Audit and Assurance Report - Financial Analysis and Risk Assessment

This report provides a comprehensive analysis of audit and assurance principles, covering key aspects such as independence, objectivity, and audit procedures. It delves into matters beyond independence that impact credibility, including scenarios involving share ownership, audit fees, and personal loans. The report explores the concept of objectivity for both external and internal auditors, along with related threats and safeguards. It outlines procedures for addressing uncorrected inventory misstatements and identifies indicators of a going concern issue. The report describes audit procedures for assessing financial health, including the impact of a bank's decision on overdraft facilities. Furthermore, it explains audit risk, its components, and auditor responses, using a case study of Peter Cola Co. The report also identifies essential elements for an audit strategy document, differentiating between interim and final audits, and explaining related procedures and their impact. Finally, the report concludes with a discussion of the overall findings and recommendations.

Audit
and Assurance

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK-1............................................................................................................................................3
Matters other than independence, which might be relevant in relation to the credibility............3
Following situations in the context of the independence of the auditor......................................4
Explain the concept of objectivity, with reference to..................................................................4
Threats and the safeguards to objectivity ....................................................................................5
TASK-2............................................................................................................................................5
Describe the procedures the auditors in relation to the uncorrected inventory misstatement.....5
Explain SIX potential indicators that John and Jane Co is not a going concern.........................6
Describe the audit procedures which you should perform in assessing ......................................6
The auditors have been informed that John and Jane’s bankers will not make a decision on the
overdraft facility ..........................................................................................................................7
Describe the impact on the auditor’s report of John and Jane Co if the auditor believes the
company is a going concern ........................................................................................................7
TASK-3............................................................................................................................................7
Explain audit risk and the components of audit risk....................................................................7
Using the minutes provided, identify and describe SEVEN audit risks, and explain the
auditor’s response to each risk, in planning the audit of Peter Cola Co......................................8
Identify the main areas, other than audit risks, which should be included within the audit
strategy document for Peter Cola Co; and for each area provide an example relevant to the
audit..............................................................................................................................................8
Explain the difference between an interim and a final audit.......................................................9
Explain the procedures which are likely to be performed during an interim audit of Peter and
the impact which it would have on the final audit. .....................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
Audit and assurance refers to the proper evaluation of the accounts and helps in analysing
the financial statements of the company so the decisions are to be taken in the proper manner and
the assurance is given that the work done is fair enough and have transparency. The advisors of
the company are trusted enough so the decisions regarding this are to be taken in the proper
manner. Audit of the company helps in checking the accuracy of the financial records in an
proper manner and the assurance helps in analysing and assessing the transaction done in an
company. It helps in providing the quality of information and there is a chance frauds and errors
will be reduced and the decisions are to be taken in the proper manner (Al‐Shaer and Zaman,
2018). The topic covered under this report are the matter of independence, various situation in
context of the independent auditor, objectivity in reference to the internal and the external
auditors in the organisation, procedure of the audit and decision taken so that risk can be avoided
in the proper manner and will not affect the organisation.
MAIN BODY
TASK-1
Matters other than independence, which might be relevant in relation to the credibility
If the company has to secure the credibility of the investors so the stakeholders of
company has to take the decision in an proper manner so that the company will not get affect and
the decisions are to be taken in the properly. It helps in identifying the fraud in the company if
the auditors fail to do so it is a failure of the responsibility in the organisation in terms of
profession also. The auditors have to do the work with full responsibility so that the true and
financial position of the company can be analysed in an proper manner and the organisation will
not get affected in the future. The opinions of the public regarding the company or the
organisation is based on the individual audit so the decisions are to be taken properly in an
organisation and will not get affected.
Company meeting the needs of specific customer: It helps in meeting the needs and demands of
the customer in an proper manner so the decisions are to be taken properly in an organisation an
fulfilling the needs properly. It also helps in meeting the desired customer standards by doing the
audit.
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Audit business scale: The auditor has to look about the size of the organisation and should
observed the new technologies used by the company and the expenses and revenue occurred so
that the financial position of the company can be analysed.
Following situations in the context of the independence of the auditor
 The audit manager in charge of the audit of Andrew Co holds 1,000 £1 ordinary shares in
the company (total shares in issue – 100,000). The audit partner holds no shares.
According to this situation the decisions are to be taken in proper manner as the company is
owned the shares of the organisation so the decisions are to be taken in the proper manner and
will not get affected.
 The audit fee receivable from Janet Co, a private company is £100,000. The total fee
income of the audit firm is £700,000
The tax is the main source of the audit in the organisation as it helps in finding how much money
the company has to pay in the Janet co. the contribution of the tax is 700000 and 100000 is
owned by customers so the decision are to be taken in proper manner (Barr-Pulliam, Brown-
Liburd and Sanderson, 2020).
 The audit senior in charge of the audit of Margot Bank Co has a personal loan from the
bank of £2,000 on which she is currently paying 13% interest.
The investigation in the organisation is done from the own fund because of this the Margot bank
suffer from loss of external auditors and have to pay the high interest rates to the bank and the
senior in charge of the company has to pay the interest.
 The audit partner is responsible for two audit , Harry Co and the Jean Co. Harry Co has
recently tendered for a contract with Jean Co for the supply of material quantities of
goods over a number of years. Jean Co has asked the audit partner to advise on the matter
The auditors have to check the accounts of the Harry co. properly so that the decisions are to
taken in proper manner and the clashes between the companies will not arise in future.
Explain the concept of objectivity, with reference to
External auditors
It helps in performing the audit in an organisation with according to the laws or the rules
so the decisions are to be taken in proper manner and have the legal entity in the organisation.
The decisions are to be taken by the external auditors in an proper manner and will not get
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affected in the future. The management is fully recommended with the borrowers with clients so
the results in the organisation are fair enough and in future it will not get affected.
Internal auditors
It is an independent objective in an organisation and helps in improving the objectives so
the results can be derived properly and have the future growth (Denisov, Khachaturyan and
Umnova, 2018). The internal audits in an organisation can be done on the regular basis so that if
there is any mistake then it will be corrected on time.
Threats and the safeguards to objectivity
Threats: There should be proper look on the evidence so that there is no misuse of the
work and can be control properly in an organisation and should be interviewed properly so the
threat can be avoided in an organisation. If the person has the risk personality in an organisation
then the situations are to be observed in proper manner before it gets worst. If the accountant is
earning the 7% profit there is a chance the company may have the future growth.
Safeguards against threat: The risk can be reduced in an organisation by having an
communication with the external parties and the risk which can be reduced in an organisation
and will not get affected. The work quality should be maintained properly.
Danger: There is a freedom and work is to be performed in an proper manner and should
have proper auditing and the company can earn revenue and have future growth (Haji and
Anifowose, 2016). The decision should be taken in welfare of the company so that there will be
no danger regarding the
Safeguarding the threats: The company should have the proper substitute of the
products so that the individual will not get affected regarding price and the disputes will be
removed in early basis and will not affect the company in long run (Simnett, Carson and
Vanstraelen, 2016).
TASK-2
Describe the procedures the auditors in relation to the uncorrected inventory misstatement
In this statement the procedure followed is the Face or errors and these errors are to be
observed on the regular basis so that the risk will be eliminated and the decisions are to be taken
in timely basis. The misstatement provides the wrong information to the company by which the
company get affected and the auditing helps in finding the true position of the company. The
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errors of the company is to be sorted in timely manner so that the decision can be taken on initial
stage. John company manager failed to explain the irregularities of stock which occurs in the
businesses.
Explain SIX potential indicators that John and Jane Co is not a going concern
The company has an inability of paying the dividends to the shareholder and the company
may also suffer from difficulties of cash flow that arise when the financial statements are
reported and the repayments of debts are falling by which the company is not able to meet entity.
There are new rivals of the company and the company may have the competitive price so that
there is an competition. If the company start loosing the clients there is high risk (Kahyaoglu and
Caliyurt, 2018). The customers stopped the exchange from the John company and bought it to
exchange of the drums which increase profitability. The company interrupts in the decision so no
commodity will be developed till the sufficient stall will recruit. The John company is not able to
purchase the goods from other paces as they are highly advanced and will not have growth in the
future. The deposit account of the company becomes the worst in 12 months as the money is not
generated and the liquidity is controlled properly in an organisation.
Describe the audit procedures which you should perform in assessing
 The company have deposit account where the outflow of cash will be maintained in an
proper manner.
 The return of the investors are to be managed and have the proper outcomes.
 Working capital of the company are to be viewed in the proper manner so the ratios can
be identified properly (Schmidt, Wood and Grabski, 2016).
 The financial info of the company will be discussed with the new clients in the
organisation.
 The currency value will be increase and consulted with the post year profits of the
company.
 Bank loans are of different style so we have to discuss about this with the administration.
 The fees is included in the overdraft facility so we have to examine it properly.
 There is to be proper communication to see the extension in overdraft facility.
 The management should feel free to contract with the administration about the bank loan
and have the new opportunities.
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The auditors have been informed that John and Jane’s bankers will not make a decision on the
overdraft facility
The company John and Jane's have disclosed the proper information sheet in an
organisation so that the organisation can take the decision in an proper manner and have the
future growth. The documents provided to the auditor have a lot of confusion and it should be
clear properly with in a time (Knechel and Salterio, 2016). The statement of the examination is to
be put after the financial statements so the work is to be done in proper manner. If the results are
not satisfactory then the judgement decisions will change on time and is to be viewed integrally
in an organisation.
Describe the impact on the auditor’s report of John and Jane Co if the auditor believes the
company is a going concern
The company audit report of John and Jane's company is following the going concern
concept so the decision are to be taken in proper manner and will not get affected and the
decisions are to be taken in proper manner. The uncertainty will arise if the transactions are not
recorded properly in an organisation. If the company is following the concept of going concern
then the profitability and accountability is to be measured in an proper manner and helps in
achieving the growth in an organisation so that the objectives will achieved by using this going
concern concept in an organisation the efficiency is to measured and if uncertainty arises in an
organisation the decisions are to be taken on the time and targets will be achieved.
TASK-3
Explain audit risk and the components of audit risk
The term audit risk is define as the risk which arises when auditors not able to express true
and fair review after audit process. They are intentionally not shown the correct and fair financial
position of organization due to failure of misstatement of materialism which use during the time
of auditing process. Risk of an auditor relates to that section of study that represents various
factors that an auditor have to undergo while performing audit activities and research activities in
the given region of operations. Due to presence of various uncertainties in given business
environment and diversification in working up of various business firm which makes it difficult
to adopt a particular strategic technique which is to concentrated by the auditor for performing
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audit activities. Due to this auditor represent unqualified report. It is made up by 3 component
which includes, inherent risk, detection risk and control risk
Inherent risk: This risk arise during the time of misstatement of business transactions.
The main reason this risk is auditors not able to evaluate or identified transaction. Thus on the
basis of that organization suffers from this risk.
Control risk: This type of risk arises due to the absence of relevant control of business
entities. This type of risk is getting high when auditors not able to adequately control or prevent
fraud during the time of auditing organizations financial records. This type of risk is
comparatively high then other component of audit risk. On the basis of that auditor able to
recognize the probability of failure or success of organization.
Detection risk:This type of risk arise due to sampling errors. Detection risk evaluate at
the time when auditors nota able to detect error from financial statement.
Using the minutes provided, identify and describe SEVEN audit risks, and explain the auditor’s
response to each risk, in planning the audit of Peter Cola Co
There are specific amount which use for maintain the level of food production of the company.
In order to comply with IAS 16 plant, machinery are consider as listed source of organization.
Valuation of inventory is not done or calculate in systematic manner thus auditors face issue
during the time of evaluate stock value.
They need to evaluate the cost of maintaining inventory in such a manner which useful
and beneficial to interpret the correct value of stock. This will beneficial in order to manage and
control organization's inventory cost (Knechel, 2016). As well as useful for the purpose of
auditing procedure.
Auditors in order to systematically run or evaluate fair value need to to change the
procedure of calculation of those expenses. They need to evaluate amount of expenditure
recognize value of wealth. Peter need to inhabit some of the plants of their organization. Risk
related with rise of leasing has been increase if they capitalised their warehouses.
Identify the main areas, other than audit risks, which should be included within the audit strategy
document for Peter Cola Co; and for each area provide an example relevant to the audit
Audit is useful in order to determine and specifically mention audit program. Which useful for
Peter to review their auditing process. Following are area which define below
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It is essential for Peter for successfully run their organization to recognize area which
define feature and scope of organization.
Monitoring targets as well as audit plan should be evaluated. They also need to recognize
correspondence period.
They need to follow consideration approach in order to effectively run auditor procedure.
Which help in formulation and running auditing process in systematic manner.
They need to evaluate examination plan of their organization through which auditors can
easily evaluate performance of company for given time period.
On the basis of evaluating this auditors able to recognize another area which is beneficial to
control the cost an risk arise during the time of auditing procedure.
Explain the difference between an interim and a final audit
Interim audit refers to the audit in which the audit work is conducted before the fiscal end
year so the decisions are to be taken in proper manner and will not affect organisation. These
types of audit are done before the prior need of the final audit conducted. It means the company
will done the complete audit for the part of the year (Lesage, Ratzinger-Sakel and Kettunen,
2017). Because of the interim audit final audit become easier in an organisation and will get
affected. It helps in checking the accounts in an proper manner and are accountable properly in
an organisation before the statutory audit conducted. It helps in identifying the threats in an
organisation and the corrective measures are to be taken in timely manner.
Final audit refers to the audit in which the financial statements of the company are to be
checked every year and helps in identifying it position weather the company has profit or loss.
The complete records are checked by the auditors so the decision are to be taken in regular basis
and will protect the company from the future loss. It also helps in saving the time in an
organisation and the decisions are to be taken properly.
Explain the procedures which are likely to be performed during an interim audit of Peter and the
impact which it would have on the final audit.
Procedure applied by the company during the time of audit includes:
 Proper modification and reviews of the cola co. is to be done and have to check the cost
accounting documents also(Oussii and Taktak, 2018).
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 The auditor of the company will be updated by the management and should take the
decisions regarding the regarding the improvements of the peter cola co. for the one year
and will have the future growth so the efficiency of the company is checked.
 The estimation of the danger on the perter cola. Co company exit the interview.
 The work of the sales, transaction and the product periods are to be managed properly as
the company may some times have the credit risk so the decisions are to be taken
properly in an organisation during the time of processing of products (Louwers, 2018) .
 The vital processes are to be followed every year so the company can earn the large profit
and the services provided are less because of the product sale cease.
CONCLUSION
From the above report it has been concluded that the audit and assurance refers in
analysing the company financial position in an proper manner so that the decisions are taken
properly and will have the future growth. It helps in finding the true image of the company and
see the accuracy of the work so that the risk can avoided in an organisation. The accounting
entries are to be checked in an proper manner so that there will be no errors. Various situations
are studied in reference to the auditor and it threats and safeguards that an auditor, audit
procedure is studied and the interim and final audit so that the company can take the decision in
proper manner and will have the future growth and profit will be raised properly in an
organisation.
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REFERENCES
Books & Journals
Al‐Shaer, H. and Zaman, M., 2018. Credibility of sustainability reports: The contribution of
audit committees. Business strategy and the environment. 27(7). pp.973-986.
Barr-Pulliam, D., Brown-Liburd, H. L. and Sanderson, K. A., 2020. The effects of the internal
control opinion and use of audit data analytics on perceptions of audit quality,
assurance, and auditor negligence. Assurance, and Auditor Negligence (February 7,
2020).
Denisov, I. V., Khachaturyan, M. V. and Umnova, M. G., 2018. Corporate social responsibility
in Russian companies: Introduction of social audit as assurance of quality. Calitatea.
19(164). pp.63-73.
Haji, A. A. and Anifowose, M., 2016. Audit committee and integrated reporting practice: does
internal assurance matter? Managerial Auditing Journal.
Kahyaoglu, S. B. and Caliyurt, K., 2018. Cyber security assurance process from the internal
audit perspective. Managerial Auditing Journal.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Knechel, W. R., 2016. Audit quality and regulation. International Journal of Auditing. 20(3).
pp.215-223.
Lesage, C., Ratzinger-Sakel, N. V. and Kettunen, J., 2017. Consequences of the abandonment of
mandatory joint audit: An empirical study of audit costs and audit quality effects.
European Accounting Review. 26(2). pp.311-339.
Louwers, T. J. And et. al., 2018. Auditing & assurance services. McGraw-Hill Education.
Oussii, A. A. and Taktak, N. B., 2018. The impact of internal audit function characteristics on
internal control quality. Managerial Auditing Journal.
Schmidt, P. J., Wood, J. T. and Grabski, S. V., 2016. Business in the cloud: Research questions
on governance, audit, and assurance. Journal of Information Systems. 30(3). pp.173-
189.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance
research: Trends, methodological issues, and opportunities. Auditing: A Journal of
Practice & Theory. 35(3). pp.1-32.
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