Audit and Assurance: Analysis of Company Financial Statements Report

This report analyzes a financial statement case study, identifying potential material misstatements and associated risks. The analysis focuses on factors like mortgage sales, interest rate volatility, branch office profitability, loan loss allowances, and the impact of a new computer system. The report highlights how these factors can contribute to misstatements and affect the company's financial health and sustainability. The analysis references academic sources to support its findings, providing a comprehensive overview of the auditing and assurance issues presented in the case.

Running head: AUDIT AND ASSURANCE
AUDITING AND ASSURANCE
Name of Student
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Author’s Note

1AUDITING AND ASSURANCE
ANSWER TO QUESTION 1:
After analysing the financial statements of the company, it can be determined that the
company face the problem of material misstatement in later stage. The factors that can be
identified are as follows:
 The selling of mortgages is one of the primary sources of fund for the company. The
company gains maximum profit from the selling of mortgages. The company has one
of the best markets in the rural areas. The company also experienced considerable
amount of growth in recent years due to the existence of the company’s mortgage
market in the rural areas (Byrnes et al 2014). Thus, the interest’s rate is one of the
integral parts in the company’s business. If there is a volatility in the interest’s rate
then the company is destined to face considerable amount of loss in the business. This
will create a chance for material misstatement in the company.
 As per the analysis of the case study it can be determined that the operation of the
branch office is always being compensated depending on the profitability of the
company. The decisions of compensating the branch office based on the profitability
of the company can be backfired. The chances for material misstatement in the
company rises by considerable means due to the involvement of the problem in
corporate governance in the company.
 As per the case study it can be determined that the company kept on ignoring the
allowance that are related with the loan losses. This will bring a serious problem in
the company’s financial health (Simnett, Carson and Vanstraelen 2016). The loan loss
may accumulate in later stage and become a huge amount, which will cost a loss to
the company. If such problem occurs then the company bounds to make material

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misstatement, so that the company can maintain the shareholder’s interests and also
company can maintain its sustainability in the industry.
 The management of the company believes that the new branch office may become
profitable by next year, but it is just the prediction. Thus, the chances for experiencing
loss in that financial period remains. This may encourage the company to make
material misstatement and increase the sustainability of the company.
 The company has increased its efficiency by installing new computer system into
operations. The installing new computer system will cost considerable amount of
money to the company (Sun, Alles and Vasarhelyi 2015). If the new system were not
able to fetch certain amount of profit then the company will create a material
misstatement in the financial statements of the company.

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REFERENCES:
Byrnes, P.E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J.D. and
Vasarhelyi, M., 2018. Evolution of auditing: From the traditional approach to the future
audit. Continuous auditing: Theory and application, pp.285-297.
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.
Sun, T., Alles, M. and Vasarhelyi, M.A., 2015. Adopting continuous auditing: A cross-
sectional comparison between China and the United States. Managerial Auditing
Journal, 30(2), pp.176-204.