Audit Is The Systematic Process of Examining The Accounts

Question: 1. Identify the weaknesses in stocktake procedures. 2. A. What control should be implemented to reduce the likelihood of each of the above? B.What is an audit procedure to detect or prevent each of the above? 3. A. Identify the key assertion addressed by the test procedure. B.Provide an explanation as to why the conclusion reached is appropriate or inappropriate. C.Outline the key control procedure that you believe needs to be performed. Answer : Introduction: According to Mohamed et al. (2012), audit is the systematic process of examining the accounts, followed by vouchers, documents and accounts books. However, Bruchez (2012) audit is absolutely assured that it presented financial statements fairly. 1: Identify the weaknesses in stocktake procedures As the case study, the main weakness of the weakness in stocktake procedures is auditor can not determine the actual figure of stock by using this process. As staff members of the company are counting the stock so it is very difficult for the auditor to find the actual figures of stocks. Another weakness of this process is the auditor provides pencils to each of the members of the staff, in this case staff could erase the actual value and put book value instead of existing stock available in the store. Therefore, the auditor will not get actual figures from this process (McDonald, 2012). On the other hand, the auditor allows Warehouse staff counted specific areas of the stock as determined by the warehouse supervisor, staff members, including the warehouse supervisor were allocated their own area to count on their own. As each of the staff knows their areas very well, so they can easily hide the loopholes in this area. In this case, the auditor can improve the process of identifying the stock by providing pen instead of pencils to the staffs, and should inform staff that any kind of the error in the sheet will not allow by the auditor. It will increase accountability among the staffs, members and warehouse supervisors. Apart from that, the company should allow allows supervisors to count the stock separately from members of staffs. Therefore, the auditor easily identifies the differences between staffs counting and supervisors counting. The auditor can use another process to count the stock, one department should allow another department to count the stocks which will be effective (My.studyindenmark.dk, 2015). 2. A. What control should be implemented to reduce the likelihood of each of the above The auditor recommended to use Account Reconciliation Manager (ARM) software which will help the company to reduce the risk by providing real-time visibility into the performance of reconciliations (Bedard, 2012). It also ensures all reconciliations prepared are properly qualified. (Source: Bedard, 2012, pp-342) Apart from that the company should examine the cancelled cheques and make sure that vendor are recognized. The company also examines the bank statement. 2. B What is an audit procedure to detect or prevent each of the above At first auditor should examine the bank statement with the account books in case the unreconciled item. The auditor must ensue that date wise all of the account entry examined. In case of 3rd case the Auditor should check voucher and year bank account statement where the auditor will understand when the account was debited. At cheque was omitted from the account the auditor should check the bank account with payment voucher. That helps to find the amount which was omitted. On the 5th case the cheque is in transit at 30June therefore the auditor should add back the amount and calculated bank reconciliation as in the same year. Bank reconciliation statement accounts For the year end 30th June Particulars Amount ($) Amount ($) Balance as per cash book (Deposit) 340 Add: Checque issues, but bank not debited Checque issues, but bank not debited 40000 6000 46000 Less: Check collected but not recorded Ad back deposit 4070 20000 24070 Balance on bank after year ending 22270 3. A. Identify the key assertion addressed by the test procedure. There are many key assertions of balance such as existence, obligations and rights, allocation and valuation, presentation and disclosure. By presentation and disclosure the auditor classified account segments and understand it properly. Through key assertions the auditor understands whether the asset is real or it does not. As per the case study, it has found that six invoices had not been authorized therefore the transaction was incorrect. 3. B. Provide an explanation as to why the conclusion reached is appropriate or inappropriate. The providing conclusion is not accepted because the error could happen in the price of the product or services or discount receivable. However the auditor only had found incorrect discount were recorded in the invoices, but it is not highlighted specific reason for the errors. The reason may be found in the price of the products or services. 3.C. Outline the key control procedure that you believe needs to be performed. Trace receivable report to general ledger- The auditor first allows examine the ledger account and trace the grand total account receivable. If the account receivable does not match with the ledger, then the auditor will examine the journal leader. Investigate the reconciling items- By reconciling the account items in the general ledger, the Auditor will interpret the data which are listed in the ledger and journals. Confirm accounts receivables- A auditor can directly contact with the customers and ask them to confirm the amounts which are unpaid by the company. Match invoice with the shipping log- The researcher should match invoice with the record of the shipping log. It will help the auditor to find the actual differences among the invoices and shipping log of the company. Access bills and hold sales- The auditor should access the bills and examine that whether the sales actually has taken place. Review receiving log- In case of large amount of records the researcher should review the logs and examine that the company shipped many goods to the customers. In respect of the goods sold the account of receivable should not be differentiated (Bruchez, 2012). Trend analysis- The Auditor should analyze the trend line of the sales and account receivable. If any kind of the unusual trends has found by the auditor then the auditor should find the reason. Review cash receipts- The auditor should confirm the account receivable by using backup auditing techniques. Through using backup auditing techniques the auditor will get cash in hand, if that does not match, then the auditor should find a reason. Conclusion: Auditor finds error in the accounts. By using different types of techniques the auditor will find the reason why the error has occurred in the account statement of the company. Reference list: Books: Bruchez, R. (2012). Microsoft SQL server 2012 security cookbook. Birmingham, UK: Packt Publishing. McDonald, B., McGehee, S. and Landrum, R. (2012). Pro SQL Server 2012 reporting services. Berkeley, CA: Apress. Journals: Bedard, J. (2012). Discussion of Audit Partner Specialization and Audit Fees: Some Evidence from Sweden *. Contemporary Accounting Research, 29(1), pp.341-348. Mohamed, Z., Mat Zain, M., Subramaniam, N. and Wan Yusoff, W. (2012). Internal Audit Attributes and External Audit's Reliance on Internal Audit: Implications for Audit Fees. International Journal of Auditing, 16(3), pp.268-285. Websites: My.studyindenmark.dk, (2015). The Risk of material misstatement (RMM) Audit Procedures - Response to Risks evaluating the audit verification obtained.. [online] Available at: https://my.studyindenmark.dk/profiles/blogs/the-risk-of-material-misstatement-rmm-audit-procedures-response [Accessed 14 Jan. 2015].