Name<\/p>\n
Professor<\/p>\n
Course<\/p>\n
Date<\/p>\n
Preparing Audit Plans<\/p>\n
A. Internal control\u00a0is a procedure \u201ceffected by an entity\u2019s board of directors, management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives \u201cwith particular interest in the following categories: <\/p>\n
Reliability of financial reporting, <\/p>\n
Effectiveness and efficiency of operations, <\/p>\n
Compliance with applicable laws and regulations<\/p>\n
Interrelated components<\/p>\n
Some of the other components that are related to internal control consist of:<\/p>\n
Control environment<\/p>\n
This is one of the vital components as it sets the tone for any organization, thus influencing the control perception of its people. It is the basis for every single one of the other internal control components giving discipline and composition. An auditor should strive to obtain ample awareness of the control environment so as to understand \u201cmanagement’s and the board of directors’ attitude, awareness, and actions concerning the control environment.\u201d The auditor ought to pay more attention to the substance rather than forms of controls. The reason behind this is because some management may put into place some sort of official code of conduct but act contrary thus violating the code. <\/p>\n
Risk assessment<\/p>\n
An entity’s risk evaluation for fiscal reporting intention is its detection, scrutiny, and management of threat significant to the preparation of fiscal statements that are comparatively presented in compliance with by and large acknowledged accounting principles. For instance, risk evaluation might concentrate on how the entities think about the likelihood of unrecorded dealings or recognizes and analyzes momentous approximates recorded in the fiscal statements. Risks related to reliable fiscal reporting also relate to detailed actions or transactions. The risks can be as result of a variety of factors either implemented by the management or the major stakeholders.<\/p>\n
The risks which are relevant to financial reporting might include both internal as well as external factors that might arise and adversely affect an organization\u2019s capacity to commence record, process and report fiscal data. Risks can either arise or change as a result of the following factors: <\/p>\n
New personnel<\/p>\n
New technology<\/p>\n
Corporate restructurings<\/p>\n
Rapid growth<\/p>\n
New accounting pronouncements<\/p>\n
New business models, products, or activities<\/p>\n
Changes in operating environment<\/p>\n
In that view coming up with a comprehensive audit report will prove difficult due to the fact that the credit ratings levels have not been checked. Furthermore there have been instances where abnormal discounts have been given. This makes it difficult to estimate the amount of money that has either been lost due to the unchecked ratings or the abnormal credits given. The auditor will have to work with estimates which may not be viable.<\/p>\n
b. Annual audit engagement of a tractor retailer<\/p>\n
The purpose on an audit engagement is to facilitate independent expert public accountants to provide an outlook on the \u201cfairness of the client\u2019s financial statements.\u201d Most f the time it is something that proves to be quite difficult. Audited fiscal statements are the acknowledged way which a lot of business corporations account to the shareholders, bankers, creditors and to government. <\/p>\n
The auditors\u2019 task is to articulate an opinion on those financial statements. The auditors have to plan the audit to attain logical assertion that the fiscal statements are free of mistakes. Through the scrutiny and assessment of the company\u2019s structure of internal control the auditor can detect misstatement. This task can be carried out by inspection of documents, inspection of resources, making enquires inside and outside the company, as well as by use of other generally acknowledged auditing procedures. The auditors will collect data required to find out whether the fiscal statements gives a fair depiction of the company\u2019s fiscal situation and its actions throughout the period of being audited.<\/p>\n
In regards to the issue of preparing an annual audit report for the tractor retailer coming up with a proper report may be a challenge based on various factors. The first is that there have been problems facing the rural industry for about six months furthermore the prospects of the situation improving is not certain. In that aspect the financial situation of the company can not be ascertained, this puts the auditor in a very difficult situation of being able to properly give his opinions.<\/p>\n
C. New management compensation scheme<\/p>\n
Corporate restructurings is one of the factors that can affect adversely affect an organization\u2019s capacity. Such an occurrence may also affect the auditor\u2019s job as it will mean analyzing the fiscal reports with regards to the new developments. Introducing a new compensation scheme that was not there before might affect the firm in various ways. If the firm has not experienced a rise in the profits margins, then the scheme might affect the profits, which may result in losses for the firm. The other likely possibility is the companies profit margins may remain constant compared to the previous year\u2019s fiscal report even though the firm might have experienced a rise in sales. Such new developments can be affect the work of an auditor in a number of ways; first the auditor will have to assess the risk presented by the new development.<\/p>\n
Another change that has been introduced is the issue of the top managers being closely tied with the profits. This will, mean that the auditor will not have a definite salary for the top mangers as it is bound to vary depending on the companies profits. In that case the auditor will have to be very careful with the salaries so as to avoid misstatements. Salaries are part of the expenses of a firm, thus even the salary of the top managers has to be accounted for. It does not matter whether they own the firm or not.<\/p>\n
D. Loss of stock<\/p>\n
Stock is one of the most vital resources for any organization that is trading in goods. When even a small fraction of a firms stock disappears it may have adverse effects on the overall fiscal report of the firm. This is because the stocks often have fiscal value and forms a very vital part in the firms\u2019 assets. In this particular case where internal audit has discovered that a substantial amount of stock has disappeared. Moreover the people who could have been held responsible have resigned thus making it difficult to find out the exact amount of goods that have disappeared. <\/p>\n
In such a scenario the auditor can not be able to come up with a comprehensive fiscal report, due to the fact that the real value of the goods can not be ascertained. In that case the auditor will have to work with estimates that can not be substantiated. Such a fiscal report may fail do deliver the right picture of the fiscal condition of a firm. <\/p>\n","protected":false},"excerpt":{"rendered":"
Name Professor Course Date Preparing Audit Plans A. Internal control\u00a0is a procedure \u201ceffected by an entity\u2019s board of directors, management,<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-41078","post","type-post","status-publish","format-standard","hentry"],"yoast_head":"\n