Suppose your firm has assigned a task to conduct Audit of M/S Z & Co. a public limited company for the year 2018 -2019. Draft a qualified report based on assumptions
Answers
Answer:
What may be the possible sources of obtaining information in respect of client’s business for the purpose of preparation of an audit plan?
Possible sources of obtaining information in respect of client’s business include:
Prior year’s working papers.
Predecessor auditor’s working papers.
Articles and memorandum of association.
Minutes of directors and shareholders.
Significant contracts such as loan agreements, leases and labor agreements.
Trade and industry journals relating to client’s industry.
Tour the factory and offices of client.
Discussion of audit matters with internal auditor.
Inquires from management.
Management accounts.
Cash flows, budgets, and other management reports.
Discussions with client’s lawyers.
What is planning memorandum and what information it should contain?
Audit planning memorandum sets out general strategy. It is necessary that not only audit be properly planned, but evidence should also be placed on the file that adequate planning has been carried out.
The form and contents of audit planing memorandum will vary for each client but they would generally include the following matters:
Problems experienced in previous years’ audit.
Client’s use of computer system.
Staffing requirements.
Consideration of use of the work of another auditor
Identification of locations to be examined
Intended audit approach
Agreement on dates to perform test of control.
Assistance to be obtained by the client.
Certificates and letter of representation to be obtained from the client.
Time budgets
Analytical reviews
Knowledge of the business
Accounting and internal control systems
Audit risk
Materiality level
Possibility that the going concern assumption may not be appropriate
Existence of related parties
Involvement of other auditor
Involvement of experts
Number of locations
Effect of new accounting and auditing pronouncements
Accounting policies adopted by the entity
Time tables and dead lines for audit completion
Major systems and organizational changes during the year
Timings for attendance of physical count.
Timings for confirmations of receivable and payable
Arrangements with joint auditors.
List down schedules that you would require the client to repare before starting final audit.
The client should be requested to prepare following schedules before starting the final audit:
Trial balance.
Draft accounts 2.
List of suppliers
Details of accrued expenses with workings
Schedule of fixed assets showing reconciliation of costs and depreciation, beginning and end of period.
Inventory count instructions
Quantitative reconciliation of stock showing opening inventory, purchases, sales and closing inventory
List of obsolete and slow moving inventories
Summary of differences between book and physical inventory and action taken on differences
List of accounts receivable
Computation of prepaid expenses
Accounts receivable age analysis
Basis for allowance for doubtful accounts
Related party balance and transactions with related parties
Bank reconciliation
Month – to – month comparisons: of sales, cost of sales and expenses
Directors’ remuneration
Tax computations.
Explanation:
Answer:
What are some suitable sources for acquiring information about the client's business in order to prepare an audit plan?
Explanation:
Information on a client's business can be obtained from a variety of sources, including:
- Working papers from the previous year.
- Working documents from a previous auditor.
- Articles of Incorporation and Memorandum of Association
- Minutes of board meetings and shareholder meetings.
- Loan agreements, leases, and labour agreements are all important arrangements.
- Journals of commerce and industry relevant to the client's industry.
- Visit the client's plant and offices.
- Internal auditing issues are discussed with the internal auditor.
- Management makes inquiries.
- Accounts of management.
- Cash flows, budgeting, and other management reports are all examples of this.
- Discussions with the client's legal counsel.
What is a planning memorandum, and what should it include?
- The audit planning memo lays out the overall strategy. Not only should the audit be well-planned, but there should also be proof in the file that adequate planning was carried out.
- The format and content of the audit planning memorandum will differ depending on the client, but it will often include the following items:
- Problems encountered in past audits.
- Client's computer system usage.
- Personnel requirements.
- Use of another auditor's work is being considered.
- Identifying the sites to be investigated
- Approach of auditing that is intended
- Dates for the control test must be agreed upon.
- The client will need to seek assistance.
- The customer must provide certificates and a letter of representation.
- Budgets for time
- Analytical evaluations
- Understanding of the industry
- Internal control and accounting systems
- Risk of an audit
- Level of materiality
It's possible that the going concern assumption isn't correct.
- Relationships between parties
- Other auditors' participation
- Expert participation
- Countless sites
- New accounting and auditing pronouncements have an impact.
The entity's accounting policies are as follows:
- Timetables and deadlines for completing audits
- Throughout the year, there have been significant system and organizational changes.
- Attendance at the physical count is scheduled according to the following schedule.
- Confirmation dates for receivables and payables.
- Arrangements have been made with joint auditors.
- Make a list of the schedules that you'd like the client to fix before you start the final audit.
Before beginning the final audit, the client should be asked to prepare the following schedules:
- Balance test.
- Accounts in draught 2. Expenses incurred and their workings
- Fixed asset schedule displaying cost and depreciation reconciliation, as well as the start and end of the period.
- Instructions for inventory counting
- Opening inventory, purchases, sales, and closing inventory are all shown quantitatively in this stock reconciliation.
- Inventory list of outdated and slow-moving items
- A summary of the discrepancies between book and physical inventories, as well as the actions taken to address those issues
- Accounts receivables list
- Expenses that have been paid in advance are calculated.
- Analyze the age of your accounts receivables
- Allowance for dubious accounts based on
- Reconciliation of bank accounts
- Sales, cost of sales, and costs are all compared from month to month.
- Directors' salary is set by the board of directors.
- Calculations of taxes.
#SPJ3