Auditing: Financial Statement Analysis of Great Gift Inc. Report

This report provides an in-depth analysis of the auditing process, focusing on the financial statements of Great Gift Inc., a gift product manufacturer. The report examines the company's internal controls, identifies material misstatements in accounts like inventory and sales, and assesses associated risks such as fraud and accounting estimates. The auditor's considerations regarding completeness and accuracy assertions are detailed, along with recommendations to enhance the audit scope, plan materiality, and improve internal control analysis. The conclusion emphasizes the auditor's role in evaluating financial statements and providing an opinion based on the examination of the company's operations and financial reporting, ultimately aiming to assist financial statement users in making informed decisions. The report also includes references to relevant academic sources.

Running head: Auditing
Auditing
Name of the Student
Name of the University
Author Note

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Executive Summary
The report conclude about how the auditing process is been carried by the auditor to give its
opinion upon the financial statement of the company. It show about the company Great Gift,
Inc which is a manufacture of gift products and sale its product to wholesaler and retailer.
The report about the internal control of the company that how the company is been managing
its internal control, it show about the account in which material misstatement are there and
what are the assertion which the auditor have taken consideration in regards of those
accounts.

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Table of Contents
Introduction................................................................................................................................3
Overview of the company..........................................................................................................3
Internal control of company.......................................................................................................3
Material Misstatement in company............................................................................................4
Recommendation in regards of Risk..........................................................................................6
Conclusion..................................................................................................................................7
Reference....................................................................................................................................8

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Introduction
. Auditing is the process from which the auditor check whether the company financial
statement is showing true and fair or not. It check the company financial statement as whether
the company is able to follow all the rules and regulation (Balsam, Jiang and Lu 2014). It
check that the company is able to have proper disclosure in the annual report about the
accounting entry and estimate which they have taken in the preparation of financial
statement. It check the internal control of the company as how the company is able to manage
the business risk and how they are able to manage the business operation internally. The
report show about the company Great Gift Inc, it show about the various aspects of the
company (De Simone, Ege and Stomberg 2014). It show about the internal control of the
company and different aspects which is been concern by the auditor.
Overview of the company
The assessment is based upon the company name Great Gift Inc which is a
manufacture of gift item for all the necessary occasion. It operate its business in both
wholesaler as well as retailer, it sale it product to big wholesaler, small chain group of
business and also to individual owner of the company.
Internal control of company
Internal control shows how the company is able to manage their business operation
internally and effectively (DeFond and Zhang 2014). It show how the company is able to
manage its activities and able to achieve their business goals and objective. As per the
previous analysis of the auditor it can be said that the company is not having proper internal
control as the auditor have checked the sale and purchase and it does not able to get sufficient
amount of document which can support that the company is having problem in the internal

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control. So it is the duty of the auditor to make change in the internal control so that it will
help the company to manage the business risk more easily in the company operation.
Material Misstatement in company
Material misstatement is happen when the company is not able to record proper
transaction in the financial statement (Furnham and Gunter 2015). It happen that the company
is have omitted or error has happen while recording the transaction so due to these the
company is having some material misstatement so the financial account will not show proper
valuation and as a result the financial user will not able to take proper decision in regards of
the company performance. As per the company is been seen it can be said that the company is
having less control in inventory as it does not able to have as in 2016 it recorded the useful
inventory as waste which afterward realise to be worth of $200000 so it can be said that the
there can be material misstatement in the same (Griffiths 2016). As the risk which are been
associated in material misstatement is that it can able to affect it will over or undervalued the
company asset and liabilities so it will directly affect the financial user decision as the user
will not able to take proper amount of decision in regards of the financial statement of the
company. The risk which are associated are fraud, going concern, Accounting estimates.
As per the financial statement it can be seen that the company is having no proper
estimates in regards of the accounting policy as it does not able to have proper estimates in
regards of the inventory so this show that there is material misstatement in company financial
statement so it is the duty auditor to carry different audit process in company so that it can
able to know the affect of material misstatement and able to judge the financial statement
more properly so that it can able to give proper recommendation in regards of the financial
statement of the company (Groomer and Murthy 2018).
Account Grading Justification Assertion

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Inventory High As the company is not able to have
proper amount of internal control so
it can happen that if the company is
not having proper amount of control
so this the reason it is been consider
as a material misstatement in the
account (Hall 2015).
Completeness :
As per the assertion the company
should record all the transaction
completely in the accounting as if the
company is not able to record all the
transaction properly than it will not
able to show the true value of the
account in financial statement of the
company (Knechel and Salterio
2016).
Sales Medium As there were no proper record of
transaction so it will b every hard to
judge whether the company is having
proper amount of sales value or not.
As the company is not having proper
documentation and also the sales
structure is very complicated so it
will be very hard for the auditor to
judge the account so this the reason it
is been treated as material
misstatement (Lin et al., 2014).
Accuracy – The company should
record the transaction accurately in
the financial statement as it should
able to record the value properly and
no misstatement in the financial
statement should be there as if the
company is not able to record
properly the valuation than it will not
able to show proper amount of return
in the financial statement so this will
affect the user as the user will not
able to take proper amount of
decision upon the financial statement
of the company (Newton et al., 2015)

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Recommendation in regards of Risk
As the risk is been concern it can be said that the auditor have to take many steps so
taht it can able to eliminate the risk and able to carry the audit more properly in the company.
The steps which is to be taken by the auditor are:
1. Increase in scope of Audit – It should increase the scope the audit process so that it
can able to judge the financial statement more properly, as if it increase the scope of
audit than it will able to judge each account more properly as it will to evaluate the
financial statement more properly (Sandvig et al., 2014). As the auditor is able to
increase the audit process in the company so it will help it to make more proper
opinion upon the financial statement of the company.
2. Planning Materiality – It should judge the business and should plan the materiality
which should be there in the financial statement of the company (Wang, Li and Li
2014). As if the auditor able to judge the financial statement materiality in planning
stage than it will help him to judge the company account more easily as it will able to
match the materiality with the budgeted and able to give its opinion upon how the
company is able to have materiality in the financial statement of the company.
3. Increase in Internal Control Analysis – As per the company is been concern it can
be said that the company is not having proper amount of internal control so due to this
there is material misstatement in company financial statement so to overcome that it
should have proper internal control which will help the company to overcome the
problem which they are facing while carrying the internal control so if the company
will have proper amount of internal control than it will able to achieve the business
goals easily and effectively in the company.

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Conclusion
The report can be conclude as auditing is the process which help the auditor to carry
audit process in the company. The auditor carry audit process in the company financial
statement so that it can able to have proper details about how the company has made the
financial statement and able to give proper opinion upon the financial statement of the
company. It also check the internal control of the company as whether the company is having
proper amount of internal control or not as if the company is not having proper amount of
internal control than there is a high chance that the company will able to have material
misstatement in the company account which will directly affect the financial user to take
necessary decision in regards of the financial statement of the company.
It conclude about the company Great Gifts, Inc which is an manufacture of gift and
sale its gift to different wholesaler, retailer and also to individual store owner. The report
show about the different aspects which is been taken care by the auditor while carrying the
audit process in the company. It show different problem which the company faces internal
control as how the company internal control is working. It also show the material
misstatement which is been there in the company financial statement and which two account
which are been affected by the material misstatement. Lastly it show the assertion which the
auditor have to take while carrying the audit process of the company accounts.

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Reference
Balsam, S., Jiang, W. and Lu, B., 2014. Equity incentives and internal control
weaknesses. Contemporary Accounting Research, 31(1), pp.178-201.
De Simone, L., Ege, M.S. and Stomberg, B., 2014. Internal control quality: The role of
auditor-provided tax services. The Accounting Review, 90(4), pp.1469-1496.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), pp.275-326.
Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Groomer, S.M. and Murthy, U.S., 2018. Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and Application (pp. 105-
124). Emerald Publishing Limited.
Hall, J.A., 2015. Information technology auditing. Cengage Learning.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Lin, Y.C., Wang, Y.C., Chiou, J.R. and Huang, H.W., 2014. CEO characteristics and internal
control quality. Corporate Governance: An International Review, 22(1), pp.24-42.
Newton, N.J., Persellin, J.S., Wang, D. and Wilkins, M.S., 2015. Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), pp.603-623.
Sandvig, C., Hamilton, K., Karahalios, K. and Langbort, C., 2014. Auditing algorithms:
Research methods for detecting discrimination on internet platforms. Data and
discrimination: converting critical concerns into productive inquiry, 22.

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Wang, B., Li, B. and Li, H., 2014. Oruta: Privacy-preserving public auditing for shared data
in the cloud. IEEE transactions on cloud computing, 2(1), pp.43-56.