1. The issue that has been presented in the question is that as an audit senior with Rogers & Brown the particular task of the auditing the proceedings of Reliable Printers Limited for the year ended 30 June 2015. Furthermore, the steps of audit that have been asked in the question are as follows:
- Initial agreements with the client – the initial agreements with the client include the audit engagement letter. The engagement letter includes the specifications that have been agreed by the auditor and the client. There are no details that have been disclosed in the provided case study in regards to the audit engagement letter. However, it has been mentioned in the case study that the auditing procedure previously had belonged to the small audit firm Jones & Associates (William, Glover and Prawitt 2016).
- Planning of the audit – the planning of the audit involves the following of the certain steps like the collection of the documents, preparation of the audit plan, discussion of the plan with the client, conducting the required field work, drafting of the report and finally setting up of the closed meeting with the client. The documents that have been requested for the purpose of audit relate to the annual reports and the financial statements that reflect the financial position of a corporate entity. Moreover, the different financial document like the receipts and the invoice copies that have been incurred on the basis of the financial transactions carried out by the corporate entity whose books are being audited are also the potential documents that are required for the purpose of auditing. In case of the selected firm of Reliable Printers Limited, the audit documents that have been disclosed are the tax invoice, dispatch note in regards to the different financial transactions that have been incurred by the firm. Moreover, the audit plan that will be designed by the auditor for the purpose of evaluating the accounting statements of the Reliable Printers Limited is that the different accounts like the purchase and the inventory account, the receivables account, the revenue account, the cash receipts, the fixed assets and other financial particulars that have been included in the financial report of the corporate entity. Next, the proceedings will have to be discussed with the auditor and the fieldwork has to be conducted (William, Glover and Prawitt 2016).
- Industry specific strategies – the industry specific strategies refer to the strategies that have been utilized by the auditor on the basis of the particular industry to which the entity belongs. As the entity belongs to the printing industry the method of auditing that should be utilized by the auditor revolve around the fact that the different clients to whom the printing services have been provided should be checked with. Moreover, the suppliers of the firm who provide the necessary requirements of the printing press should also be checked with in order to carry out the auditing evaluation of the corporate entity. To be more precise, the inventory account and the purchase account that has been included in the financial report of the corporate entities should be reviewed critically and in details (William, Glover and Prawitt 2016).
- Assessment of the preliminary materiality – the assessment of the preliminary materiality refers to the amount of materiality that has been included in the financial statements of the corporate entities. Materiality refers to the amount that is computed by the auditors on the basis of the amount that can be permitted on account of the occurrence of material misstatements in the books of accounts. It must be noted here that the material misstatements refer to the understatement or the overstatement of the particular accounts in the accounting statements. Sometimes it must be the case that a particular account has been misstated intentionally for carrying out fraud or overstating or the understating of the particular accounts might be carried out by mistake. In case of Reliable Printers Limited the amount of materiality that can be considered by the auditors can be calculated as 10% of the total sales amount. This means that the amount of materiality that can be calculated from the financial statements is 10% of $2,188,183. This amount of profit after tax has been revealed in the income statement of the corporate entity and has been calculated as $218818 (Groomer and Murthy 2018).
2. The issue that has been presented in the question is that the financial information that has been provided in the case study along with the specific business risks and the reaction to these risks have been asked to be discussed. The financial statements that have been disclosed in the report are the statements of financial position and the income statement. The reviewing of the statement of financial position of the corporate entity reveal the following issues:
- The financial year of 2015 reveals the fact that certain account display abnormal overstatement or understatement of balance. This means that the cash account reveals a cash balance of $347,120 for the financial year of 2015. However, the account balances for the financial years of 2013 and 2014 reveal an amount of $647250 and $517,778 respectively. Therefore, it can be concluded that the accounts might have been misstated and should be evaluated and checked properly.
- The next account that displays disparity in regards to the account balance for a number of consecutive financial years is the intangible assets account. It must be noted here that there has been no incurring of the intangible liabilities for the financial year of 2013 and that of 2014. However, in the financial year of 2015, the account balance that has been revealed in regards to the intangible assets shows an amount of $975000. Moreover, no notes to the financial statement have been provided the providence of which might have simplified the task of the auditor and the other users of the financial statements of the corporate entities. The third account that might be subjected to material misstatement or any kind of embezzlement is the deferred revenue account. The deferred revenue account has been chosen on the basis of the rationale that the financial statement display no amounts in the financial years of 2013 and 2014. However, in the financial year of 2015, the deferred revenue account displays an amount of $697,500. Therefore, it can be deduced from such a fact that the particular account is highly exposed to the occurrence of material misstatement in the books of accounts. Moreover no information has been provided in regards to the financial particulars in the books of accounts which make the accounting statements more suspicious and exposed to the misstatement risk. The interest bearing liabilities have been another such account that might be exposed to the materiality risk. This is due to the fact that there has been no account balance in regards to this particular account for the financial year of 2013 and that of 2014. However, the particular financial year of 2015 reveals an amount of $7500000.
- Therefore, the major risk that the business has been exposed to is the occurrence of material misstatement in the books of accounts. Therefore, the particular initiative that should be taken by the management or the directors of the corporate entity is the implementation of a strong network that facilitates the preparation of the accounting statements of the corporate entity in such a way that there are no errors in regards to the preparation of the accounting statements of the corporate entities. Moreover, the management of the Reliable Printers Limited should also consider the implementation of the internal controls in the organization. The internal controls that can be established within the corporate entity is the segregation of the duties, implementation of controls in areas of the organization where complex operations have been carried out.
3. The issue that has been presented in the question refers to the fact that the internal controls are an important part of the corporate entity and how the controls have been implemented within the particular organization of Reliable Printers Limited has been asked.
The internal controls refer to the particular controls that have been implemented within the corporate entity for the purpose of controlling the essential operations of business. To be precise, the internal controls refer to the particular controls that are utilized for the purpose of simplifying and smoothening the business operations so that the chances of embezzlements and frauds is reduced in the books of accounts.
The controls strengths that have been discussed in this particular study refer to the fact that the segregation of duties to the staff has been clear. This means that the particular accounting clerk Clare Kirby effectively participates in the recording the inventory at the time when it is purchased and the other proceedings of the accounts are recorded by the same staff. However, it should be noted here that the delegation of the authority to maintain and evaluate the purchase and the inventory account to a single staff refers is risky. This is because the management of the company is putting a major portion of the control of essential operations in the hands of a single staff. Therefore, the entire accounting proceedings are carried out on the discretion of the Clare Kirby. This is a particular weakness in the internal control of the company and should be corrected with the help of appointing another staff and properly dividing the work between the two.
Moreover, it has been further mentioned in the case study that the business entity of Reliable Printing Limited utilizes the server for the purpose of storing the publisher’s books in a digital format. However, it must be noted here that there has been no information provided in the case study in regards to the backing up of the data that is available on the server. This is another weakness in regards to the internal controls that have been imposed within the corporate entity. The internal control that should be implemented within the organization in regards to this particular factor is that the backing up of the customer information should be carried out on a regular basis. Moreover, the data on the server should be well protected from the threats of hacking and other kinds of theft issues (Groomer and Murthy 2018).
The tests that should be implemented within an organization for the purpose of testing the importance of the internal controls that have been implemented in the organization are as follows:
- Determination of the types of controls that have been implemented within the organization. There are various internal controls that might be applicable in case of different accounting situations. Therefore, the determination of the corresponding internal controls is very important and should be carried out effectively.
- The auditor should further determine the purpose of the internal controls that have been utilized by the corporate entities.
- Lastly, the value of the implemented controls are revealed by the identification of the problems as located by the implemented controls within the organization.
4. The reporting discussion reveal the information that the method of depreciation that has been utilized by the companies have not been useful. This means that the accounting method of depreciation of the fixed assets have been proposed to be changed to a straight line method. Moreover, the period of depreciation has been extended to a time period of 30 years.
This will affect the financial statements of the companies as the depreciation amount will be less as the period has been increased to 30 years. Therefore, the projected profit that has been earned by the company will increase (Groomer and Murthy 2018).
References and Bibliography
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Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Ghanbari, M. and Sarfia, E., 2016. Journal of Advanced Research In Accounting And Auditing. Journal of Advanced Research In Accounting And Auditing, 1, pp.8-15.
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.
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