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Accounting Systems and Auditing INTRODUCTION 3 Task 13

   

Added on  2020-01-07

21 Pages6572 Words375 Views
Financialsystems andauditing 1

TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1...............................................................................................................................................31. Description of purpose and use of different accounting records.............................................32. Assessment of importance and meaning of fundamental accounting concepts.......................53. Evaluation of factors that influence the nature and structure of accounting systems..............7Task 2...............................................................................................................................................81. Identification of different components of business risk...........................................................82. Analysis of control system placed in business.........................................................................93. Evaluation of risk of fraud within business and suggestion of method for detection............10Task 3.............................................................................................................................................111. Planning of audit with reference to scope, materiality and risk.............................................112. Identification and explanation of appropriate audit tests for audit assignment.....................133. Types of record to be maintained during audit process.........................................................144. Draft of audit report...............................................................................................................155. Draft of management report...................................................................................................16Conclusion.....................................................................................................................................17References......................................................................................................................................192

INTRODUCTIONCorporate entities are required to maintain their financial records in an appropriablemanner by complying norms and provisions described by authorized bodies. Financialinformation provided by companies is used by different users in order to make economicdecisions. Due to this aspect, business entities are required to ensure factors such as accuracy,reliability, relevancy and comparability in their financial records (Hallikas and et al., 2004). Forthis purpose, provision of mandatory audit has been introduced by legal authorities to ensureusers that fair and reliable information is provided by companies.Present study is completed in three parts. First part is related to description of generalaccounting procedures that are required to be used in Kingston Limited. For this purposedescription of accounting records and concepts will be provided along with its importance. Insecond part of the report, business risks and control systems will be assessed by considering casestudy of Tesco plc. Further, in the last part of the report, audit will be conducted of FA Jet Ltd onthe basis of provided financial facts and figures. On the basis of audit work, management reportand audit report will be prepared. TASK 11. Description of purpose and use of different accounting recordsAccounting records are prepared by business organization to show monetary businesstransactions in a proper manner. Preparation of these records are completed by considering sales,purchases, expenses and incomes (both revenue and capital). For the effective presentation ofbusiness information different accounting records are prepared such as journals, ledgers, incomestatement, cash flow statement and position statement. Each accounting record has its differentobjective and different uses for the stakeholders, description of which is as follows:Accounting recordPurposeUseJournal entries Journal entries are made to recordeach business transaction byconsidering its debit and credit inorder to provide its double effect.Objective of this accounting recordJournal entries arefundamental source of allaccounting records. Thissource provide detailinformation for each single3

is to maintain record businessoperations on chronological basis(Hronsky and et al., 2010). business information. On thebasis of these entries, ledgersare prepared by managementof Kingston Limited. LedgerLedgers are prepared for theposting of journal entries in theirrespective accounts by consideringthe rule of debit and credit (Adams,2002). Ledgers assist in providingfinancial summary of eachparticular account. In additionto this, it helps in recordingoutstanding balances for thefuture purposes. Trial balanceTrial balance is a statementshowing balances of all the ledgersaccount in a particular accountingperiod (Ritchie and Brindley,2007). Objective of this statementis to identify arithmetical errors infinancial information in order toassure accuracy. Main use of trial balance is tosummarize entire businesstransactions for further use.This accounting record is alsoused for identification ofdiscrepancies between debitand credit balance ofaccounting entries todetermine accountingtransactions in whichrectification is required(Paulsson, 2006). However, iferrors are not identified thedifference of balance isrepresented through suspenseaccount. Income statement Income statement shows revenueexpenses and income occurredduring a particular accountingperiod. This statement is preparedIncome statement is significantbecause it shows profit or lossearned by business throughoperational and non-4

by considering accrual approach inaccrual & advance income andprepaid and outstanding expensesare also considered. operational activities. Bymaking inter and intracomparison of this statementefficiency of business can bedetermined (Alexander andArcher, 2010).Cash flow statementCash flow statement is prepared toshow inflow and outflow of cashand cash equivalents during theaccounting year (Romney and etal., 2006). Objective of thisstatement is to keep record of cashbecause other accounting recordsare prepared by using accrualapproach. Use of this statement is todetermine sources andconsumption of cash inbusiness. By tracking cashactivities, organization canmanage liquidity in aneffective manner. Position statement Position statement is prepared onthe basis of accounting equationi.e. sum of assets is equivalent tosum of liabilities and capital.Objective of this statement is toshow financial position onparticular accounting date. This statement is useful foranalysis of financial positionof the company. With thechangingposition,organization can plan forfuture strategies for thepurpose of growth andimprovement. 2. Assessment of importance and meaning of fundamental accounting conceptsFundamental accounting concepts are general norms developed by professional bodieswhich are required to applied while preparation of accounting record and financial statements.All the concept are important because they assure relevancy and fairness in financial informationprovided by the company (Arens, Elder and Beasley, 2010). Objective of implication of theseconcepts is to assure that users are not misled by facts and figures provided by corporate entities.5

For this aspect, management of Kingston Limited is required to considering followingaccounting concepts for recording of business information:Business entity concept: In accordance with this accounting concept, financial activitiesof business is different from their owners. It is because; accounting records showsinformation of organization not of the parties related to it. This concept segregates entityfrom their owners (Clatworthy, 2013). Further, record keepers are required maintaininformation by considering business.Accrual system: Business organizations are required to maintain their books of accounton the basis of accrual approach instead of cash approach. Objective of the concept is toshow accurate and fair position of the entity (Fundamental Concepts of Accounting,2015). By the application of this concept, record keepers are able to portray transactionsrelated to particular accounting period instead of considering receipts and payments ofcash. Assumption of going concern: It is fundamental assumption which is required to beconsidered by all entities. This assumption states that business is running in good positionand there is no planning of closure of business activities in the forseeable future. Insituation where there is contradiction of this concept then company is required torepresent this information to its users. Prudence: This concept is also known as principle of conservatism. In accordance withthis principle, businesses are required to record all possible losses but they cannot doaccounting for potential profits of future (Zadek, Evans and Pruzan, 2013). Objective ofthis concept is to prevent overstatement of profits in financial statements as it canmisguide users. Materiality: Fundamental accounting concept of materiality states that minor events canbe ignored for the purpose of full disclosure. However, all vital accounting event must beprovided with complete information to the users (Fundamental Concepts of Accounting,2015). Purpose of this concept is to enhance relevancy of financial information providedby the organization. Historical cost: As per this accounting concepts, all business assets are required to berecorded at its cost (i.e. amount incurred by business at the time of its acquire).6

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