Comprehensive Financial System and Auditing Report for Minty Cola Co

This report examines the financial system and auditing practices of Minty Cola Co. It begins with an explanation of accounting records, including journals, ledgers, and financial statements like income statements, balance sheets, and cash flow statements. The report then assesses the importance of fundamental accounting concepts such as accrual accounting, going concern, business entity, historical cost, consistency, prudence, and materiality. Factors influencing the accounting system's structure are evaluated, including business complexity, system costs, data access requirements, and resistance to change. The report further analyzes control systems, assesses fraud risks, and proposes detection methods. An audit plan is developed, covering scope, materiality, and risk assessment, followed by an analysis of control systems and the audit process. Finally, the report concludes with a draft unqualified audit report.

FINANCIAL SYSTEM AND
AUDITING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK.1............................................................................................................................................1
1.1 Explain the purposes and use of different accounting records for the Minty Cola Co.........1
1.2 Assess the importance and meaning of the fundamental accounting concepts below:.........3
1.3 Evaluate the factors which influence the nature and structure of accounting system ..........4
for Minty Cola Co (Minty)..........................................................................................................4
TASK.2............................................................................................................................................5
2.2 Analyse the control systems in place at Minty Cola.............................................................6
2.3 Evaluate the risk of fraud within Minty Cola and suggest method for the detection ...........8
of fraud that could be used..........................................................................................................8
TASK 3............................................................................................................................................9
3.1 Plan an audit for a Minty Cola with reference to scope, materiality and risk.......................9
3.2 Analyse the control systems in place at Minty Cola...........................................................10
3.3 Audit process in an appropriate manner of a proposed planned audit ...............................11
for Minty Cola...........................................................................................................................11
TASK 4..........................................................................................................................................12
4.1 Prepare a draft audit report (unqualified) of a Minty Cola................................................12
CONCLUSION..............................................................................................................................13

INTRODUCTION
The Audit is the main thing which is used to make the firm sustainable, and also determine the
weaknesses in the accounting systems, and moreover gives the suggestion to improve the firm.
Audit helps the directors not to indulge the accounting functions on a daily basis that the firm is
functioning in accordance with the information they are getting (Ajmi and et. al., 2014). An audit
in the Minty Cola Company assist the firm to reduce the opportunities for fraud and poor
accounting. The Minty Cola Company is a manufacturer of fizzy drinks and performing well in
the current year. The success of the firm depends upon the consistent review of the accounting
system and also do proper audits in order to reduce the risk of regulatory norms (Brusca and et.
al., 2016.). This is the system which are need to be followed by all the companies that is essential
for every company to get the positive results. Audit reports assists the various stakeholders to
know about the company's performance so that these stakeholders can draw a valid outcomes.
TASK.1
1.1 Explain the purposes and use of different accounting records for the
Minty Cola Co.
Accounting record is the summarization of all the documents involved for making the financial
statements and records the relevant information for the review and audits which covers recording
of journals, ledgers, and invoices.
Journals:- Journal entry is recording of transactions to the journals. Journal is known as “books
of genuine entry” ,where transactions are first recorded. The journals covers many of the primary
books such as, sale book purchase book, cash book, general journal and many more.
Ledger:- Maintaining ledger is necessary in entire accounting system. Ledger is useful for
making the trail balance so that the accuracy can be checked. Which checks the arithmetical
accuracy of the ledgers. It keeps the records of the entire information which is ultimately useful
for making the final accounts and financial statements.
Final accounts:- These are the final accounts which are used in order to interprate by the
outsiders and various stakeholders so that that they could take their decisions in a better way.
Final accounts covers the entire information about the company (Cojocaru and et. Al., 2016). It
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covers income statement, balance sheet and the cash flow statements. These are discussed in
details hereunder:
Income statement: This is the tool which is used in order to records various income generated by
the company and list out the expenses in a better way so that the management of the company
can get the basic overview about the company. Now, this has been seen that the income
statement is used to assess the profits of the company. This can be generated for various time
periods such as,monthly. quarterly, half yearly and yearly. Assessing the income statement trends
enables the firm to identify if there are periods when business incurs more expenses or earn more
incomes in order to plan a budget shortfalls or surpluses.
Balance Sheet:- This is the statements which records the assets and liabilities of the company.
The assets and liabilities are separated into current and non current categories on the balance
sheet. Current accounts information represents the accounting information which are consumed
or expected within a year, and non current account balances will take more than one year. The
liquid assets are recorded first on the balance sheet, and covers the cash and account receivable
balances. These items enables the investors and lenders to review the potential financial position
of the company.
Statement of cash flows: The cash flow statement records the inflows and outflows of the cash.
This differs from the income statement, as an income statement covers information for generated
income which consumers have not yet paid, and outstanding expenses that the firm has not paid
yet (Ellis, Haldane and Moshirian, 2014). The cash flow statements only concerned to the
transactions which have incurred for operating, investing and financing activities.
Accounting plays a major role by generating the information in order to answers many questions
that can be faced by the accounting information user. Accounting reflects about the company
image in front of the public that how good or bad the financial condition is?, and what are the
activities or the products have generated the most of the profits. As, this is important for a firm.
Some of the objectives of the accounting are given below:
 Accounting record helps the company to compare the data with the other rivalry so that
the cited firm can get the competitive advantage and generate the more revenues.
 Accounting records helps the firm to produce the documents in case of any litigation
occurred. As, it reflects a good source of evidence.
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 Accounting helps the firm to records about the entire information in a systemic manner.
As, no one can remember everything. It also reduce the repetition of any transaction.
1.2 Assess the importance and meaning of the fundamental accounting
concepts below:
There is a basic role which is to be followed by the each company. For smooth functioning, the
accounting concept is required to opt. These accounting concept refers to the common
assumptions and principles that are worked as the basis of recording of business transactions and
preparing accounts.
a). Accrual accounting concept: This accounting concept is something which becomes due but
not paid or received during the accounting period. It means that the profits are identified when
they becomes receivable. Under this transaction the cash is received or not, expenses are paid or
not, these are to be recorded in the accounting period to which they are concerned. Hence, the
accrual concept makes a differences between the accrual receipt of cash and the right to get cash
that are related to revenues and actual payment of cash and duty to pay cash related to expenses.
The accrual concept mentioned that the revenues or income is identified when realised and
expenses are recognised at the time when they due.
Importance:-
 This assist in knowing real expenses and actual revenues at the time of particular time
period. It assist in making the net profits of the firm.
b). Going concern concept: The going concern concept is totally based that the business firm
will continue to carry on its operations for an indefinite period. This reflects that the business
entity has consistency (Afshar, 2013). Hence, it will not dissolve in the future. That is why, it is
the main assumption of marketing.
Importance:
 This concept enables preparation of financial statements.
 On the basis of this concept, depreciation is charged on the fixed asset. In the absence of this concept, the fixed assets cost is treated as an expense in the year of
its purchase.
c). Business entity concept: The business and its owners are two different person. That is why,
the organisation and owner's transactions are separate. For instance, when the owners invest
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certain sum in the business then the business entity makes the entry into it account in order to
make the business successful. However, if the owner invest the capital in the organisation then it
is recorded as a liability in the firm.
Importance:
 This concept aids in determining the profits of the company as only firm's expenses and
revenues are recorded and entire personal expenses are ignored.
 This accounting concept restricts accountants from recording of owner's transaction. It is the basic of accounting concepts, principles.
d). Historical concept: This is totally based on the basis of the data which have been collected
earlier. On the basis of past data, the accounting system are used.
e). Consistency concept: This means that the firm is functioning their operations on a
consistency well. Which is in order to make their business operations well.
f).Prudence System: Accounting transactions are sometimes dubious but for making perfection,
there is need to make a report. Prudence is the main accounting principle that guarantees that
assets and revenues are not overstated and expenses are not understated.
g). Materiality: Materiality concept emphasis that the financial information is relevant to the
financial statements. The concept of materiality is relative in size and importance (Abdullah and
Sofian, 2012).
1.3 Evaluate the factors which influence the nature and structure of
accounting system
for Minty Cola Co (Minty).
The fraud is the misconduct which have been done by the representatives of the company. Now,
it has been seen that if the fraud is committed by any of the representative of the organisation,
and it affects on the others, then it will create an offence and will be punishable. The fraud has
been defined into many ways and includes number of possible charges such as, theft, larceny and
many more. The definition of the fraud in legal way is:
“when an individual produce a material false statement and others believes on that statement, is
called fraud”.
In the given case, the employees of the minty cola company commit the fraud by stealing cash
and stock form the organisation.
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The fraud is to be detected by way of implementing prevention strategy. There is also need to
implement the detection methods in place and need to make them visible to the representatives of
the organisation. This is also crucial to regularly monitor and upgrade fraud detection strategies
for making the business effective and efficient (Vidas and Moghadam, 2013). The detection plan
is normally occurred at the time of normally scheduled day. These kind of plans take external
information into consideration to connect with the internal data. The outcomes of the company's
fraud detection plan is to make improves the company's prevention controls. Once if the final
fraud detection plan is made, then all the employees are required to aware about the plan and
how it will be used.
Comment (1.3)
The relevant factors for consideration are:
1. Complexity of business process/Size of business operation: Minty cola company
operates in the soft drink industry and it is in the small size. There is a one major problem
that everyone is facing. i.e. every firms are striving to attain the growth. But, whenever a
new process is introduced in the firm then firm may face problems to cope up with them.
2. System Costs: Firm processes does have inbuilt complexity which if not maintained,
then this can consume so much time. Therefore, this can build the process free of error,
and is not easy to understand and maintain.
3. Data Access Requirements: There is a data access requirement by the firm so that the
business can run take decisions effectively. This will also need to frame their policies so
that the business can achieve their objectives.
4. Resistance to Change: Management of the cited company scared about the changes, as
they want to take their firm along with their existing framework. Change is the
necessities for the firm success and administration of the company needs to frame their
policies after considering changes.
TASK.2
2.1 Identify the different components of business risk using the case study
Minty Cola
Operational risks: Under this risk define and resulting internal process which can include people
and organisation system. External factor like lawful risk. Minty Cola is a manufacturing
company that produce cola and lemonade. According to this risk develop in business operation in
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market places. Risk which can define law as well as ethical stander related to operations. Under
this risk developing various methodology and collecting data related to operation risk
management. Company face different problems and situation. The purpose of the components
minimize authority and capital charge. Uncertainty changing the actual values of losses. Under
this risk not includes fraud, privacy protection, infrastructure and environmental risk. The
internal factor of risk fall the social media and increasing demand of cola and lemonade
products.
Compliance risks: It is a most important components that define company position and situation
in market places. It is a potential and current risk that define laws, rules, regulations, approved
practices or policies, moral stander etc. Under this situation arise rules prevailing certain Minty
Cola products or activities of the company employees (Paulson, 2013). This risk bring out
institution, civil money punishments, discharge of declaration and payments of modification. It is
define legal or regulatory approval, financial losses that the Minty Cola may suffer. This
components that help to assuring organisations objectives. Under this uncertainty reflected in the
organisational structure where en manage and develop goals and objectives.
liquidity risks: This risk can be explained as a current and future to earning and arising capital
from a Minty Cola to meet its obligations when they come payable to without incurring
impossible failure as well as losses. Under this uncertainty includes the quality to manage by
unplanned manager. This risk also changing funding sources and resources (Omoteso, 2012).
Liquidity arise from the failure that recognize market conditions that affect the inability to pay
off quick assets with minimum loss values. This is determine the company financial risk that
create certain period of time given by security, commodity and financial assets. It cannot be
listed rapidly enough in an organisation as well as market without impacting the market price.
There are two types of liquidity risk are as follows:
 Market liquidity can not be unsold payable to lack of fluidity in the market. This can
accounted by making implicitly liquidity reserves and surplus.
 Funding risk is a company liabilities that can not be met an uneconomic price.
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2.2 Analyse the control systems in place at Minty Cola
The management control system links with the company's performance. This is totally
based on the managers effectiveness and efficiency. The MCS assessed are: strategy, evaluation
of low-level representatives, norms and procedures, and various mangers' concentrates on the
consumer relations when suggesting and ordering their subordinates (Okpala, 2012). A path
model is emerged which are specially based on financial performance of the company.
The management control system helps the cited firm to frame the objectives for the
organisation and various managers of frame, introduce, and use so many management control
systems to support the firm for attaining the objectives. In many of the companies, a few of the
objectives are the financial performance targets which covers determining how the structures and
implement their management control systems affects the cited firm for getting its objectives and
goals. The minty cola company's senior managers assist the firm to identify and determines
loopholes in which the company needs to have the proper management control system in order to
achieve the pre-set targets. The main objective of the MCS is to create all the concerned
information related wit the planning and control operations available, so as to enable the
emergence of these activities. On the other hand, the system is focused at meeting the
information needs of management that based on the management processes and on identifying
components for the value.
The factors influencing the set-up of minty cola internal controls are:
1. The control environment: This factor is the set of standards, procedures, and structures
which manage consciousness of its general public. This is the base for other factors of
internal control providing discipline and structure. Control environment issues covers the
integrity, ethical code of conduct and emerges its staff; management's philosophy and
operating style.
2. Risk Assessment: Under this, the risk is to be ascertained by minty cola so that the firm
can find out the risk and able to make their business strong and compatible.
3. Control activities: The control activities are done in order to attain their objectives so that
the management could attain firm's financial objectives with the help of controlling
activities.
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4. Information and Communication: The information and communication helps the
departments of minty cola to perform their business in an effective manner. Effective
communication assist the department within the firm to attain the firm objectives.
5. Monitoring: The cited firm needs to monitor their businesses so as to attain their
objectives in a better manner. Monitoring is an essential thing for managing things in a
better manner.
2.3 Evaluate the risk of fraud within Minty Cola and suggest method for the
detection
of fraud that could be used
The risk of fraud can be assessed in order to have the proper planning by the management
of the company. However, there is a need to opt the proper tools and techniques in order to
overcome the frauds and makes an efforts to gain the maximum output (Mironiuc, Robu and
Robu, 2012).
However, there are some methods which are used in order to detect and prevent the frauds. These
are:
Irregular behaviour: The perpetrator does normally show irregular behaviour, which when taken
entirely, reflects is a strong indicator of fraud.
The examples in the Minty Case Study includes:
1. Risk of inventory theft/loss: Minty cola needs to frame their strategies in order to know
about the stock loss. Thereafter, it needs to frame their strategies in order to attain their
objectives so that the management of the cited company could assess their inventory risk.
2. Loss of Cash: Cash are required for business. Which requires to do their activities in an
efficient manner. The cash loss can be detected by way of doing business in an efficient
manner. The management of the cited company needs to frame their business.
3. Effective and Efficient project management: The management of the cited company
needs to run their project in an effective manner so that the management is able to attain
their objectives.
With the help of effective management policies, cited company is able to assess the
frauds within the firm. As, this will help out to detect fraud within the firm.
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TASK 3.
3.1 Plan an audit for a Minty Cola with reference to scope, materiality and
risk
Audit planning is crucial aspect for minty cola because it provide sufficient evidence and
help to keep records of costs reasonable to avoid mistakes with clients. It will be helpful in
reducing the mistake those are occur during recording of transactions. There are generally eight
steps required to be followed during planning audit with respect of scope, materiality and risk.
The planning stages of audit plan for minty cola is linked to scope, materiality and risk
assessment:
In the knowledge of firm is important to facilitate various scopes of audit like:
 Assessing inherent risk: In audit risk is posed by error or omission in a financial
statement owen to factor other than a natural event of control. These are most likely to be
happen in transaction which are complex in nature.
 Determining material level: It is professional judgement made by auditor by setting
benchmarking to handle the financial stability.
 Obtaining sufficient understanding of internal control: The auditor need to make proper
analysis of sufficient knowledge about internal risk and measures to be ready to control
that risk (Liu and Lin, 2012).
Materiality:
Auditors need to advised materiality that determine its nature, timing and extent of
auditing process and make valuable evaluation of that process. It is a kind of material if its
omission could be causing the economic decision of clients on the basis of financial data. It is
important for auditor to fixed various level for acceptable omissions so that material data are free
from regime that can mostly impact the decision of clients of these financial statement in a
pessimistic manner.
Risk assessment:
Under this level of uncertainty in activity the auditor evaluate risk that are associated with
financial data. It is a kind of probability under this an auditor provides inappropriate decision
regarding data collection during that particular year. In also allowed material errors to remain
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unjustified in the books of account (Khlif and Samaha, 2014). There are two ways in which risk
is being categorised:
 Inherent risk: It is the probability that misstatement that have occurred in various
transactions those are recorded in accounting system to maintained and developed
financial statement.
 Control risk: The internal misstatements are not able to detect those are recorded in the
financial account book. It is done to reduce fraud, ir-regularation and other errors those
are affecting financial performance of minty cola.
3.2 Analyse the control systems in place at Minty Cola
The reason for audit tests, or procedure is to allow auditor to gather audit evidences that
are able to conclude with certainty that financial data re free of material misstatement. An audit
test refer to a kind of process that are used by external and internal auditors in checking the
accuracy of financial statements in minty coal. There are basically two types of tests one is
substantives tests and test of internal control. By using both of these test a auditor in order to
achieve the objectives and determine checklists on the outcomes of audit questionnaires. These
are generally performed on sample basis on existing group of common or similar transactions. It
can be either statistical or non- statistical.
Substantive audit test: Internal Control Test
It is a kind of direct test that authorize a financial statement balance. It required large
amount of recalculating, confirming and vouching (Jiayi, 2012). If auditor want to use internal
control tests an auditor have to visit site location of stock, prepared report that list amount of
inventory kept on company areas and physically count each of stock list on a sample basis.
Checking internal control of the company information is based on analytical base because under
this the auditor check whether the data of the minty cola are appropriate and correct. If it found
correct in all aspect then it will be helpful in making healthy judgement on that basis.
Test of detail: Substantive Tests
Under this type of test misstatement of data and financial transaction is being analysed. It
is used to check effectiveness of a control used by guest entity to detect material misstatements.
Auditor of the company are rely upon a client system of control as a part of auditing role those
are performed under minty cola (Ionescu, 2014). These are done to identify or check whether
internal controls are performing well. It includes examples like, enquiry, observation etc. if
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