offer

Finance Systems and Auditing

Analysis of Finance Systems and Auditing

Introduction to Finance Systems and Auditing

Financial systems and auditing is essential for corporate entities in order to show accuracy and reliability of financial statements published by them in their annual report. Owners and management authorities of companies are different individuals. Due to this aspect, stakeholders cannot rely on the information provided by management and as a consequence external audit is mandatory for corporate entities. Present study is focused on different aspects of audit by considering financial information of Tesco and FA Jet Ltd. In this report, description will be provided regarding business risk and audit planning. On the basis of this description, evaluation of accuracy of financial statements of Tesco and FA Jet Ltd will be made.

TASK 1

1.1 Identification of different components of business risk

Management of companies are required to face various business risks in order to achieve aims and objectives. They are required to mitigate this risk by reducing the uncertainty. By considering operational activities of Tesco, description of different components of business risk are as follows:

A reputable assignment writing service
 

Risk of employee turnover

Human resources are crucial asset of business. Thus, management make their best attempt to retain them. It is because; increase in employee’s turnover will make reduction in efficiency of business and along with this, it will increase the cost of recruitment and training.

Technological risk

Entire operational activities of Tesco are integrated with the technology. Due to this aspect, there is a risk of technological failure in business. This risk has direct impact on the revenue and profitability of the firm. Company is also engaged in online selling; thus failure in IT system may have drastic adverse impact on its working and operations.

Political and regulatory risk

All the business organizations are required to operate in accordance with the regulatory norms. Failure in compliance of these norms can lead to the charge of legal penalties.

Treasury risk

This risk is raised due to poor cash and debt management. It is because; with the decrease in liquidity, there is high risk of financial crisis for business. In addition to this, company have to face risk of fluctuations in foreign exchange risk because they are directly involved in the transactions of import and export.

1.2 Analysis of control systems in place in a business

Effective internal control is essential for all the business organizations in order to assure accuracy and prevention of financial frauds. With the suitable control system, management of Tesco will be ensuring that there is no possibility of material misstatement and books of accounts which contain accurate financial figures. By considering the annual report of Tesco, it can be noticed that company has effective norms and procedure to manage operational activities in an effective manner. For this aspect, management had made segregation of duties to employees in accordance with the efficiency, qualifications and work experience. Further, consistent accounting policies are followed by financial manager in order to avoid conflicts and material manipulations. In regular time intervals, training programs are held by the management in order to assure standard performance of employees. In addition to this, operational policies of Tesco are supported by regulatory provisions in order to ensure fair conduct.

Tesco developed internal audit team in order to undertake a risk based programme. Main objective of this committee is to ensure fair and legal conduct in the business. For this aspect, they had planned activities such as regular assessment of operational activities, surprise visits and reporting. For the further improvement in control system, company is required to incorporate dual control systems in business transaction. With this approach, management can easily identify fraud, errors and other material manipulations. For example, cash accounting and physical maintenance should be allocated to different individuals. In this manner, mismatching of cash balance in accounting records and physical substance has been evidenced. Similar application can be done in material purchase record. For this transaction, accounting should be allocated to accounting manager while management of stock should be allocated to the store manager.

We can help!

We tend to help at every step regarding to Assignment for getting on track...

1.3 Evaluation of risk of fraud within a business suggesting methods for detection

Fraud can be defined as intentional activities by individual for the purpose of deceiving or making loss to other party. Each business entity has to face risk of fraud and is required to make use of suitable methods for the detection. It is because; if frauds are not detected on time then it may have adverse impact on the accuracy of financial statements. By considering the annual report of Tesco, it can be said that major possibility for fraud is in supplier’s activities in misstatement of quotations. Recently, Company was involved in accounting scandal in which it was identified that company recognised excessive revenue. This risk can be reduced by arranging internal audit in timely manner. In addition to this, company can monitor activities of financial manager in order to prevent such manipulations. Another risk of fraud in Tesco is dummy employees. Management of organization is in position to show dummy employees to manipulate payroll records. For the prevention of this risk, organisation should create data base in which information of all the employees is recorded in a proper manner.

TASK 2

2.1 Planning of audit with reference to scope, materiality and risk

Planning procedure of audit is an important task for the auditor because it create roadmap through which aims and objectives can be attained in an effective manner. This process is completed prior to the conduct of audit. In this process of audit planning, auditor determines the area that is required to be focused. On the basis of identified area, potential issues are discovered and audit is completed in an appropriable manner.

Main objective of external audit is to ensure that financial statements of company show true and fair financial position of the company. Further, they also provide remark on materiality of financial information provided in the financial statements of the company. This remark is provided on the basis of frauds and error identified by the auditor while assessment of books of accounts of the company and by making comparison of it with the provisions of accounting standards (GAAS).

Scope of audit

Audit scope can be defined as range of activities and period of accounting records that are subjected to the audit examination. As an auditor of FA Jet Ltd (local Airline company), initial assessment of the financial information is provided by the management in order to determine scope of the audit.

Materiality and Audit risk

Materiality is a measure that estimates accuracy and validity of financial transaction. Further, audit risk is a probability that auditor will not be able to discover errors, manipulations and intentional miscalculations in the books of account of company. Mainly, there are two general categories of risk i.e. risk regarding assessment of financial statements and risk related to the assertions made by evaluation of provided financial materials.

External auditor of company is required to materiality and audit risk because various stakeholders make their decision on basis of provided audit report. As a consequence, auditor carries malpractice insurance for the material misstatements made by the company. Assessment of materiality is inclusive of making professional judgements in order to identify crucial facts and information. In FA Jet Ltd, audit risk and materiality will be considered in following steps of audit:

  • In determination of the nature and extent of risk assessment, procedure that will be conducted at the time of audit.
  • For the assessment of various financial areas in order to identify material misstatements.
  • For evaluation of impact of inaccuracy in financial statements.
  • For providing expression of opinion regarding fairness of published financial statements.

Extent of audit risk in FA Jet Ltd will be determined through nature and characteristics of audit evidence and fraud. Further, this aspect will be supported by the assessment of internal control system and scope of inherent risk. In accordance with the provided information of company, directors are also part of audit committee. Due to this aspect, there are high possibilities of material misstatement in financial data. As a consequence, smaller strata for sampling will be used to make justified opinion. By considering the provided information, it can be said that company had good control system; thus there will be moderate inherent risk.

Contact Us

+971 8000320011
help@instantassignmenthelp.ae

2.2 Identification and use of appropriable audit tests

Description of various audit tests is as follows:

Risk assessment procedures

This test is used by external auditor to understand operational activities of commercial entity. With the applicability of this test, they are able to determine level of control to make decision of audit risk. Audit risk and materiality will be considered at the same time in order to make decisions related to the nature, extent and time for the process of audit. In addition to this, stated factors will also assist in evaluation of the outcome of the audit procedures. It is because; this test is performed to assess the risk of material misstatements in financial statements of the FA Jet Ltd.

Test of controls

Test of control is used by auditor to determine effectiveness of internal control system of the company. In this test, each transaction related the scope of audit will be considered. Main objective of companies for the request of audit is to develop the confidence of investor that provided financial statements by company are accurate. Thus, in order to identify misstatements and frauds in financial statement materiality and risks are considered by auditor in this test. Nature of this test is substantial because it comprises detail analytical procedures. For the applicability of this test, auditor will re-compute financial values on random basis. In addition to this, they will determine accuracy of this transaction by considering audit evidences.

Substantive test of transaction

Substantive test is conducted by auditor to identify clerical and accounting errors that can affect the accuracy of financial statements in an adverse manner. Main objective of this test is to identify whether entire transaction linked to be scope and objective of audit are satisfied or not. For the completion of this test, auditor will verify the accounting records of company by summarizing the ledger books. This test will also be supported by third party evidence in order to assure complete accuracy.

Analytical procedures

In this audit test, comparison of actual values is made with the standard expectations of auditors. This estimation will be made by considering industry report and past performance of the company. Test of analytical procedure is executed at the time of planning process. It is because; main objective of analytical process is to identify misstatements and development of substantive evidence.

Test for details of balances

This test is mainly uses to assess accuracy of balances of ledgers. By considering this aspect, test for details of balances will be focused on accounts to be included in position statement. By the applicability of this test, auditor of FA Jet Ltd will be able to detect monetary errors in books of accounts. Evidence for this test can be developed by considering third party verification.

2.3 Record of audit process in a proper manner

Auditor of corporate entity is not only responsible to provide expression of opinion but along with this, they are also required to record the entire process in an appropriable manner. Further, all the documents and working papers which are part of audit are considered as legal evidence and also referred for future assistance. Obligation of documentation is also described in provisions of ISA 230. Auditor of FA Jet Ltd is required to record audit process through documentation of following aspects:

Documentation

It is primary duty and responsibility of auditor in order to enhance quality of the audit. Documented audit analysis will also assist is developing better outcome while formation of report. Documentation made by auditor is also considered as legal evidence that shows on what basis auditor had provided their opinion. Work of documentation by auditor is required to be supported by provisions of ISA.

Working paper

It can be defined as leaflets on which audit team make working regarding calculation or stated information linked to the audit. On this basis of this working, they assess the quality and reliability of financial statements provided by the company. There is no standard procedure for the formation or recording of the working paper. Auditor is free to make working papers as per their own convenience. In addition to this, they have legal ownership and possession of those working paper. Due to this aspect, it is their choice to provide these working papers to the company or not.

We can help!

View Some Assignment Samples

 

Communication

Auditor is required to record the communication conducted between them and company. For this aspect, they must file important letter and instructions provided by the company. In addition to this, communication records should be maintained in chronological order to prevent possibility of conflicts or contradiction.

Final report

On the basis of the above described documents, final report is prepared by the auditor which is signed by them. Auditor is required to complete procedure of auditor in standard time frame without making unreasonable delay. For this aspect, guidelines were issued by ISQC. Completion of final audit file is an administrative work and for this no additional activities are required to be done. However, in situation, where there is required significant information to be added in audit file then following procedure is used by auditor:

  • Collating, sorting and cross referencing of working papers in audit file.
  • Removal of superseded documentation included in previous audit file.
  • Documentation of audit evidence attained regarding record of material information.

In any situation, auditor does not have authority to discard or diminish audit documents and evidence after its final submission. However, in situation where modification is necessary, then auditor is required to justify following factors:

  • Reason due to which modification is done.
  • Party affected by the modification.
  • Impact on modification on the final conclusion given by auditor in the audit file.

In this manner, procedure of audit record will be accomplished by the auditor of FA Jet Ltd.

Conclusion

In accordance with the present study, conclusion can be drawn that company should have an effective control system to manage business risk in proper manner. For this aspect, management of companies are required to monitor the business activities and to modify strategies as per the requirements of business. In order to provide conclusive opinion, auditor is required to plan business activities in a proper manner. For this aspect, they are required to consider scope, materiality and risk. It is legal and ethical obligation to record entire process in suitable manner as their works is referred as legal evidence in the future course of action.

References

  • Adams, C. A., 2002. Internal organisational factors influencing corporate social and ethical reporting: Beyond current theorising. Accounting, Auditing & Accountability Journal.
  • Chapman, C. S. and Kihn, L. A., 2009. Information system integration, enabling control and performance. Accounting, organizations and society.
  • Clatworthy, M. A., 2013. The impact of voluntary audit and governance characteristics on accounting errors in private companies. Journal of Accounting and Public Policy.
  • Feroz, E. H., Park, K. J. and Pastena, V., 2008. The financial and market effects of the SEC's accounting and auditing enforcement releases. Journal of Accounting Research.
  • Lambert, R., Leuz, C. and Verrecchia, R. E., 2007. Accounting information, disclosure, and the cost of capital. Journal of accounting research.
 

Call Us for Live Assistance

It’s time to turn to our experts for assignment writing service.

Live Chat Order Now
Catch the Biggest Deal Ever - Get your Assignment at the Lowest Price. Avail upto 50% OFF! Book Now
Toll Free AE:+971 8000320011
To The Top!
No matter where you’re from, your dream of top grades will be achieved here!
Skip To Mobile Website
ASSIGNMENT HELP

Best Quality Writing Services by Expert Writers to Ensure Academic Success.

app discount
Download The App
Exciting Deals & offers on our AppInstall Now