Free «Assignment 2: Audit Planning and Control» Essay Paper
The following paper denotes essential stages undertaken by the accounting company in the process of audit planning and developing an effective audit program. First of all, the company has to hold a preliminary discussion with a client, so that the firm can familiarize itself with a nature of business carried by that particular public company. After the first step, the company has to evaluate the audit documentation of the latest inspection done by the company itself or a predecessor audit. It helps in developing a framework of the audit program. An auditor inquires about the current developments made in the company. Provisional financial statements are scrutinized to point out accounts and dealings that contrast from expectations. Non-audit personnel who might have provided services to the accounting industry are identified and referred to in order to send more light about the firm. Staffing is done for the purpose of an audit determination, and meeting is usually held to consider the involvement (Chaplain, 2003).
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Time is an important factor in the process of audit planning, it helps to determine the various review processes. Some procedures need to be performed at varied times. An auditor has to consider looking for outside assistant to help determine the amount of engagement with a client. Declarations of the accounting principles are studied to help in coming up with a full audit programs tailored towards a client’s needs. Finally, an auditor has to decide with a client for coordination of the following activities. The following procedure will be adopted in planning and designing the audit program for the Apple and the Hein Accounting Company. An auditor will meet with the directors of the Apple Company and talk about the kind of commitment Apple wishes to involve an auditor in and, at this point, they may discuss an audit strategy. The Hein accounting firm will then assess document of the preceding audits performed. Later, auditors of the Hein will make an inquiry about the late developments in the Apple Company, such as whether there are new computers or phones. Hein auditors will then scrutinize the temporary financial Statement of the Apple Company to note accounts and transaction that vary from anticipation.
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Hein will embark on a fact-finding mission of the non-audit personnel of the company that offered services like preparation of tax. This will help to give more incite about the Apple Company. Staffing for the audit and timing of several processes are then determined. Hein then assesses the need to seek outside assistance such as a specialist in the area of tax or information technology. Auditors of the Hein accounting firm will make declarations on the accounting principles suitable for the Apple Company. Lastly, Hein will schedule with Apple in order to coordinate events. Income statement account is tested during the analytical procedure performed by an audit firm.
One of the performance ratios used in the identification of the analytical test to be carried out is the current rate. It measures the company’s ability to meet its short times obligations using its short-term assets. Higher rate denotes the capability of a firm to meet its debt obligation. Profitability ratio assesses a company’s ability to make earnings, as compared to expenditures and other costs incurred in a definite period. Risk assessment process helps an auditor to gain a better insight of the business and to determine the nature, the extent and time involved in the review processes. Substantive analytical method helps in obtaining evidence of a particular claim in relation to accounting balances. Final analytical procedures are applied as the general review of the financial report in the ultimate appraisal stage of an audit.
The audit evidence needs to be sufficient in order to support observations, reach a decision with respect to review targets and make the necessary recommendations (Loughram, 2010)
Auditors, therefore, have to provide high, but not absolute standard of assurance in collecting evidence by scheming inspection, enquiry, analysis and discussions process that the danger of an incorrect conclusion is lowered. The information gathered must be reliable and valid. Judging from the balance sheet and income statement of the Apple Company, the company is in a position to meet its liability obligatory since the current rate is high.
The Apple Company also has a high profitability ratio. Inspection involves gathering audit evidence by examining all the documents, accounts and tangible assets. This method is the most efficient. Observation entails auditor looking at the process of technique being implemented by others. The procedure can be exemplified by an auditor, being present at the time when a client’s physical count is being done.
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Inquiry and confirmation are other methods used to collect audit. Evidence involves researching about the information from a knowledgeable individual from within or outside the company and responding to inquest to clarify a report in the accounting records. The replies provide additional or supportive evidence to an auditor. Audit risk model is used by auditors to manage the general risk of audit method (Wittington & Delaney, 2013). Auditors progress by analyzing the inherent and control risks regarding the review arrangement, as they get an insight of the business and its environment. Exposure risk makes the residual risk, once the consideration for inherent and control risks concerning the audit engagement and the public audit risk that the auditor is ready to take. If an auditor’s valuation of inherent and control risk is significant, the detection risk is lowered to maintain the audit risk at a satisfactory level. If an auditor is certain that the inherent and control risk of an involvement is low, detection risk is accepted to be set at a considerably higher levels.