Planning, Analytics and Risk Assessment

Added on - 28 May 2020

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Running Head: Student Name & NumberName:Student Number:Subject Code:Assessment Number:
Student Name: & Number:2Table of ContentsQuestion 1 Planning, analytics and risk assessment............................................................3Part (a)............................................................................................................................3Part (b)............................................................................................................................4Part (c)............................................................................................................................5Part (d)............................................................................................................................6Question 2 Internal Control and Tests of Control................................................................7Part (a)............................................................................................................................7Part (b)............................................................................................................................9Part (c)..........................................................................................................................10Part (d)..........................................................................................................................11Part (e)..........................................................................................................................12References:.......................................................................................................................13
Student Name: & Number:3Question 1 Planning, analytics and risk assessmentPart (a)As we see the company’s profit margin is falling from last two years and companyis planning to improve it by taking some steps such as they are planning to keeptheir cost low so that they can cover their overhead costs by increasing the level ofsales. They also planned to improve their working capital by reducing the levels ofinventory and accounts receivable. They also expect to lower down the debt levelto balance the cash flow (Dalkin, J. R. 2010). By this information we can predictthat company will show a hike in its profit margin as compared to previous yearsalthough they will not reach the benchmark of the industry but they will try harderto improve the net profit figures.Company’s current ratio will decrease slightly in future as they are reducing thelevel of their inventory and accounts receivable. This will also impact the quickratio (Gray & Manson, 2007). The times interest earned ratio will also fall as thedebts will be repaid by the company in near future. Net sales of the company willincrease in the coming years as company wants to cover its overhead costs andimprove the profit figures. In short company’s position will improve in near future.
Student Name: & Number:4Part (b)The three account balances that could be at risk of material misstatement andneeds peer review at the time of audit are:i)Cost (Overhead Cost)ii)Inventoryiii)Debts/ LoanThe company is trying to keep its costs in control so the auditor will criticallyreview its cost accounts as the cost figures will decrease as compared to previousyears that will surely draw the attention of the auditor. The company is planning tokeep its costs down so that sales will recover the cost and profit figures willincrease. Hence, there is chance of risk of material misstatement in company’s costaccounts and the cost can be overstated by the company to get rid of the taxliability (Bonner, 1990).Company is planning to lower down the level of inventory and realise the cash torepay its liabilities so the auditor will physically verify the inventory count as thereis chance to manipulate the inventory figures. The method for valuation ofinventory directly affects the cost of goods sold that’s why auditor needs toevaluate the inventory figures as their valuation is done as per the guidelines.There is possibility of overstatement of the inventory balance at the year end.Company is planning to repay its debt and decrease the level of debt to improve itsworking capital management. There is need to review the level of debt and theflow of cash the source of repayment of debt. The debts can be understated by thecompany to show a better financial position without its actual repayment. Thisshows the credibility and liquidity of the company.
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