Audit and Organizational Control: Expansion Strategies for Jertsy Ltd

This report examines the challenges Jertsy Ltd faces in managing business expansion, specifically addressing issues related to internal control and auditing. The analysis delves into the roles of management, the board of directors, and auditors in establishing and maintaining effective organizational control systems. The report recommends strategies for brand building, risk assessment, and the implementation of control activities to mitigate potential problems during expansion. It also highlights the importance of clear communication, information flow, and monitoring. The report also discusses potential threats to auditor independence, such as self-review and familiarity threats, and suggests safeguards to ensure objectivity. Furthermore, it references relevant regulations, such as APES 110, to reinforce the importance of ethical conduct and independent auditing practices. The conclusion emphasizes the need for a comprehensive approach to manage the complexities of expansion while maintaining robust audit controls.

Running head: AUDIT AND ORGANIZATIONAL CONTROL
AUDIT AND ORGANIZATIONAL CONTROL
Name of the Student
Name of the University
Author Note

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Table of Contents
Question:1..................................................................................................................................4
Introduction................................................................................................................................4
Analysis of Organization............................................................................................................4
Management...........................................................................................................................5
Board of Directors..................................................................................................................5
Auditors..................................................................................................................................5
Recommendations......................................................................................................................6
Strategies for expansion of new business:.............................................................................6
Brand Image.......................................................................................................................6
Assessment of risk..............................................................................................................6
Control Activities...............................................................................................................6
Communication and Information.......................................................................................7
Monitoring and Reporting..................................................................................................7
Threats for Auditors...............................................................................................................8
Self-Review threat..............................................................................................................8
Self-Interest threat..............................................................................................................8
Familiarity threat................................................................................................................8
Advocacy threat.................................................................................................................8
Safeguards of auditor’s independence...................................................................................8
Rules and regulations as per the issue of Auditor’s independence:.......................................9

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Conclusion................................................................................................................................10
Question:2................................................................................................................................11
Introduction..............................................................................................................................11
Analysis of Organization..........................................................................................................11
Audit Assertions.......................................................................................................................12
Substantive Procedures............................................................................................................14
Risk in Auditing provision related to Warranty.......................................................................17
Conclusion................................................................................................................................18
References:...............................................................................................................................20

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Question:1
Introduction
The purpose of the paper is designed as per the case study; it is done by thoroughly
understanding the problems which Jertsy Ltd was facing with the controlling of a new
expansion of the fashion clothing store. The issues as per the case study are being solved with
the help of the Internal Control System and the auditing issues will be solved with the help of
the Australian Accounting Standards Board. The control for the new expansions can be
controlled by the Organizational Control Systems and by implementing strategic management
(Morden, 2016). So, in this report with the implementations of different strategies and the
internal auditing control the issues of the case study can be solved.
Analysis of the Organization
From the case study, it can be seen that the strategy which the senior management is
using that from the success which the Jertsy Ltd is getting, through this the management is
trying to expand their business structure by opening new stores. It is seen that there is a high
turnover of the store staff until now there was no problem because the business structure was
small, but now if they try to expand their business structure then there should be a stability
between the staff, there should be less turnover. To solve this issue, the management should
have control by implementing the internal control system.
Jertsy Ltd should follow the internal control system, which comprises of many policies,
procedures through which it can perform well and maintain a proper business structure
(Mahadeen, et al., 2016). In the internal control system, three parties have the main roles;
this system mainly comprises of the management team, board of directors and auditors.

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Management: The management team which comprises of senior manager, junior
manager, store manager or operations manager; the team should have a similar goal. Through
this, great management can be formed, which will help the organization to perform better. In
the case study, the issue with senior management was that there was a problem regarding the
control over the expansion of the new stores (Burt, 2016). This can be sorted out if they
distribute the management team, i.e. in every branch, there will be a specific branch manager;
through this implementation, the process of internal control can be effective. The information
between the management will be more accurate, and the risk will be less as there will be less
communication gap because the decision making process will be quick.
Board of Directors: The organization and the management are run by the directors.
They play a major role in this internal control system. They comply with all the applicable
laws and regulations which an organization needs. As per the case study, the role of the
directors is needed as they can help in maintaining the control as the expansion happens. The
directors should form a plan and strategize so that the business should be under control. The
strategy which the directors should comply is with the control of staff and planning. The
cross-section between the branches will help in the strategy because there will be a
continuous flow of information which will be provided by the managers. Thus, this
implementation of the staff control will help in the expansion of new branches, because as per
the case study, the staff turnover was much higher.
Auditors- In the case study, it is seen that the auditors do a good job in maintaining
the accounting records. The accounting reports are comprised of purchases, sales and the
sundry expenses, which is incurred locally. So, from the case study, it is seen that every
branch has his own accounts department, they maintain their own branch accounting records,
and at the end of the month, the report is being sent to the head office (Kravet, McVay and

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Weber, 2018). Thus, the auditors are the one who has the authority to evaluate the employees
work. It will be beneficial as the monitoring of the work will be there, and there will be
control over the employees.
Recommendations
As Jertsy Ltd has its own range of fashion clothing store, some of the strategies which the
company can adopt while the expansion of business is described below.
Strategies for expansion of new business:
Brand Image: Jertsy Ltd. should have a brand identity. It should keep the collection
of clothes which should be authentic. The type of clothes they are selling is mainly related to
youth fashion. To have brand recognition, the company should try different kinds of clothing,
which will try to attract a large base of customers. It will be beneficial for the company if
they expand the variety of clothing options. Through this strategy, the consumers will also
prefer Jertsy Ltd. because they will get various options under one clothing store.
Assessment of risk: There are many risks which are involved in the expansion of the
business. Thus it is important to look at the risk in the beforehand so that there should be no
problem in the future (Leung, 2017). In this case, the management has to take care of the risk
control after looking at the risks which can be involved in the organization. Thus, the analysis
of the risks should be done based on how it can be managed.
Control Activities: The Senior Management of Jertsy Ltd. should establish certain
activities which are related to the controlling of the system. Through this process of
controlling the activities, the risk associated with the company can be prevented
(Akhmetshin, 2018). Thus, it is beneficial for the management to follow the policies and
procedures which will ensure in the activities of the organization.

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Communication and Information: It is important for an organization to make
decisions based on the correct information, because of this, the communication should be
strong. Form the case study it is seen that; Jertsy Ltd has a good communication process as
there is store manager who will receive all the information from the store staff if there is any
problem related to the work. The information will be conveyed from the lower level to the
upper level is there is any problem, and if there is any information from the higher authority,
then that information will also be conveyed through the store manager to the store staff. Thus,
the flow of the information should be stable so that no employee should face any problem.
Communication is one of the keys to achieving management goals. In Jertsy Ltd., the senior
management takes care of all the responsibilities which they were provided.
Monitoring and Reporting: The management of the organization use to monitor
internal control performance. The employees' performance is being monitored by senior
management. In Jertsy Ltd., all the performance is being monitored by the store manager, and
after the report is being prepared, then it is being sent it to the senior management
(Vovchenko et al., 2017). As per the auditors are concerned, they maintain all the reports
regarding the transactions which have been done with the purchases and sales of the products.
Therefore, the higher authorities monitor the reports which have been sent from the branches.
Jertsy Ltd is an Australian based company when they think of expanding the business;
they should install a new inventory system. The new inventory can hold the pressure of
complex and detailed manufacturing cost inputs. Thus, it will be helpful for the auditors to
input various types of inventory costs. In the case study, it is seen that all the branches keep
their own accounting records, and after that, the returns are being sent to the head office. The
auditors can have some of the possible threats; some of the threats are being discussed below.

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Threats for Auditors
Self-Review threat – This is a type of threat, in which when the auditors perform the
tasks, which is being already audited by others in that company. Thus, the auditor gets
discouraged when he expects to perform the task of his own (Hagel, 2015). It can be possible
that the auditors of the Jertsy Ltd may face problem-related to the internal connections of the
organization, which can affect the independence of the auditors.
Self-Interest threat: It can happen that the auditors of the company sometimes did not
receive the remuneration; in that scenario, the organization called it a Self-interest threat.
Thus, in that case, it is possible that the company will not pay the other company any auditing
fees.
Familiarity threat: In an organization, if the auditors become too much familiar with the
store manager or the store staffs, then it can happen that they will try to tell the auditors to
manipulate the financial data (Griffith,2016). Therefore, it is important for the head office to
take control of the audit report which the branch will provide. Thus, it will be helpful for the
organization if they take control of the auditors who are working in different branches.
Advocacy threat: It will be helpful for the auditor of the company, in which the company
is benefitted as the auditors will assist in selling out the company as well as performing the
audit of the company.
Safeguards of auditor’s independence
As Jertsy Ltd try to expand the business, it is required for the organization to help the
auditors of the company as the tasks will be on a large scale. Thus, the auditors safeguard
important, and it will be beneficial for the organization.

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i. The organization should avail the facility of professional and skill development of the
trainee auditors.
ii. The company should maintain the regulations of corporate governance, which is
compulsory.
iii. The auditor should have their education, training and the experience requirements
before entering the profession.
iv. The organization should safeguard the disposal of interest.
v. The rules and regulations should be maintained by the auditors; the organizations
should monitor and maintain the discipline of the auditors.
vi. The organization should prohibit the employees, those who are not the team members.
vii. It will be easier for the company if the different teams are required to implement the
non-assurance works.
Rules and regulations as per the issue of Auditor’s independence:
In Jertsy Ltd, the rules which are being applied upon the auditors are being made
keeping in mind the independence of the auditors. Thus, the auditor should implement
honesty, integrity and must have an objective in the auditing approach. As per the rule APES
110, the auditor should be free to carry out the work in a manner which has to be very
objective.
The Company's charter of Audit should define the independence were from the results
of an audit the interest can be harmed (Saputra, 2015). Therefore, the auditors can enable the
law for their independence which will enable the company's code of ethics. This code of
ethics will give guidance and will provide references for the third parties, i.e. the suppliers.

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Conclusion
From the above discussion, it can be concluded that in the process of expanding the
business, there are certain things which an organization has to look upon. There are certain
strategies in which the company has to focus on it; these strategies have been discussed based
on the business structure. As Jertsy is a fashion clothing store, they have to focus on the
internal control management which comprises of the employees like the store staff and the
store managers, and importantly they have to focus on the auditors and the inventory
management. All the factors and the threats which a company face while expanding the
business are being discussed with respect to Jertsy Ltd. The safeguards of the threats are
analyzed properly, and all the new system through which the organization get benefitted are
discussed which will help the senior management of the company.

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Question:2
Introduction
The primary objective of the report focuses on the audit assertions, which should be
considered as a part of the audit for Sweet Sounds Ltd. The Auditing Standard ASA 500
Audit Evidence, which is issued by the Auditing and Assurance Standards Board is focused
on resembling the conditions which are encrypted in it (Trotman, 2015). The report consists of
the three parts; the first part focuses on the audit assertions which the Sweet Sounds Ltd
needs to consider, in the second part the processes are considered, which are performed to
consider the assertions. In the last part, a special risk is being discussed in the auditing
provisions for warranty related to Sweet Sounds Ltd. The first part, which is of audit
assertions consists of the three categories: Account Balances, Classes of Transaction,
presentation and disclosure. These are further classified into Occurrence, Completeness,
Accuracy, Cut-Off and Transactions. Thus, this assertion is being discussed in relation to
Sweet Sounds Ltd. In the second part, the procedures through which the assertions are being
solved is described with the help of different accounting tools. In the last part, the risks which
are related to the auditing Sweet Sounds Ltd. for warranty is discussed related to the AASB
137. It is seen from the case study that there is a change in the manufacturing process for
more reliability.
Analysis of the Organization
Sweet Sounds Ltd is a company which manufactures the mini hi-fi systems. As it is
seen that recently the company has changed their manufacturing process, they have decided
to take this option for making the product more reliable. In this process of Audit assertions,

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the activities on the business organization, which includes the policies, internal control and
the financial reporting process are all carried out by the auditor of the company. In relation to
the case, it is seen that the internal control of the management has changed the manufacturing
process because of the reliability of the product. In the later part of the case, it can be seen
that the company has also decided to increase the warranty of the product which is being
manufactured in the new processes. Because of the new manufacturing process, the company
thinks that the products which are manufactured now are now more reliable. For this reason,
Sweet Sounds think that the warranty of the new products should be increased from three
years to five years. In the later part of the case study, it is seen that the claim for the warranty
from the customers was down by 20% compared to the old product. Therefore, it can be
considered that the product which the company is manufacturing with the new manufacturing
process is reliable.
Audit Assertions
As from the above discussion in relation to the Audit Assertions, the auditor uses it
for classes of transactions, account balances and presentation and disclosures. According to
the Auditing Standard ASA 500, in paragraph 20, it can be seen that for assessing the risk in
the organization the assertions are being used if there are any misstatements happen. This is
also related to taking the risk of material management (Byrnes, 2015). From the different
categories of Audit Assertions, to consider the part of the audit for the Sweet Sound Ltd., the
Accuracy is considered as one of the audit assertions, it comes under the classes of
transactions and events. It can be seen from the case that in Sweet Sounds Ltd., that after
changing the manufacturing process for manufacturing the mini hi-fi system, the company
gets benefitted as they are making a more reliable product. As per the Auditing Standard
ASA 500, in paragraph 25, under the ASA 315, the auditors can make a risk assessment