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AUDITING - Essay Example

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AUDITING Name: Course: Professor: University: City and State: Date: Introduction The process of auditing requires an evaluation of the specified items to ensure that the report is aligned with the reality. This essay will attempt to do an audit of rent stock, liabilities and the receivables of Wentworth Brewster limited…
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Download file to see previous pages... The paper will also indicate any recommendation on furthering the audit in case of an audit problem. Finally the paper will outline the actions following the further work done on the audit. Analysis of the Four Items Debtors During interim audit preparation, a list of who owes the company and the total amount they owe is drafted. According to the trial balance dated 31st March 2011, the amount expected from the debtors amounts to 950,000 pounds. During auditing, the expectation is that the schedule of debtors or the accounts receivables should always agree with the figures in the financial statements (Loughran 2010). Audit problems normally arise as a result of not taking into considerations the risks involved when dealing with accounts receivables. The accounts receivables that have been listed may be inaccurate. It is also possible that the receivables may not be existing or may not be collectible. The audit should consider the write offs of the bad debts. The sales transaction should always be processed at the right period to avoid recording of sales due the next period. In this case for instance, Multi gym which is a private company, may be defaulting from paying 95,000 pounds, the reason being the machines they purchased from Wentworth Brewster limited could be used for reasons related to jamming (Montgomery 2009). This therefore, has to be indicated in the bad debts and deducted from the accounts receivables. There debtors have balances at the end of the year that range from 5000 to 20000 pounds. The specific amount of the balances is not specified. This could lead to assumptions that may trigger false figures in the income statements. The schedule for the accounts receivables hold be reviewed so to match with those in the financial statement. Claim for Damages During audit preparation, a schedule should be done relating to the creditors of the firm or those individuals or business that have a claim. The totals in the formulated list should always be equal with the figures in the financial statement. According to the trial balance dated 31st March 2011, the total amount of money claimed for damages is 25000 pounds. This amount should be included in the schedule as amount payable to the individual claiming. However, the draft has not included provision for claims from other customers (Loughran 2010). For instance, the three customers have placed claims against retailers for suffering injuries as a result of vague instructions. For there to be a correct indication of the reality on the grounds, the draft should make a provision for such claims then they will be directed to the company. Stock The trial balance indicated stock amounting to 1.6 million pounds. According to the laid down accounting principles, it is required stock for the previous period to be reported in that period. This therefore presents an audit problem. In order to determine stock for the period, the amount of stock currently being held is subtracted from sales of that period. This resulting figure indicates the stock that has been sold. This is therefore added to the beginning inventory to determine the total stock available for dale. This is where the audit discovers that 0.5 million stock was included in the previously concluded period. Rent Rent when considered as an income should be recorded in the period, it is received and not reported. According to ...Download file to see next pagesRead More
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