Audit and Assurance Report: Decca Ltd and Asian Foods Analysis

This report delves into audit and assurance principles through the analysis of case studies involving Decca Ltd and Asian Foods. The report examines the strengths and weaknesses of Decca Ltd's internal control environment, including issues such as management intervention, board and auditor activity, and accounting practices. It then explores the impact of payroll maintenance practices on the nature, timing, and extent of tests of control for Skiers Lodge hotel, detailing the importance of accurate information and test control applications. Furthermore, the report addresses foreign currency transactions and exchange rate risks faced by Asian Foods, highlighting the impact of import practices and the significance of the balance date in accounting for accounts payable. The report concludes by emphasizing the crucial role of audit and assurance procedures in ensuring the accuracy and fairness of financial statements, along with the importance of internal controls and ethical conduct.

AUDIT AND ASSURANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
QUESTION 1...................................................................................................................................1
Strengths and weaknesses of Decca’s control environment........................................................1
QUESTION 2...................................................................................................................................3
a) Information affecting the nature, timing and the extent of test of control...............................3
b) Test of controls........................................................................................................................4
QUESTION 3...................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Audit and assurance can be referred to as professional services that are provided by
certified Chartered Accountants of the country. These services are in relation to examining the
accuracy of financial statements of the company and notifying that whether these financial
statements represent a true and fair view in relation to the financial health and well-being of the
enterprise. The auditing principles and procedures are applied to the financial statements so that
it can be ensured that they are free from material misstatements and any kind of compliance
errors. In the current project the auditing principles shall be applied to the various case studies in
order to provide a solution to the companies under consideration such that they can improve the
scenario through better internal control management and policies.
MAIN BODY
QUESTION 1
Strengths and weaknesses of Decca’s control environment
Decca Ltd which is a diversified manufacturer operating in various divisions has an
internal control environment which has some positive as well as some negative sides which are
impacting the financial performance of the business. These strengths and weaknesses of the
control environment are quoted below :-
Strengths
 One of the major strengths is that the head office management of the company has very
high integrity and so performs the business with due diligence complying with the
necessary lawful requirements.
 Another major positive aspect of the company is that it employs highly competent staff
who are qualified to perform all their duties and responsibilities for the organization. The
work that is delegated is performed with high efficiency by the employees fulfilling the
targets of the business (Boiral, Heras-Saizarbitoria, Brotherton and Bernard, 2019).
 The internal control environment stays monitored and governed as proper ethical code of
conduct is defined by the management and all the policies are formulated in accordance
with it.
 The policy of providing employee compensation on the basis of financial performance of
the company helps in motivating the employees o perform better generating higher results
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for the company. In this the control environment also is governed while monitoring the
employee performance. The procedures undertaken by Dave Grollo, the general manager of electronics
department regarding the aggressive cost cutting through better control management is
also one of the prominent strengths of the company.
Weaknesses
 Despite the fact that the head office management has high integrity, they only intervene
in the various departments and divisions if the planned results of the company are not
achieved. This makes the overall internal control environment weak and free for all the
material misstatements.
 Another major weakness is that the board of directors and auditors are less active and so
less monitoring takes place in relation to the compliance made by employees. This further
degrades the control environment.
 The management is highly conservative in relation to applying the accounting policies
and procedures in respect of development of financial statements which restrains them
from change which could otherwise be better for controlling and representing of the
financial performance.
 Another practice related to cost-cutting by undertaking the purchase and warehouse
process under the hands of general managers. Another activity which is related to
terminating all the qualified staff and employing the inexperienced staff has somewhere
deteriorated the quality of control environment.
As per the auditing principles and procedures specified under the ISA 315 which certifies
the material misstatements that are associated with the control environment, the internal control
of Decca Ltd can be evaluated. The first and foremost principle is related to communicating the
ethical code of conduct and values of integrity to the employees of the business. But it can be
seen that in this company the code of conduct is defined but it is not enforceable on the
employees. Another principle is associated with commitment to competence which means that
only a particular job is to be provided to one who is competent enough to perform it (Ruiz-
Barbadillo and Martínez-Ferrero, 2020). But in the electronics department the qualified
professional are removed in order to cut the costs. Another principle is related to the complexity
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of the organizational structure according to which the material misstatements in the control
environment are assessed. In the current scenario the company is having complex organizational
structure as it has diversified department and divisions. So it can be assessed that if the control
environment is efficient then it can regulate the overall financial performance of the
organization.
QUESTION 2
a) Information affecting the nature, timing and the extent of test of control
The payroll maintenance by the Skiers Lodge hotel for the casual and part-time wagers
has been affecting the nature, timing and the extent of the test of controls that can be applied by
the auditors of the organization (Onyango-Delewa and Nkote, 2021). This is because when these
auditors apply the necessary procedures and the test of controls that assure that the financial
statements are free from material misstatement, they need proper supply of information in the
form of payroll software's that can be efficiently evaluated. They need to assess that whether the
payments that are made are to the right employees, on the correct wage rate, for the proper time
worked and in an authorised manner.
The structure followed by the company in respect of casual and part-time wagers
involves formation of weekly rosters involving the details related to the employees and their
payments, the excel sheets are then converted to hardcopy which are then signed by the
supervisors and employees. Further if there are discrepancies related to additional hours then
they are manually prepared and signed by the employees. The manual work done by the
operation manager can involve errors related to time worked by the employees, the wage rate
that is to be paid, the amount due and the additional hours worked (Lessambo, Lessambo and
Weis, 2018). This can further reduce the extent to which the test of controls can be applied by the
auditors.
In order to govern that the payroll that is free from the material misstatement and any
kind of fraudulent errors there are some test controls that can be applied while auditing so that
the true and fair view regarding the payment of wages can be ascertained. These test controls can
be undertaken while interim and final audit are being conducted in the organization. Apart from
that it can be evaluated that these procedures can only be successfully arranged in the company if
the proper compliance procedures are undertaken by the company in respect of maintaining the
clock cards, payroll register and the master file data.
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b) Test of controls
The various test of controls are applied to the business which shall be regulating and
monitoring the payment of wages to the casual and the part time wagers in the business. They are
to define the accuracy and check the occurrence in respect of these wage payments. The test
controls can be in the form of:-
 First in order to know that whether the payment to the employees is as per the time
worked by them in the company, the clock cards shall be checked. The substantive
procedure shall be that a sample is chosen of the employees and their time is verified and
correlated with the payments made to them (Farooq and De Villiers, 2017).
 In order to review the additional hours payment the list of additional duty performed shall
be checked and in accordance with that the rate and time shall also be evaluated to find
out the accuracy.
 The corrective wage rates are ascertained through matching it with the master file data
that is available with the company.
QUESTION 3
Asian Foods company that are importing the vegetables from Thailand and Vietnam are
undertaking the foreign transactions and paying the invoices in the form of US dollars. This shall
be leading to the foreign currency transactions and also shall be imposing the exchange rate risk
to the company. It can also be assessed that the goods are received by the company within a
period of 21 days and the payment by the company is made in a period of 30 days. This shall be
leading to the accounting for the accounts payable as the company considers the liability as soon
as the goods are shipped on board at the Asian port.
This accounts payable are at major risk for the company for two simple reasons one is
that such transactions are undertaken in the foreign currency as they are representing the
overseas accounts (Turker and Bicer, 2020). The transactions that are there in other currency are
to be closed at the closing rate of the day and it also arises the possibility for the exchange rate
risk in the company. The other risk shall be arising because of the fact that the company has
different policy in order to accept the liability, being insured for the risk etc. The liability is
accepted when the goods are on board post they are loaded onto the ships.
The assertions that are more at risk are related to the completeness of the transaction,
accuracy, errors of valuation, allocation of the expenses and liabilities. All these shall be
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affecting the fairness of the financial statements and because of that the users will not get the
appropriate information.
In the accounting of these foreign accounts payable one of the significant role is played
by the balancing date (Louwers and et.al., 2018). On this date the closing exchange rate shall be
assessed and the balance shall be accordingly derived by the company in respect of the accounts
payable that are there for the company. This arises the exchange rate crisis and in order to
mitigate such risks the future contracts are to be executed that shall hedge the risk pertaining to
the future contracts.
Also in case of balance date one more problem is that if the liability is recognized post or
pre balance date on the basis of the shipment of the goods then in that the closing rate shall be
wrongly assessed affecting the overall representations.
CONCLUSION
It can be summarised from the above project that auditing and assurance procedures are
crucial in order to determine the true and fair view of the financial statements. Apart from that it
is also used in the governance and compliance of all the specified policies and procedures and
ascertaining that all the undertakings are free from the material misstatements and the fraudulent
errors. The audit prefers that the internal control environment of the company must be such that
the activities are undertaken by maintaining the ethical code of conduct in the business and the
financial statements are prepared due diligently.
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REFERENCES
Books and Journals
Louwers, T. J. and et.al., 2018. Auditing & assurance services. McGraw-Hill Education.
Turker, I. and Bicer, A. A., 2020. How to Use Blockchain Effectively in Auditing and Assurance
Services. In Digital Business Strategies in Blockchain Ecosystems (pp. 457-471).
Springer, Cham.
Farooq, M. B. and De Villiers, C., 2017. The market for sustainability assurance services. Pacific
Accounting Review.
Lessambo, F. I., Lessambo, F. I. and Weis, 2018. Auditing, Assurance Services, and Forensics.
Springer International Publishing.
Onyango-Delewa, P. and Nkote, I. N., 2021. Can auditing and other assurance services stimulate
public expenditure governance? The context of fiscal institutionalisation mediation in
local governments. International Journal of Public Sector Performance
Management. 7(3). pp.337-357.
Ruiz-Barbadillo, E. and Martínez-Ferrero, J., 2020. Empirical analysis of the effect of the joint
provision of audit and sustainability assurance services on assurance quality. Journal of
Cleaner Production. 266. p.121943.
Boiral, O., Heras-Saizarbitoria, I., Brotherton, M. C. and Bernard, J., 2019. Ethical issues in the
assurance of sustainability reports: Perspectives from assurance providers. Journal of
Business Ethics. 159(4). pp.1111-1125.
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