Financial Statement Auditing and Risk Management Strategies

The provided content consists of various academic articles and sources related to financial statement audits. The articles discuss topics such as macro-prudential policies to mitigate financial system vulnerabilities, systemic risk of financial institutions, internal control quality, ERP systems for regulatory compliance, and continuous auditing by internal auditors. Additionally, there are sources on forensic accounting and university financial management. Overall, the content is focused on providing information on various aspects of financial statement audits.

FINANCIAL SYSTEM
AND AUDITING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
AC 1.1 Purposes and use of different accounting records..........................................................3
AC 1.2 Accounting concept........................................................................................................4
AC 1.3 Nature and structure of accounting system.....................................................................5
TASK 2............................................................................................................................................6
AC 2.1 Different component of business risk.............................................................................6
AC 2.2 Control system in place at Minty Cola...........................................................................6
AC 2.3 Risk of fraud within minty cola and suggestions as risk................................................7
TASK 3............................................................................................................................................8
AC 3.1 plan for audit for minty cola...........................................................................................8
AC 3.2 Audit test procedure by Minty cola................................................................................9
AC 3.3 Audit process................................................................................................................10
TASK 4..........................................................................................................................................11
AC 4.1 Qualified and unqualified audit Report........................................................................11
AC 4.2 Draft a suitable management letters...............................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................3

INTRODUCTION
Financial system is a systematic process where every rules and regulation has performed
with step by step manner. Further, It consists of some general accounting accept principles which
is necessary for maintained similarity in financial statement in effective manner. Every
accounting policy has been prepared on the basis of international accounting standard which has
issued by IFRS. Therefore, this financial system helps in conducting proper audit with
appropriate method and techniques (Claessens, Ghosh and Mihet, 2013). The auditor applied
audit standard while they check the books of account therefore, investigation person fist plan and
check every account with per-decided planning and method on the basis of sufficient evidence.
Hence, they give their comment on report with proper manner and sign on it. In this report
comprise, various financial system which are use while preparing books of account. Account has
been prepared on the basis of some assumption which is necessary to applied during preparing
books of account. Plan of audit is also importance for checking fraudulent activities with in
organization.
TASK 1
AC 1.1 Purposes and use of different accounting records
Whole accounting process has finished with step by step manner and
every transaction has record in different book of account as nature of
transaction. Bookkeeping – it is the systematic process of record every transaction on daily basis.
Further, it is the primary stage of financial system because it record every day transaction
on the basis of inventories generate or received. Therefore, it is the process which is the
beginning stage of every accounting process. Therefore, minty cola record prepared this
account for maintained every day transaction. Income statement – the income statement shows operational transaction which arisen
during accounting year. It has been prepared at the end of the year for shows operational
transaction at the end of the year (Acharya and Ryan, 2016). Therefore, Minty cola
company prepare this account with follow general accounting accept principles in proper
manner for known actual net profit at the end of the year. Balance sheet – It the main financial statement which shows the true and fair views of
account at the end of the accounting year. Minty is mandatory to prepare this statement

with proper manner as general accounting accept principles. It shows overall condition of
enterprise with effective manner. Cash flow statement – This statement has prepared for maintained cash flow in effective
manner. It divided into three part operational activities, financial activities and investigate
activities (Khlif and Samaha, 2014). Therefore, the preparation for minty is mandatory
because it's a big concern. It shows liquidity condition of the organization with proper
manner that is why management can take proper action for long-term planning.
 Trading account – the trading account consist of direct transaction which relates to good
manufacturing. Its main purpose is to segregate the direct expenditure and calculation of
gross profit in fair manner. The trading account consist only those transactions which
direct link to product manufactures.
AC 1.2 Accounting concept
The whole process of accounting has depends on some concept which is assumed to
treated as true with fair manner.
A. Accrual concept – revenue and expenditure has recorded when it actually received in period.
On the other word, every transaction which are not emerged actually than it will be not recorded
(Cao, Chychyla and Stewart, 2015). For example: goods sales on approval basis not recorded in
books of account until consumer not gives their confirmation about good. Therefore, during
financial period, every transaction relates to operation has recorded in book of account.
B. Going concern concept – this concept has based on assumption where it is presumed that
entity business will remain for foreseeable period which will not be liquidate in any time in
future period. Further, it is ignored every factor which may emerged in future time therefore,
business will continue for long-term period without face any barrier.
C. Business entity – This concept state that business is different from its owner because it's a
separate judicial person which has own seal for entered in contract by using self name. Further,
business maintained separate record of owner even its paid interest on investment amount. On
the other hand, operation of business is not effected by changes of owner.
D. Historical Cost – It is the value which record by organisation when it acquired assets.
Therefore, it avoids to market value of assets (Gillespie and Hurley, 2013). Depreciation
allocation has been made as value of acquired value.

E. Consistency –The business should be adopted principle at once which should not be changed
at any time because it reduces the effectiveness of financial record and hard to understand for
entity at every stage. Therefore, in case it is necessary to changes any policy than entity should
mention the changes in financial report with fair manner along with effect of changes must be
disclose with proper way. Reason of changes also should be mention in report.
F. Prudence – The concept of prudence state that provision of expenditure must be separately
created because it is also treated as security for future occurrence (Zhai, 2015). This assumed
provision also deducted from revenue as it will be not received. On the other hand, revenue only
can be recorded when it is realised or assured. Its main purpose is to maintained proper
operational transaction in fair manner.
G. Materiality – The concept of materiality state that recorded item must be material or it has
some value. It is varied on different business. Its main purpose is to increase the effectiveness of
financial statement. Therefore, any transaction which not impact on business must be recorded in
miscellaneous expenses instead of financial statement.
AC 1.3 Nature and structure of accounting system
Business has affected by various of factor which may be internal and external therefore,
whole system has linked with each another factor which is as followed:
 Complexity of business process – Enterprises resource planning helps to cover all
information in one place with effective manner (Council, 2013). Therefore, complex
business process are hard to manage whole operation in effective manner. Accounting
system is major impact by inappropriate business process.
 System cost – Whole accounting process is depends on accounting information system.
Further, it is required to pay more cost to adopted whole process therefore, It is not
possible for small concern. It raises the unnecessary cost of organisation.
 Accounting Standard – Whole accounting process has based on accounting standard
further, changes in principles emerged a liability again entity to adopted as accordingly
(Derbali, Hallara and Sy, 2015). Therefore, it is not possible for undertaking to accept
change at every time.
 Level of training – Proper training is essential in proper accounting system because it
increases the ability of human resources for perform their work in effective manner.
Therefore, lacks of proper knowledge in any stage impact on whole account system.

 Implementation – It is not possible to perform every plan as according to decided
strategies with effective because various of issues has emerged in applicabilities in
organisation. Therefore, business has to considered every factor which may impact on
account system.
TASK 2
AC 2.1 Different component of business risk
Business has faces various type of risk which may relates to anything like finance problem etc. Product risk – it is the biggest problem which faces by company regarding to product or
service sales to consumer (Authority, 2016). Major difference has emerged between
manufacturing Market risk – market also impact to whole business process by upward and downward
streaming. Complex market environment impact negative on whole operation strategies.
It Is effected by political factor, economic factor etc. therefore, in case entity has good
market plan than they can survive in effective manner. Finance risk - The business has impacted by lacks of finance further, in case of enterprise
faces the problem relates to finance than it cannot be perform well in market because It is
need in every organisation in sufficient manner. Execution risk – Company produce a product as consumer demand. Its main purpose is to
taking market advantages but sometime its not possible for enterprise to meet as
consumer need (Hanif, 2014). Therefore, this risk may be emerge by various of factor
like price, quality etc. apart from product, client required various of thing in one product
which fulfilled the overall need.
 Business risk – Enterprise may suffer loss from lacks of cash flow because liquidity is
necessary for every business entity for taking market advantages. Therefore, higher of
liquidity condition shows that organisation is able to meet long term tragedy and vice
versa. Money is essential components for every king of undertaking because each of plan
has depends on availabilities of encash.
AC 2.2 Control system in place at Minty Cola
Business risk can be reduce by adopting systematic plan with effective method and
techniques (SUN, Y. LIU and CHANG, 2013). Therefore, management can reduce Risk by
accepting following:

 Financial plan – It is the systematic process for manage finance effectively. Further, it is
the set of process which organisation accepts for proper operation within enterprise
prises. It helps to reduce the wastage of finance within the organisation. Therefore, It
helps to utilize encash with effective manner. Accounting policy – Its refer to systematic entry of operation in books of account. Its
combination of record procedure in books of account with systematic manner. Therefore,
it is helps to reduce any type of risk which may emerged in business operation (Mundy
and Owen, 2013). Each entry is necessary in business operation because it raises the
accuracy of business operation in proper manner. Management techniques - This type of techniques are used by management for purpose
of identified the position of business and take decision as accordingly. Therefore, this
type of techniques also assist to reduce the risk within the business premises. Its shows
overall condition therefore, managerial person take decision as accordingly.
 Auditing – Its systematic process of check books of account with proper method and
techniques. Whole process has conducted by authorised person only. Therefore, its made
more accurate of books of account by reducing error. Its based on auditing standard
which review every aspect of books of entry.
For example: The case state that management of Minty is found that employee compliment for
stolen cash in company therefore, they required to conduct internal audit. Therefore, its internal
investigation of books of account with proper manner (Vasarhelyi, Alles and Littley, 2012). Its
helps to maintained accurate books of account. Hence, its process where authorised person check
every books of account with link with proper evidence and detected error in finance process.
AC 2.3 Risk of fraud within minty cola and suggestions as risk
Business faces many of risk from various of activities therefore, such risk sometime treats
as fraudulent activities. Further, this type of business activities business has to detected properly
for effective operation.
 Financial risk – Liquidity is the main component in every type of business because
every plan has performed on the basis of sufficient cash in organisation. Therefore, It can
be reduce by proper financial planning with method and techniques. Management of
investment is necessary at each stage in operational activities within the premise area of
enterprise (Kurt and Marsap, 2013). Hence, Minty prepared proper financial planning as

organisation structure and applied it properly with proper method and techniques. It
reduces the cash related problem from organisation. Thus, minty should use financial
planning at every stage within the organisation with proper manner.
 Management risk – The role of managerial person is essential in enterprise because this
type of person reviews every aspect of drawback within the organisation (Bing, 2013). It
analysis various of aspect where risk has existed and make plan as accordingly for
reducing possible risk within the organisation. Therefore, management of minty cola
should make proper plan as proper manner for reduce the organisation risk. The proper
planning required to identified the actual drawback within the organisation than prepare
plan to reduce possible risk.
 Performance risk – Every business success has depends on worker performance
therefore, every entity considered on efficiency of their worker with proper manner. So
minty should provides proper training to their sub-ordinate for increases the performance
level (Akisik, 2013). It is the main risk which every organisation has faces therefore, It
impacts on every business activities with negative manner. Hence, minty have to change
in internal environment with proper manner.
TASK 3
AC 3.1 plan for audit for minty cola
The minty cola prepare plan for conducting audit with proper manner. Internal audit is
conducted by managerial person for detect fraud in specific area only therefore, its called a
managerial audit which has conduct under instruction of higher authority.
In this case employee compliant that cash has been stolen from company therefore,
management decided to conduct a internal audit for identified the actuality of the fraud. Scope - It is decided by higher authority so that he cannot perform investigation outside
the decided area. Such person is liable to followed the instruction given by management.
Hence, he can make plan only on the specific area where fraudulent activities has actually
emerged (Newman and Bach, 2014). On the other hand, auditor should analysis the
materiality item only because this unnecessary item investigation consumer more time
which give less result. Materiality – the auditor should chose material document for investigate the fraud area
with in the organisation. It is referred to document which relates to fraudulent activities.

The detection activities may be internal and external which impact directly on
investigation process. Therefore, investigator team should considered on material process
so they should choose those informations which is influenced on whole business
operation. On the other hand, in case auditor collect the non material item then it just
wasting a time in higher manner (Yadav and Yadav, 2013). Every collect information
should be mention in audit report at regular time when it received. \
 Risk – Any kind of negligence by auditor during investigation process is responsible in
higher manner. Or it is made higher responsible to such person. Even he forgot to
investigate any area then also it will be serious liable to him. On the other word, investor
is liable for perform plan in specific time period otherwise it is also his obligation to
perform their duty within limited time period. Therefore, authorised person is answerable
for every kind of mistake and omission with respect to detecting process (Components of
Business Risk, 2016). Lastly, he sends their whole report to minty higher authority with
attracted proper evidence.
AC 3.2 Audit test procedure by Minty cola
Audit test is the mathematical formula which are helps in detect fraud in whole audit
process. There are some method to detect error in statement which are as follows: Ratio analysis – It is mathematical formula which shows financial condition of company
in maths figure. Therefore, this type of method used to determined the input and outflow
of item with organisation. On the other hand, auditor can compared to input with output
and determined the actual situation of business with fair manner. Hence, It is the method
which contribute large part to conduct audit in fair manner. Financial statement – Investigator check this report for purpose of known the actuality of
business operation (Blank Audit Notification Report Form Example, 2016). Therefore,
investigator check each and every entry with link to related evidence. Minty's financial
statement is the necessary because Supportive document – This type of paper play vital role in every organisation because it
is relates to operational activities. Therefore, it is the evidence of every entry which
record in books of account. It may be generate by internally or externally like debit note
or credit note. On the other hand, It necessary for check accuracy of each entry on the

basis of available document. Hence, there is supportive document may be bank record or
any unnecessary benefits by any internal person.
 Bank recognise statement - The auditor check BRS for checking the flow of stolen
amount (Claessens, Ghosh and Mihet, 2013). Therefore, it is issued by bank which
company compared with self generate cash book. Hence, it gives overall overview of
cash flow with link to enterprise.
AC 3.3 Audit process
The audit is the per-decided planning by investigator person for detect fraudulent
activities within the organization. Therefore, auditor prepare planning process for find out the
stolen amount from company. It is the process for search person who is actually involved in
these activities. Hence, process are as follows:
 Firstly, auditor collected all information relates to stolen money from responsible person.
 Then prepare planning as available document.
 Team divided their responsibilities in each person as capabilities.
 Every cash relates transaction will be checked with supportive document and it will be
done at the time when cash was declared (Khlif and Samaha, 2014).
 Auditor is liable to check each and every transaction with supportive document by
applying proper method and techniques.
 He can check cash flow statement for knowing the uses of liquidity.
 He can ask directly to responsible person for known the stolen amount.
 If they give statement about usage of finance in any way then he should check such entry
with deep analysis.
 He can physical investigate such area where he doubts about stolen money.
 In case responsible person not gives proper information then he can mention in report
about this (Gillespie and Hurley, 2013). Therefore, higher authority can take proper
action on such person.
 It is to be noted that every collected information must be mention in audit paper and
report with proper manner.

TASK 4
AC 4.1 Qualified and unqualified audit Report
Audit report must be clear and fair with proper manner. It should followed audit standard
in proper manner (Council, 2013). Further, It is important for exhibit every required information
as need by shareholder. Some point are as follows which determined that report is qualified or
unqualified:
Qualified Unqualified
Auditor signature is required
on report.
Signatures report qualified Non signature report
unqualified
Audit standard must be
followed in report.
Prepared report on the basis of
standard is qualified
Non followed standard report
is treats as unqualified.
Auditor comment on report is
necessary with proper manner
which may be positive or
negative
Commented report qualified. Non commented report
unqualified.
Proper formate and structure
as CARO 2016 is required for
preparing of report (Authority,
2016).
Report prepare as accordingly. Not prepare as accordingly.
Every changes in report must
be based on proper evidence.
Attached evidence report will
qualify
Otherwise, non qualified.
Draft internal auditor report
 The release allowance of 500000 pounds has been evaluated properly with proper method
and techniques.
 Every supportive document relates to cash entries has been checked with correct process
(Mundy and Owen, 2013).
 Each legal document has appraised with proper method and techniques.
Auditor suggestion and comment. Auditor Signature

Illustration 1: Internal Audit report
(Sources: Blank Audit Notification Report Form Example, 2016)

AC 4.2 Draft a suitable management letters
AUDIT MANAGEMENT LETTER
I confirm to the best of my knowledge and belief, having made appropriate enquiries from
responsible person of minty cola company (Kurt and Marsap, 2013). Therefore, rescue company
identified the following of area where unnecessary activities has emerged. Following area has
been covered under audit report:
Compliance with statuary authority
Minty has prepared whole report as guideline of audit standard. Further, all standard
followed ACCA guideline and followed CARO 2016. Therefore, it report are prepared on true
and fair view of organisation (Bing, 2013). On the other hand, each entry has made with proper
rules and regulation which confirm by accurate evidence.
Uncorrected Error
I sustain that financial statement not consist of any major error. Therefore, it has found
only error in trivial nature.
Supporting document
Every entry has based on strong evidence which received from responsible person
(Newman and Bach, 2014). Therefore, it is confirmed that each entry has made on subsidiary
papers along with it also confirm from third party as well. On the other hand, every entry has
check by cross checking manner.
Cash flow statement
On the basis of analysis of cash statements, It is to be analysis that cash transaction has
been made with proper manner which is confirmed by cross check of each entry (Components of
Business Risk, 2016). On the other hand, 500000 pounds was not be stolen further, it was hide by
wrong entry of buying assets. Accountant added two more zero while making entry of assets
which purchase with small value. The act by him was not intentional manner.
I confirm that all the information provided by me is true which has based on proper evidence.
George W Blyth, statuary auditor
CONCLUSION
Summary of report state that financial system are important in every type of company
like Minty cola. It is based on proper rules and regulation which has declared by government at
regular time period. Its main purpose is to maintained fair record for effective operation. On the
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other hand, management requirement to conduct an audit process for detect the stolen amount.
Therefore, it is a systematic reviews of every account in fair manner.
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REFERENCES
Books and journals
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Akisik, O., 2013. Accounting regulation, financial development, and economic
growth. Emerging Markets Finance and Trade. 49(1). pp.33-67.
Authority, F.S., 2016. Annual report 2015. IEEE.
Bing, L. I., 2013. On thE Process Management and Auditing Risk Control from the Prospective
of Honest Culture. Journal of Shangqiu Normal University. 7. pp.014.
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement
audits. Accounting Horizons. 29(2). pp.423-429.
Claessens, S., Ghosh, S. R. and Mihet, R., 2013. Macro-prudential policies to mitigate financial
system vulnerabilities. Journal of International Money and Finance. 39. pp.153-185.
Council, F. R., 2013. International Standard on Auditing 610. Using the work of internal
auditors.
Derbali, A., Hallara, S. and Sy, A., 2015. Systemic risk of the Greek financial institutions:
application of the SRISK model. African Journal of Accounting, Auditing and
Finance. 4(1). pp.7-28.
Gillespie, N. and Hurley, R., 2013. Trust and the global financial crisis. Handbook of advances
in trust research, pp.177.
Hanif, D., 2014. Differences and similarities in Islamic and conventional banking. International
Journal of Business and Social Sciences. 2(2). pp. 25.
Khlif, H. and Samaha, K., 2014. Internal control quality, Egyptian standards on auditing and
external audit delays: Evidence from the Egyptian Stock Exchange. International Journal
of Auditing. 18(2). pp.139-154.
Kurt, G. and Marsap, B., 2013. The Possible Effects of Organization's Corporate Accountability
Sense on Continuous Auditing: The Case of ISE 100. International Journal of Accounting
and Financial Reporting. 3(2). pp.287.
Mundy, J. and Owen, C. A., 2013. The use of an ERP system to facilitate regulatory
compliance. Information Systems Management. 30(3). pp.182-197.
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Newman, A. and Bach, D., 2014. The European Union as hardening agent: soft law and the
diffusion of global financial regulation. Journal of European Public Policy. 21(3). pp.430-
452.
SUN, Y. D., LIU, Z. and CHANG, C., 2013. On the Establishment of Warning Indicator System
of Fiscal Risk in Chinese Fiscal Auditing. Journal of Nanjing Audit University. 5. pp.003.
Vasarhelyi, M. A., Alles, M. and Littley, J., 2012. The acceptance and adoption of continuous
auditing by internal auditors: A micro analysis. International Journal of Accounting
Information Systems. 13(3). pp.267-281.
Yadav, S. and Yadav, S., 2013. Forensic accounting: A new dynamic approach to investigate
fraud cases. EXCEL International Journal of Multidisciplinary Management Studies. 3(7).
pp.1-9.
Zhai, H., 2015. Application of Information Construction in University Financial Management.
In 2015 8th International Conference on Intelligent Networks and Intelligent Systems
(ICINIS). IEEE.
Online
Blank Audit Notification Report Form Example, 2016. Available through:
<http://www.hazelwriter.com/audit-report-formats/blank-audit-notification-report-form-
example/>. [Access on: 5th September 2016].
Components of Business Risk, 2016. Available through:
<https://businessroot.wordpress.com/2013/02/22/components-of-business-risk/>. [Access
on: 5th September 2016].
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