There Are Factors Of Audit Which Comes Into Consideration Accounting Essay

Audit planning is needed because it is scheme that is used before scrutinizing a house. there are factors of audit which comes into consideration such as materiality, the low and high hazard and the span of an audit. Assessment of hazards and materiality must be carried out by the hearer before get downing the audit. Here the hearers use the audit hazard theoretical account to measure the hazards and to, based on those hazards, assess the degree of materiality. The more they know about the concern hazards, the better they can measure the hazard of stuff misstatements. Before the audit hazard appraisal processs, planned audit processs and a description of other audit processs should be included. ( Eilifsen et al, 2009, p 151-152 )

The likeliness of non-compliance Acts of the Apostless has to be measured. This concerns all sort of Acts of the Apostless, intended or non, where the client International Relations and Security Network & A ; acirc ; ˆ™t in conformity with the Torahs and convention. The chief things to see for the hearer are fraud and other Acts of the Apostless which straight affects the fiscal statement. But the hearer besides has to be attentive of Acts of the Apostless which merely have an consequence on the fiscal statement finally. ( Ibid ) hypertext transfer protocol: // ( accessed 13/03/11 )

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Limited companies and partnerships every bit good as public sector are required by jurisprudence to hold an hearer, but the exclusive bargainers are optional. The importance of audit procedure is that it benefits companies in many ways. for illustration, the long term benefits of audit include confidence for direction and the board of managers that the accounting controls and procedures used are effectual. Audit gives assurance to investors, regulators and the populace that the fiscal informations and representations in the statements are, in the hearers ‘ sentiment, true and non misdirecting. besides a true and just position of statements increases the portion monetary values to travel up.

The audit hazard theoretical account is relevant for scrutinizing ‘TuttiFruity Ltd ‘ , because this is a tool for hearers to be able to put to death their program as proposed, besides it contains three constituents and audit hazard is a map of three hazards:

Built-in Risk ( IR ) – the hazard of material misstatement, absent without any internal controls or any testing.

Control Risk ( CR ) – this is the hazard that the clients company ‘s internal controls will non make anything to forestall, observe or rectify any possible hereafter or current misstatement.

( IR x CR = RMM ) this consequences in the hazard of material misstatement.

Detection Risk ( DR ) – this is where the hearer will non place any materiality in the statements. the hazard is affected by the planning procedure of the audit and their aims.

The hearer wo n’t be able to take control of these hazards which are mentioned because these are a map of, for case the houses environment, efficiency etc. the hazard that they can command is the sensing hazard because there they will prove the statements for any material fraud.

The characteristics of Internal Audit is to be independent of other sections, besides have a separate line directors, and to describe to the audit commission. their aims is to reexamine control systems, reexamine the accounting and internal, analyze the fiscal statements, reappraisal on how unafraid their plus is and reexamine any clime alteration in the economic system, the efficiency and effectivity.

Based on the instance of TruityFruity Ltd, the hazards that I have mentioned is to be taken into consideration and assessed carefully because based on what I know, I realise that their house does non hold a strong internal control, but they merely have one member of staff who is qualified by experience. the negativeness of this is that when that one person is off ill so there is no eventuality in topographic point, hence there will non be any internal control for a fixed term.

3. If there were strong internal controls in the house so it would give an advantage to external audit as it can cut down the sum of work they do by holding internal audit.

The company generates gross by providing a national supermarket concatenation with its merchandise through its distribution Centre but retails its ain sale locally. The sale is via a fleet of ice pick new waves and they supply to local stores on a hard currency and carry footing. From the Case Study, the undermentioned jobs are identified:

Risk Area

Hazard Factor

Audited account Activity

How is ice pick being imported?

Because this might hold hazard in peculiarly associating wellness issues. the goods must be checked if it ‘s out of day of the month or in good status.

The attack needed for this factor is to guarantee that the stock is protected at all times, security steps must be in topographic point with eventuality program, i.e. excess icebox in the new wave.

Driver roll uping hard currency from local stores on a hard currency bill.

Cash can be stolen and non much secure as recognition sale.

New control needed, i.e. a system having the order and the sum foremost before despatching the goods. this can avoid any loss of stock if the iceboxs are down.

Each driver entering sale which updates the stock balance on the new wave and measure sold.

Not all drivers might input these gross revenues accurately and will give a negative impact on the balance. besides non all drivers may non bank at the same clip.

To forestall this go oning a more truth system is needed like gross revenues ledger history. besides to guarantee the safety of the stock, a camera might be ideal to be in topographic point in the new wave.

Stock degrees are maintained on a computerised system.

Computer can misfunction and will give a negative result of the concern.

Therefore computing machine is needed every bit good as internal controls of running stock. i.e. FIFO, LIFO, AVCO. stock demands to be counted physically every bit good as computerised because these things dislocation and cause impact.

The stock that was damaged and made un-saleable.

As reported that the driver is responsible for the stock loss because the driver should ‘ve reported it immediately. besides the stock could ‘ve been written off wrongfully and sold by the drivers make money of their ain.

A temperature gage should be installed in the drivers van, besides seeable to the driver so that he is cognizant of any dislocations of the iceboxs. Drivers with confidentiality, unity are needed so that they pattern.

Risk Area

Hazard Factor

Audited account Activity

The hazard is that the employees assess their ain timesheets, vacation, and sickness returns. besides they are paid in hard currency every hebdomad.

The factor is that it is non accurate whether or non these records are being recorded accurately. besides it is non being reported to the forces section invariably, because the forces section is responsible for employees rights and issues. hazard is that the employees could be involved in false accounting without cheques.

It is extremely recommended that all employees must be paid in BAC ‘S. this is because of the statements demoing true and just. it is of import to transport out a starting motors and departers test because if I find any jobs, I will discourse them with the company ‘s direction. If I detect a fraud, this will necessitate farther probe. Therefore a stronger personnel section must be in topographic point to sporadically look into the rewards, illness, vacation, hours worked of employees.

The clerk that has dealt with the processing has been in the same station for 15 old ages and knows all the drivers by their first names and socialise with them on a regular basis.

Hazard is that the driver must non be near to the clerk that is making their procedure of payments. because this affects the objectiveness as you must be independent of a house. besides being friends to them is non a good thought, work is a professional topographic point and everyone must be treated as professionals and basic rights are met.

In order to forestall this occurrence, a new clerk must be hired and to move upon his professional moralss, i.e. unity, objectiveness so that all employees are treated as employees and non friends.

No drivers have been dismissed by the company.

The hazard factor of this is that since the drivers assess their ain timesheets and hours etc. this can non be a true statement, because it is n’t checked.

Therefore it is of import to reexamine the drivers function and see if their public presentation are met which is required by the house. if non they must be dismissed.

Fixed wage, other personal information

This is hazard because if they are non decently checked so the employees might acquire paid excessively small or excessively much. it is of import to look into for the right employee, this can be done by look intoing DOB, , bank inside informations, reference and exposure ID.

Distributing pay around the house to all employees is an of import portion, this must be improved by guaranting the employees are working harmonizing to their contract with the house.

Based on the instance study the undermentioned controls must be in order to eliminate hazard. this control is used chiefly by internal hearers. it is known as SOAPSPAM. these are defined as:

Segregation of responsibilities

hypertext transfer protocol: // people raising a gross revenues bill and entering the reception of financess

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hypertext transfer protocol: // people a occupation description and guaranting they know what they should be making

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hypertext transfer protocol: // require an authorized signer to be approved

hypertext transfer protocol: //

hypertext transfer protocol: // locked safe to hive away hard currency before being banked

hypertext transfer protocol: //

hypertext transfer protocol: // superior to reexamine work and guarantee quality and completeness

hypertext transfer protocol: //

hypertext transfer protocol: // staff on a regular basis to guarantee public presentation is satisfactory

hypertext transfer protocol: // and numbering

hypertext transfer protocol: // bank rapprochement that balances

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hypertext transfer protocol: // hierarchy of duty to guarantee persons and administrations are accountable

hypertext transfer protocol: // ( accessed on 13/03/11 )

Once these are in topographic point as you can see from the audit hazard involved in the instance. these are the solutions for it. Hazard controls are needed where there are hazards. Hazard can either be detected prevented, or corrected, rectification of informations backup. The beginnings of menaces come from the environment that the company operates in, these beginnings include:

Organizational Structure

Employees values ( honest )

Employees abilities ( competency )

company ‘s process and systems.

The company ‘s internal audit should make trials wish conformity trial i.e. look into new histories and recognition bounds authorised, besides look into numerical sequence of purchase orders. besides transporting out trial like substantial trial corroborating balance with hard currency book and bank ; and analyze original bills.

In May 2011, the turnover seems low because the dislocations of the new waves and loss of stock could be the cause. However there are no computerised or physical grounds such as bill of new stock purchased that will be plenty to province why the net income or sale is low. The direction comptrollers are qualified and will make good budgets to foretell the result of the old ages turnover. the intuition is that the driver might be involved in larceny, as the gross revenues were merely low in the new wave gross revenues. The cause of this is that there were no security measures in topographic point to track each sale, the drivers were independent. However on a province degree the ice pick gross revenues could be down due to the either because the ice pick is merely busy during summer, so its seasonal.


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