the year(Champlain, 2005).3

Income Statement: Income statement shows net profitability of the company for a periodafter recording all expenses incurred and revenue earned during that period. It is alsoknown as profit and loss statement as it shows net profit earned by the company (Ittelson,2009).Sales ledger : Sales ledger is a register in which all the credit sales transaction done bythe company during the year are recorded. Sales return are also recorded by the company.Purchase : All the purchases, net of purchase return made by the company whether oncredit terms during the year are recorded in the purchase ledger (Barth, 2015).Cash: Cash book records all the transaction involving cash receipts or resulting in cashoutflows.Debtors: Debtors includes person who owe repayment of amount to the company, itmay be when credit sales are made by the company or company had advanced amount toany third person (Giove, 2015).1.2 Fundamental Accounting Concepts: Importance and MeaningAccounting concepts help in ascertaining the basis on which each accounting transactionis to be recorded. Various accounting concepts are as follows:Business Entity concept: As per this concept, an entity is considered to be separate fromits owner for the purpose of accounting. It is important as it explains that why equityinvested by owner appears on the liability side.Accrual concept: This concept records all expenses and revenues whether cash isinvolved or not (Biondi and Lapsley, 2014.). Importance of this system is that thefinancial statements in this case reflect all the expenses which are linked to their revenuesin an accounting period.Going concern concept: This concept states the ability of an organisation to continueworking. It states that people may come, people may go but business goes on forever.This concept is important because it shows the financial stability of a business whichoften affects prices of its stock (Fridson and Alvarez, 2011). This concept also makes iteasy for an organisation to get funds from the external sources. 4

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