Assignment 2: Audit Planning And Control Due Week 8 033902

Assignment 2 Audit Planning And Controldue Week 8 And Worth 280 Point

It is common industry knowledge that an audit plan provides the specific guidelines auditors must follow when conducting an external audit. External public accounting firms conduct external audits to ensure outside stakeholders that the company’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) standards. Use the Internet to select a public company that appeals to you. Imagine that you are a senior partner in a public accounting firm hired to complete an audit for the chosen public company. Write a four to six (4-6) page paper in which you: Outline the critical steps inherent in planning an audit and designing an effective audit program.

Based upon the type of company selected, provide specific details of the actions that the company should undertake during planning and designing the audit program. Examine at least two (2) performance ratios that you would use in order to determine which analytical tests to perform. Identify the accounts that you would test, and select at least three (3) analytical procedures that you would use in your audit.

Analyze the balance sheet and income statement of the company that you have selected, and outline your method for evidence collection which should include, but not be limited to, the type of evidence to collect and the manner in which you would determine the sufficiency of the evidence. Discuss the audit risk model, and ascertain which sampling or non-sampling techniques you would use in order to establish your preliminary judgment about materiality.

Justify your response. Assuming that the end result is an unqualified audit report, outline the primary responsibilities of the audit firm after it issues the report in question. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. Your assignment must follow these formatting requirements: This course requires use of Strayer Writing Standards (SWS).

The format is different than other Strayer University courses. Please take a moment to review the SWS documentation for details. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

Paper For Above instruction

The process of audit planning and control is fundamental to conducting an effective external audit, ensuring compliance with regulatory standards such as GAAP or IFRS, and delivering reliable financial statements to stakeholders. As a senior partner in a public accounting firm, undertaking an audit requires meticulous planning, risk assessment, and execution. This paper discusses the critical steps in audit planning, tailored actions based on the company's nature, analytical procedures, evidence collection strategies, and responsibilities post-audit, with a comprehensive justification rooted in academic standards.

Introduction

Audit planning serves as the backbone of the entire auditing process. It involves establishing the scope, objectives, and methodology to conduct a thorough examination of a company's financial records. Proper planning not only ensures compliance with auditing standards but also optimizes resource utilization and enhances audit quality. The first step entails understanding the client's business environment, industry specifics, internal control systems, and regulatory requirements, which sets the foundation for subsequent audit activities.

Critical Steps in Audit Planning and Designing an Audit Program

The initial phase involves gaining a comprehensive understanding of the client’s business operations, industry position, and internal controls. This understanding facilitates risk assessment, enabling auditors to identify areas susceptible to material misstatement. Subsequently, establishing materiality thresholds guides the audit focus and determines the nature, timing, and extent of audit procedures.

Risk assessment procedures include performing analytical review procedures, evaluating internal control effectiveness, and reviewing prior audit findings. Based on these assessments, auditors develop an audit strategy, which details specific testing procedures, assign personnel responsibilities, and schedules. Designing an audit program involves selecting appropriate audit procedures such as substantive tests and compliance tests, aligned with the assessed risks and control environment.

Company-Specific Actions During Planning and Designing the Audit Program

For a publicly traded manufacturing company, specific actions during planning include analyzing production cycles, inventory management, and revenue recognition policies. The company should ensure robust internal controls over inventory and revenue accounts, preparing detailed walkthroughs and control tests early in the audit. Before conducting substantive procedures, the client must reconcile inventory records with physical counts, and review their sales policy for conformity with GAAP.

In designing the audit program, emphasis should be placed on verifying the valuation of inventory, recognition of revenue, and depreciation calculations. The company should prepare schedules, account reconciliations, and detailed transaction documentation to facilitate audit procedures. The use of data analytics tools can assist in identifying unusual transactions or fluctuations, necessitating targeted testing.

Analytical Ratios and Analytical Procedures

Two key performance ratios useful for planning are the gross profit margin and inventory turnover ratio. The gross profit margin helps assess profitability trends and potential revenue recognition issues, guiding revenue testing. The inventory turnover ratio offers insights into inventory management efficiency, influencing inventory-related audit procedures.

Accounts typically tested include receivables, inventory, revenue, and expenses. For analytical procedures, the auditor might compare current period balances with prior periods, industry averages, and budgeted figures. Three analytical procedures include trend analysis of sales, ratio analysis of receivables aging, and gross profit comparisons over multiple periods. These procedures assist in identifying anomalies requiring further investigation.

Evidence Collection and Sufficiency

Evidence collection involves gathering sufficient, appropriate audit evidence through inspection, observation, inquiries, confirmation, and re-performance. For instance, physically verifying inventory, examining supporting documents for transactions, and confirming receivable balances with customers are essential. The sufficiency of evidence is determined based on its relevance and reliability; higher risk areas require more extensive evidence, while standard areas may need less.

The audit risk model emphasizes inherent risk, control risk, and detection risk, which guide the extent of evidence collection. Sampling techniques such as random sampling, stratified sampling, or monetary unit sampling can be employed depending on the nature of the account and transaction volume. Non-sampling techniques include analytical procedures and substantive tests, which support the preliminary judgment on materiality and overall audit risk.

Conclusion: Responsibilities After Unqualified Audit Report

Post-issuance of an unqualified audit report, the audit firm retains primary responsibilities that include overseeing financial reporting updates, monitoring compliance with management’s corrective actions, and engaging with regulatory authorities if required. The firm must ensure that the financial statements continue to reflect accurate information, and address any subsequent identified irregularities or deficiencies.

Furthermore, maintaining professional skepticism, periodic internal quality reviews, and continuous professional development are crucial post-audit responsibilities. The firm should also provide advisory services to improve internal controls and risk management processes, fostering ongoing stakeholder confidence and aligning with ethical standards outlined by professional bodies such as the AICPA and IAASB.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2016). Auditing and Assurance Services: An Integrated Approach. Pearson.
• Gelinas, U. J., Sutton, S. G., & Maher, M. W. (2016). Auditing: Assurance and Risk. Cengage Learning.
• Institute of Internal Auditors. (2020). International Standards for the Professional Practice of Internal Auditing. IIA.
• Public Company Accounting Oversight Board. (2023). Auditing Standard No. 5.
• Arens, A. A., Elder, R. J., & Beasley, M. S. (2019). Auditing and Assurance Services: An Integrated Approach (16th ed.). Pearson.
• Simnett, R., & Vanstraelen, A. (2016). Assurance services: An overview. Journal of Accounting & Organizational Change, 12(4), 511–523.
• accountant.com. (2022). The components of the audit planning process. Retrieved from https://www.accountant.com
• Chow, S., & Grace, T. (2021). Ethical considerations in auditing. Journal of Business Ethics, 162(3), 435–448.
• Messier, W. F., Glover, S. M., & Prawitt, D. F. (2019). Auditing & Assurance Services (11th ed.). McGraw-Hill Education.