Report Of Auditor On GPSA | Financial Ratio Analysis

Running head: AUDITING AND ASSURANCE
Auditing and assurance
Name of the student
Student ID
Name of the university
Author note

1AUDITING AND ASSURANCE
Table of Contents
Executive summary....................................................................................................................2
Question 1..................................................................................................................................3
(A) Analysis of accounting heads......................................................................................3
(B) Analysis of ratios to assess the business risk...............................................................6
Question 2..................................................................................................................................7
(A) Internal control system................................................................................................7
(B) Weakness in the internal control system with regard to sales and trade receivables 10
Reference..................................................................................................................................11

2AUDITING AND ASSURANCE
Executive summary
GPSA is a company that was incorporated during 1992 and is engaged in the development
and research of medical equipment technologies, distribution and manufacture of medical
equipments and investment of the surplus fund in property market. Their long time auditor
Miller Yates Howarth was approached to report regarding the internal control system of
GPSA, analysis of the major financial ratios with regard to business risk and internal control
system that can be applied to improve the control system and minimise the risk of fraud, error
and misstatement.

3AUDITING AND ASSURANCE
Question 1
(A) Analysis of accounting heads
Account receivable
 Account – accounts receivable is the amount that is receivable by the company with
regard to the delivering of services and goods. The account receivable ratio is
calculated by measuring the net credit sales with the average receivable time.
Therefore, the account associated with the account receivable is the credit sales
account.
 Analysis – it has been analysed from the given case study that all the activities
associated with receivables are performed by the trade receivable clerk only. For
instance, the customer returns the medical equipment, after noting down the reason of
return and completion of documentation, the credit note in favour of the customer is
raised by the trade receivable clerk. Further, the posting of journal as well as receipts
from the debtors are passed on to him, who prepare the bank deposit slip. Therefore
the risk is considered as high.
 Audit risk – as all the activities related to the receivables are performed by the trade
receivable clerk, there exist a risk that the receivable may be misappropriated by the
clerk or the receivables may recorded at lesser amount.
 Steps of audit for reducing risks – to reduce the risks associated with account
receivable of GPSA various activities related with the receivables must be segregated
among various employees