Audit And Assurance: Successful Audit Essay

Question:

Describe about the Audit and Assurance for Successful Audit.

Answer:

Preamble

To start the audit program of M Ltd the need of audit plan is necessary as the first element of such activity. To be a responsible partner of the audit firm, I am appending below the audit plan for performing a successful audit of M Ltd which is involved in the business of wine manufacturing and subsequent sales of the product both in domestic and overseas market. The company has recently enlisted themselves in ASX for their share to be traded in the Australian Share Market (Asx, 2015). This activity increases the number of stakeholders of the company with more responsibilities dawned upon the company to ensure proper financial activities with maintenance of records for justifying their business activities. Being external auditor, the responsibility of the firm is more to the statutory authorities and the external stakeholders. The company had replaced their erstwhile auditor by our firm with the expectation of more accurate and focal activities towards ensuing audit performance. The audit period for M Ltd is for the financial year of 2015 -16 which starts from 1st July 2015 and ends at 30th June 2016.

The standard audit plan starts with detection of audit risk along with phase-wise planning with preliminary audit plan, execution of the job and submission of the report to the respective recipients in the form of authorities and the company along with published report in the website of the company to ensure its accessibility to all stakeholders irrespective of nature of internal or external stakeholders.

Audit Plan

Diagram of audit performance:

Detection of audit risk:

Normally before starting any audit assignment, audit firm has to analyze the audit risk. Audit risk is broadly divided into three components- Inherent Risk, Control Risk and Detection Risk. Although all the risks are connected with the concept of material misstatement, there are different types of effects getting generated out of these activities which may pose barrier to the audit assignment with not reaching the coveted level of deliverance so far audit process is concerned (Aicpa, 2006).

Inherent Risk

The inherent risks are material misstatement on the part of the employees involved in the activities of maintenance of financial statements created through omission or errors, which may be deliberate or not.

Control Risk

The control risks are generated from the practice of internal control through imposition of check in different layer of activities of the company in order to avoid material misstatement.

Detection risk

Detection risks are for the material misstatement generated on the part of auditors due to their overlooking of any important matter which may cause improper projection of facts of the company by the auditor resulted to proven insignificance of any important factor.

In the case of M Ltd, inherent risk is found negligible as the company works on accounting software approved by AASB. As Finance Director is directly involved in finance and accounting activities with initiatives of decision making and setting of accounting and financial framework as per compliance of AASB. The control risk is minimized. Detection risk our area of concern and we will be attentive with all sensitive issues related to financial accounting system to mitigate the same (Accounting-simplified, 2010).

Primary Plan

Preliminary audit plan is mainly focused on the initial plans which are appended below:-

Intimation

The first step is to intimate M Ltd about the audit plan with date of initiation, duration of audit work, probable submission date of audit report, details of required financial documents and registers, size of the audit team, name of the team leader. The same is to be forwarded to M Ltd through formal letter through E Mail and hard copy along with quest for the acknowledgement and necessary compliance (Cag, 2011).

Audit Team

Audit team is to be fixed and my plan is to deploy 8 members out of which 7 members will be deployed in the process of verification and checking with necessary notes to be made on the facts derived from the financial statements for the period.

Audit period

The audit period is fixed from 10.10.2016 and will end on 31.10.16. The submission of audit report will be made on 5th of November 2016.

Execution of Audit Process

Verification and investigation

The verification process will start from 10.10.2016 with segregation of financial document including registers. To start the verification, few concerns will be kept in mind. It had been noted earlier that there are export discarded inventories for some technical reasons which had caused the doubt in receivables. The receivables are not recovered which made a threat of declaration of bad and doubtful debts for the company effecting current asset and the working capital. The company is involved in the manufacturing process of wine and most of the sales is being made to overseas customers. Hence there is a constant threat of recoverable receivables for fluctuation of currency exchange rate. To cover this risk, the company is insisting on hedging. The bank and cash registers are to be verified as per norms with the statutory compliance towards district and federal taxes are to be verified with utmost care (Auasb, 2009).

Preliminary report preparation

The preliminary report is to be prepared by me as the audit team leader with highlighting the different issues come through audit process. After preparation of draft report, the same will be given to the management to get the clarification on the issues. It will be done with the head of operations like CEO, Financial Director and other heads of operations like manufacturing, HR and supply chain to earmark the problem areas and probable dates to resolve the issues (Auasb, 2016).

Final report submission

Final submission report submission will be made on 5th November with signature of CEO and the Audit Team Head and will be submitted to the respective authorities like income tax, ASX and will be published online for the stakeholders to make them understand the financial situation of the company. This will help them to raise questions in the AGM to be announced by the company later.

Conclusion

This assignment will give our firm enough opportunity to understand the trend of liquor business and enhance our expertise through experience gathered through this assignment.

References:

Accounting-simplified, 2010. Audit Risk Model Inherent Risk, Control Risk & Detection Risk. [Online] Available at: [Accessed 20 September 2016].

Aicpa, 2006. Audit Risk and Materiality in Conducting an Audit. Effective for audits of financial statements for periods beginning on or after December 15, 2006. Earlier application is permitted; 47(107), pp.1647-62.

Asx, 2015. Asx Listinig Rules. [Online] Available at: [Accessed 29 September 2016].

Auasb, 2009. Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with AustralianAuditing Standards. [Online] Available at: [Accessed 22 September 2016].

Auasb, 2016. Australian Auditing Standards. [Online] Available at: [Accessed 13 October 2016].

Cag, 2011. Audit Plan. [Online] Available at: [Accessed 22 September 2016].

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