Detailed Audit Plan Report for Reliable Printer Ltd. - 2015 Audit

This report outlines the audit plan for Reliable Printer Ltd. for the year ending June 30, 2015, prepared to guide inexperienced staff and provide evidence of proper planning and execution. The report details the audit strategy, which focuses on lowering the assessed level of control risk through a predominantly substantive approach. The plan includes classification, occurrence, and valuation testing, and the use of analytical procedures like ratio and trend analysis to assess the reasonableness of account balances. Specific procedures are outlined for inventory, e-book revenue, fixed assets, purchases, print-on-demand revenue, and cash revenue, with details on testing frequency and sample sizes. The report also covers staff assignment and scheduling, including coordinating with the client and determining the involvement of specialists. Furthermore, it analyzes financial ratios (liquidity, profitability, efficiency, and solvency) and trends in income statements and balance sheets to provide a comprehensive overview of the company's financial performance.

Running head: AUDIT PLAN
AUDIT PLAN
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Purpose of report........................................................................................................................2
The Audit Strategy.....................................................................................................................2
Audit plan...................................................................................................................................3
Assigning and scheduling staff..................................................................................................4
Analytical procedure..................................................................................................................5
Ratio.......................................................................................................................................5
Trend analysis........................................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................9
Trend analysis........................................................................................................................9
Ratio computation................................................................................................................10

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Purpose of report
The report is prepared to present the audit plan for Reliable Printer Ltd. for the year
ended 30th June 2015. This report provides the evidence of proper planning of the audit work
including the guidance to the inexperienced staff. Further, this report provides the evidence of
work performed and consideration of the internal control in relation to proposed procedures
of the audit (Adler et al. 2018). This report also means of controlling time spent on the
engagement. The report will also consider the level of control risk and the predominantly
substantive approach. On the other hand, the main purpose of the report of this report is to
develop the audit strategy, audit plan and assigning the staff.
The Audit Strategy
If the control risk can be assesses lower than there is less chance of material
misstatement occurring. Here the material misstatement is referred to those material
misstatements that are not identified and fixed or prevented by the internal control system of
the firm. Hence, the audit would not need to consider the as much evidence that the control
activities are efficiently performing (Griffiths 2016). The strategy of this audit is to lower the
assessed level of control risk by identifying the material misstatement and solving them. For
this the auditor should use the various audit procedure and the principles. The lower level of
control risks assessed are associated with the purchase and the inventory as the firm
purchases 50% of inventory form Australia and 50% from the Asia at different prices but the
recording of the inventory are not made separately and moreover valued at the average cost.
Similarly, the cash receipts are also associated with lower level of assessed control risks as
some payment received by the firm in cheques though the mail but accountant does not pass
the proper entry of this event (Louwers et al. 2015).

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Hence, the auditor shall perform the classification test in respect of this to identify and
resolve the risks associated with purchase and inventory. Recording of inventory shall be
made using proper valuation method cost or market value and shall be separated on the basis
of the country from where it is received. Further, in respect of risk associated with cash the
auditor shall try to resolve this risk by recommending the proper accounting entry to
accountant of the firm for such type of revenues. Cheque received through mail shall be
recorded properly at the bank book and shall be reconciled on regular interval. The auditor
shall also review various areas of the firm and resolve it by recommending proper accounting
procedures and principles (William, Glover and Prawitt 2016)
The audit follows the substantive audit approach. In this, the auditors verified the
transaction and event in the financial statement by considering the maximum possible volume
of those transaction and events. Hence, this audit will also follow the same strategy and
perform the verification of transaction and the financial event by covering the maximum
possible volume of the transaction and events. This allow the auditor to reach and identifies
the each material misstatement while also reduces the probability of uncovered material
misstatements. The strategy is based on the principle First one is that the auditor review the
internal control program, which affect the financial reporting system or the areas being
audited (Kim, Baikand Cho 2016). While, the second principle the auditor assures that the all
control area of the organisation should perform properly. Then, the auditor analyse the
control areas of the firm, as they are reliable or not. If the areas become reliable then it means
that the material misstatement risk, which are not easily identified by the auditor are become
low.
Audit plan
The audit procedure is an activity used by the auditor to identify the quality of the
financial information by the clients. There are various procedures available to analyse and

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examine the quality of the provided information. Here the auditor uses the classification
testing, Occurrence testing and the valuation test to perform the audit. In the classification
testing, the auditor examines that the transaction and events are classified properly or not. In
the occurrence testing the auditor examines whether the claimed transaction or event of the
client is actually occurred or not (Sultanaet al. 2015). Lastly, in the valuation testing the
auditor ensures the valuation of the assets and liabilities are properly performed or not. The
main purpose of the audit is to identify the material misstatement and solve them by applying
the proper accounting principles and procedure. The auditor also performs the specific
analytical procedure while performing the audit of the organisation. The procedure helps the
auditor to understand the business of the client and the chances in the business. This will also
help the auditor to determine the major risk areas to plan the other audit plan. In this the
auditor analyse the past financial report of the firm as well as the forecasted report of the
firm. After that auditor, compare these reports of the firm with the other firms of the same
industry (Knechel and Salterio 2016). This report consist the various financial ratios as well
as the sustainability and non-financial information of the firm.
Here, the auditor will perform the valuation test in respect of the inventory, e-book
revenue and fixed asset by using the 10% of the available data. In respect of the purchases,
the auditor shall perform the occurrence and allocation test along with the substantive test.
For print on demand revenue the auditor, perform the risk assessment test and detailed
balanced test with the sample size of 15% data. For e-book revenue the auditor, perform the
analytical procedure test, occurrence test and classification test with the 10% of the all
transaction data. Regarding the appointment of the new CEO, auditor exercises the dual-
purpose test and the analytical procedure test (Leitch 2016). In context of the new it system
the auditor applies the dual- purpose testing, risk assessment test and the substantive test. For
financial part the auditor perform the ratio analysis of the different periods and also compare

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them with the ratios of the other firm from the same industry. Lastly, for the cash revenue, the
auditor shall perform the valuation test, substantive test and the dual- purpose tests by using
the 20% of the available data. The testing of the purchase and inventory is performed in
quarterly basis while the testing of the revenues of the print on demand is performed on the
half- yearly basis (Brasel et al. 2016). The e- book revenue is also tested in the quarterly
basis. The cash revenue is tested in the monthly basis. While, the fixed assets and the
finances are tested two times in the year, one is in between the year and another is in the end.
Appointment of new CEO and the IT system is tested at the time of the adoption.
Assigning and scheduling staff
The auditor shall also co-ordinate with the client in the data preparation by helping
them to assign the proper or specified staff in the different internal control areas of the
organisation. The auditor also helps the client to identify the requirement of the consultant or
any other specialist (Blocki 2015). Therefore, the client can easily identify and solve the
material misstatement and also increase the efficiencies of the business operation.
Analytical procedure
Analytical review in the accounting and auditing aspect is carried out the auditors for
accessing the reasonableness of the account balances. Within the broad concept, analytical
procedure can be carried out through using various ratios, trend analysis and certain financial
as well as non financial information.
Ratio
It is the form of analysing the financial statement for obtaining quick indication of the
company’s financial performances in different key areas including liquidity ratio, profitability
ratio, efficiency ratio and solvency ratio.

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Liquidity ratio – liquidity status of the company measured through the current ratio that
measures the ability of the company to meet its short term obligations upon becoming due.
Generally, the current ratio of more than 1 signifies that the short term obligations can be
sufficiently paid off from the current assets (Ruhnke and Schmidt 2014). Looking into the
current ratio of the company it can be stated that the company’s current ratio is in improving
trend. It signifies that the liquidity position of the entity has been improved
Profitability ratio – profitability ratio measures the ability of the company to convert its
revenue into earning. Positive earning represents that the company is able to generate earning
for its shareholders (Ruhnke and Schmidt 2014). Looking into the profitability position of the
company it can be identified that though the gross profit margin of the entity reduced over the
year the company was able to improve the net profit margin over the years from 2014 to
2015.
Efficiency ratio – efficiency ratio measures the ability of the company to convert its balance
sheet items into income statement item. Account receivable ratio represents the time taken by
the company to collect the dues. Looking into the account receivable ratio of the company it
can be stated that the company’s efficiency in context of collecting the dues is in improving
trend and the time required has reduced from 13.78 days to 9.25 days. It signifies that the
efficiency of the entity in terms of collection of dues has been improved (Titera 2013)
Solvency ratio – it represents the company’s leverage position and thereby the long term
solvency status. It can be identified that the in over the years from 2014 to 2015 the company
has significantly became dependent upon outside borrowing which in turn also reduced the
interest coverage ratio from 40.13 to 4.79 times (Titera 2013)

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Trend analysis
 Income statement – looking into the trend of the income statement it can be identified
that sales as well as gross profit of the company are in improving trend and the gross
profit is increased by 9.99% in 2015 if 2013 is taken as the base year. However, the
net profit is in reducing trend as the expenses of the company are in increasing trend
that reduced the net earnings (Robinson et al. 2015).
 Balance sheet – looking into the trend of balance sheet it can be stated that current
assets as well as current liabilities both are in increasing trend. In the same way, total
assets as well as total liabilities both are in increasing trend. Moreover, the equity of
the company is also in increasing trend (Dalnial et al. 2014).

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References
Adler, P., Falk, C., Friedler, S.A., Nix, T., Rybeck, G., Scheidegger, C., Smith, B. and
Venkatasubramanian, S., 2018. Auditing black-box models for indirect influence. Knowledge
and Information Systems, 54(1), pp.95-122.
Blocki, J., Christin, N., Datta, A., Procaccia, A.D. and Sinha, A., 2015, February. Audit
games with multiple defender resources. In Twenty-Ninth AAAI Conference on Artificial
Intelligence.
Brasel, K., Doxey, M.M., Grenier, J.H. and Reffett, A., 2016. Risk disclosure preceding
negative outcomes: The effects of reporting critical audit matters on judgments of auditor
liability. The Accounting Review, 91(5), pp.1345-1362.
Dalnial, H., Kamaluddin, A., Sanusi, Z.M. and Khairuddin, K.S., 2014. Detecting fraudulent
financial reporting through financial statement analysis. Journal of Advanced Management
Science, 2(1).
Griffiths, P., 2016. Risk-based auditing. Routledge.
Kim, Y.J., Baik, B. and Cho, S., 2016. Detecting financial misstatements with fraud intention
using multi-class cost-sensitive learning. Expert Systems with Applications, 62, pp.32-43.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Leitch, M., 2016. Intelligent internal control and risk management: designing high-
performance risk control systems. Routledge.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C.,
2015. Auditing & assurance services. McGraw-Hill Education.

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Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
Ruhnke, K. and Schmidt, M., 2014. Misstatements in financial statements: The relationship
between inherent and control risk factors and audit adjustments. Auditing: A Journal of
Practice & Theory, 33(4), pp.247-269.
Sultana, N., Singh, H. and Van der Zahn, J.L.M., 2015. Audit committee characteristics and
audit report lag. International Journal of Auditing, 19(2), pp.72-87.
Titera, W.R., 2013. Updating audit standard—Enabling audit data analysis. Journal of
Information Systems, 27(1), pp.325-331.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.

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Appendix
Trend analysis

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Ratio computation