ACC305 AUDITING AND PROFESSIONAL PRACTICE
a) A property developer in Brisbane, Australia, City Ltd., has few ongoing projects in the district. Since there starts a downturn in the sectors of commercial property, as well as there is a plenty of the space of city officials, there are no secured buyers for the projects. Identify the main issues pertaining to the audit planning of the above case.
This case study reflects the main issues, which needs for the planning of audit involving the outflow and inflow of the stock, outflow, and inflow of the cash. As opined by Maksymov et al. (2017, p.13), the issues pertaining to the planning of the audit basically focuses on the valuation of the available spaces for the office premises in the whole locality with the valuation of the spaces given by the clients. A technique termed as the Hedonic Pricing can serve the purpose as it assists in assessing the aesthetics, pollution level and to close to the cities (Christensen et al. 2016, p.1651). Upon the concrete evaluation of the impact on the environment and on the choices of the people on the office spaces and houses, which include the location of the building, foreseen of the outcome of future, this may be the reason of the present commercial downturn (King and Oracle International Corp, 2014, p.23). Moreover, the auditor is keen in examining the various other attributes, which are also available and provided by the client in opposing to the ones, which the competitors provide them. As per the consideration of a nutshell, the main issue of the audit in the given case study is the importance of the spaces available for the office and in the determination of the prices, which are suitable as because of the high downturn in the market.
b) Web Ltd. had bought new software, which runs extensively to calculate the analysis of the financial management and helps in improving the reporting of the management quality. Identify the main issues pertaining to the audit planning of the above case.
The given case study highlights the major planning of the audit in gauging the software efficiencies. This case study also reflects the robustness of the software and the most possible achievable income of the client by the usage of the software. The auditor here chalks out a plan to find the effectiveness of the cost of maintaining the software, thereby also ensuring the performance of the software, which may not get the freeze during its usage. The innovation and the productivity of the software also help in making a good profit for the company. However, there always contains a risk if the software is not capable enough to impart enough business to the organisation, then the company may suffer good loss for the same. Moreover, in the short run, the software will become useless to the client as well as to the users of the product. Thus, it builds the issue of the effectiveness and the efficiencies of the new software in the near future, which becomes a key issue in the planning of the audit.
c) Beauty Pvt. Ltd. who is a producer of the skincare products and cosmetics had made a new overseas branch outlet for sales. As a result, there is a transfer of all inventories to the new outlet for decreasing the times of lead for the old customers also impart them samples in order to increase the efforts of marketing. Identify the main issues pertaining to the audit planning of the above case.
The execution or the performance stage of an audit highlights the detailed report on the controls of testing, balances and the transactions related to it (Camilleri, 2018, p.126). The given case synopsis highlights the issue of the manufacturer of the beauty products and the cosmetics in the domestic city of Australia, which had opened a new outlet for the selling purpose. The old customers need to get attracted to the products. The company is also aiming to make a large sale by volume from the new outlet. The marketing team will also need to work hard on the same to provide the customer good quality of the services, else there might rise a problem (Grenier, 2017, p.255). Since they sent all the inventories to the new outlet, thus the old outlet will face the deficiency of the same. In order to compensate the deficiency, it will try to improve the sales at the new outlet. Thus, as a result, it might create an issue in planning the audit for the fiscal year. Thus, to accomplish the problems, the stakeholders need to provide funds for the same and also plans and strategies, which aim to increase the sales at the new outlet.
Figure 1: Audit Planning
(Source: Trotman et al. 2015, p.66)
Vroom Ltd., a company that works in the leasing of the car fleet lease and owns cars, which are, linked with the government bodies. The outcomes of the planning of the Vroom Ltd. is chalked out which also includes an assessment at a very preliminary stage of Control Risk (CR), Inherent Risk (IR) and also Detection Risk (DR)
(a) Issues related in deciding to use a test of substantive approach or controls approach
Audit approaches are those techniques, which helps the auditors in performing their assignments. Both the external and internal audit makes the use of these approaches in order to carry out and conduct their audit activities (Bryson, 2018, p.17). However, selecting the right approach of the control risk (CR) of audit is much vital for the Vroom Ltd. as it helps the auditor to get the performance improved which results in much effectiveness and efficiency too. However, there is a significant advantage of the controls approach, which includes the following:
● Examination of the records to support the transactions and the balances
● Physical inspection to observe the assets
● Thorough checking of the calculations
● Obtain confirmation from the various third parties such as customers, banks and suppliers
(b) Relation of Risk assessments in choosing the approach of audit
Detection Risk (DR) is one of the probable mostly used approaches, which beliefs in the concept of reducing the risk of audit, performing fewer tasks as compared to the previous one and thereby meeting all the missions and goals of the organisation (Leventis et al. 2018, p.64). The approach related to Risk is much popular nowadays as it helps the auditor to work on the key areas to reduce the risk of the audit. The approach of audit helps in understanding of the business provided by the client, internal control and based on the environment. Auditors then assess the risks and the misstatement of the materials, which can hardly occur in the financial statements (Trotman et al. 2015, p.69). The identification of the risks helps to progress the same, as a result, the program of the auditors becomes functional in such a way that the resources are able to detect them to work and plan accordingly.
(c) Audit procedures for the adoption of the approach
The procedures involved in choosing the approaches involve the system of financial reporting. The auditors generally do not work on the testing of the internal control of each entity for the financial reporting (Lewis, 2015, p.474). However, they will move to the substantive approach in order to stress on the material or heavy transactions. There also lies an inherent risk (IR), which helps in reducing the auditors’ requirement for the substantive testing, and this can make a good impact in the overall cost linked with the same.
Jim Strong is unable to understand the relationship between auditing and the attributes of Financial Reporting
Explanation of the connection between the accounting information communication and auditing
The connections involved in between the communication of the accounting information and auditing involves the auditing for the verification of the onsite activity including the activities of inspection. Here according to the case synopsis, Jim Strong, the young audit assistant need to ensure the main aim of the audit research and the research on the financial reporting research is to know and understand the quality determinants in the areas of identifying a wide range of the variables to enhance the quality of impairment (Groomer and Murthy, 2018, p.19). The communication related to the information of accounting and the quality of the audit involves the usage of the persons, environment, and task in order to clarify the beforehand findings on each determinant.
This framework helps to draw the connection between the accounting information communication and auditing. However, using the above connection, the identification of the future research opportunities becomes easier to plan and act accordingly. The communication of the Audit Committee assists directly with the impact of the attributes of the committee (Abadie et al. 2015, p.501). Thus, Jim Strong also needs to give enough stress in building a good communication and need to establish a good relationship in between the information pertaining to financial reporting tool and with the auditing. Jim needs to understand the essence of the linking of the financial report to audit.
Maksymov, E., Nelson, M.W. and Kinney Jr, W.R., (2017). Budgeting Audit Time: Effects of Procedure Frame and Perceived Procedure Verifiability, pp.13
Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K., (2016). Understanding audit quality: Insights from audit professionals and investors. Contemporary Accounting Research, 33(4), pp.1648-1684.
King, N., Oracle International Corp, (2014). Audit planning. U.S. Patent 8,712,813, pp.23
Cahan, S.F. and Sun, J., (2015). The effect of audit experience on audit fees and audit quality. Journal of Accounting, auditing & finance, 30(1), pp.78-100.
Trotman, K.T., Bauer, T.D. and Humphreys, K.A., (2015). Group judgment and decision making in auditing: Past and future research. Accounting, Organizations and Society, 47, pp.56-72.
Camilleri, M.A., (2018). Strategic Planning and the Marketing Effectiveness Audit. In Travel Marketing, Tourism Economics and the Airline Product (pp. 117-135). Springer, Cham.
Grenier, J.H., (2017). Encouraging professional skepticism in the industry specialization era. Journal of Business Ethics, 142(2), pp.241-256.
Bryson, J.M., (2018). Strategic planning for public and nonprofit organizations: A guide to strengthening and sustaining organizational achievement. Hoboken: John Wiley & Sons, pp.17
Leventis, S., Dedoulis, E. and Abdelsalam, O., (2018). The impact of religiosity on audit pricing. Journal of Business Ethics, 148(1), pp.53-78.
Lewis, S., (2015). Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice, 16(4), pp.473-475.
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, pp.19
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