Audit Case Study Analyses
Generally, the procedures and the programs are tailored to meet the risks and internal control mechanisms as established by the firm. As such, no particular program is suitable for all firms since different firms face different risks and have different internal control measures. This paper covers three case study analyses, an outline for audit, outline of the evidence to gather and the importance of each type of evidence and lastly issues of materiality and how these issues should be reported, analyzed and acted upon. Case Study 1 The impetus of audit procedures is derived from thorough understanding of design and effectiveness of internal controls. Usually, audit outline is documented in a memorandum which addresses various activities and the issues associated with them (Chan & Vasarhelyi, 2011).
You may also have need to ask for recent developments e. g. mergers and introduction of new product lines. The issue here is identifying source of differences in the current audit as compared to the previous ones. Interim financial statements The procedures here include analyzing so as to identify the transactions and the accounts which differ from expectations contingent on such factors as budgets or prior periods. The issue here is to effectively utilize time and avoid unnecessary movements. Case study 2 For GX Company, audit evidence is available from a variety of different sources such as test of controls, procedures to obtain an understanding of the client’s business as well as the internal controls, substantive testing of transactions or the test of details of account balances, analytical procedures (Lobo & Zhao, 2013).
The extent to which an auditor relies on rest sources of evidence will depend on the understanding of the client’s business. To this end therefore, some of the evidence to gather while auditing GX Company include Ending inventory This evidence is important for verification of the account balances at the end of the year. It could also be used to compute costs of inventory, sales as well as the beginning inventory in order to verify the balances presented in the company financial statement. machinery, vehicles. This can also be achieved through document vouching and tracing as well as physical examination. Fixed assets listed in the GX statement of financial position must be confirmed and tested whether they are working or not.
Internal control evidence The evidence of the activities involved in internal control is significant for the audit assignment as it helps to establish the extent of the audit procedures. The activities can be used to judge whether GX has weak control systems or strong systems and thus conduct appropriate audit procedures on the Company. Case Study 3 Materiality refers to the influence the omission or the misstatement information has on economic decisions of users which are taken purely on the basis of financial statements or reports (Houghton, Jubb, & Kend, 2011). Generally, materiality is contingent on the size of the item or error judged in circumstances of its omission or misstatement. It is provides a cutoff point or rather threshold and not a primary qualitative measure.
Materiality concept with respect to the GX Company the issues of materiality include the following Materiality Level To carry out the audit engagement for GX Company, the level of materiality must be decided for proper design of the audit plan. This will help to obtain reasonable assurance that any error of relevant size or nature will be identified by the audit tests. In this regard, the items reported in financial statements should be in monetary terms. Nature of the Item This is a quantitative characteristic. As an auditor, there are certain items which can be quantified even though the dollar amount may not be large as an auditor may consider. For instance, political bribe may be appears to be immaterial in size but may nevertheless be quite sensitive and impact financial statements which users rely upon for decision making.
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