3102AFE Auditing Group Assignment: Risk Assessment and Audit Strategy

This assignment focuses on auditing analytical procedures within the context of risk assessment and audit strategy. It explores various analytical procedures, including comparing days' sales outstanding, analyzing the relationship between sales and accounts receivables, and examining profit growth and interest coverage. The document details specific strategies such as calculating financial ratios (gross profit, net profit, accounts receivables), testing revenue controls, comparing current and previous year sales, and competitor analysis. The assignment also highlights the importance of understanding the company's products, revenue policies, and internal controls, as well as assessing the risks of material misstatements. References include sources on auditing revenue and examples of analytical procedures related to revenue accounts.

AUDITING 1
AUDITING

AUDITING 2
Analytical procedures:
Analytical procedures that could be used include the following:
 The day’s sales outstanding must be compared in with that of the previous years.
There should be an existence of a consistent relationship between the sales and
the accounts receivables. This should hold good till the time there are some
changes in the customer base or the credit policy being extended by the company
to its customers.
 The profit growth shows a decrease when compared with the year of 2016
 The increase in interest coverage shows an increase which means that the
profitability of the company has improved, this could be due to the decrease in
the amount of the interest expense.
 The company must check the amount of the sales for all these years and must
also, compare the ending balances of the accounts receivables with that of the
previous years. Also, the amount of sale must increase in relation with the
inflation during these years. This would be a kind of trend analysis.
 Also, the amount of the expense pertaining with bad debts must be examined.
This must be a % of the sakes. In case, not, then the management must be
questioned in this regard.
The interest coverage ratio shows the amount of the interest and the amount of the earnings
before interest and taxation. It is connected with sales in the sense that if the amount of the
sales increase, then the amount of the earnings before interest and taxes would also increase.
The debt to assets ratio shows the amount of the debt and the amount of the assets of the
company. It is connected with sales in the sense that if the amount of the sales increase, the
accounts receivables would also increase and the amount to be paid to the suppliers would
also increase which would mean increase in assets and increase in the amount of debt of the
company.
The following forms the part of the analytical procedures:
 An understanding of the various products and the services of the company must be
obtained
 An understanding of the policies with regard to the revenue and the internal controls
exercised must be done

AUDITING 3
 The risks of the material misstatements in connection with the various relevant
assertions must be done which should be connected with the accounts contained in the
balance sheet.
 The auditor must apply the substantitative procedures and the details must be tested
("Examples of Analytical Procedures Related to Revenue Accounts", 2019).
The following are some of the strategies that could be adopted:
 Some more financial ratios such as the gross profit, net profit ratio must be calculated,
accounts receivables ratio and the days outstanding.
 Further, the growth in the sales in the previous years would be calculated
 The company must test the controls over the revenue of the company. The controls
such as the approval of the credit sales, receipt of cash, documentation etc of revenue
should be looked into.
 The sales revenue of the current year must be compared with the figures of the
previous years
 The competitor analysis for sales should be done.
 The actual and the budgeted sales should also be compared ("AUDITING
REVENUE", 2019).

AUDITING 4
References:
AUDITING REVENUE. (2019). Retrieved 17 September 2019, from
https://www.rsm.global/italy/rsmrev/sites/default/files/media/Event/
2_auditing_revenue_sl.pdf
Examples of Analytical Procedures Related to Revenue Accounts. (2019). Retrieved 17
September 2019, from https://smallbusiness.chron.com/examples-analytical-procedures-
related-revenue-accounts-74814.html