Planning and Risk Assessment - Assignment Example

AUDITING Author’s Name Institutional Affiliation Date of submission PART ONE The world in the recent last has been filled with increasing cases of pollution and such similar activities. This has been attributed to the effects of global warming to the climate of the world. In respect to this, there has been an increase in the determination of the causes of the global warming. As such, various parties and stakeholders have sought out to determine the causes of the global warming. The biggest cause according to their empirical study is the greenhouse gases that are released by the companies. Greenhouse gases result to the e destruction of the ozone layer which is the protective layer of the earth’s upper space (Power, 1999). The destruction of the layer results to an increase in the global temperatures due to the lack of covering from the rays of the sun. In respect to this, there has been an increased disclosure as to the various measures that are being put in place by the companies to reduce their greenhouse gases compositions. This is the reason behind the greenhouse gas disclosure. It has become important for the companies to disclose their greenhouse gas emissions and the reductions and treatments to the gases that have been carried out. Sydney which is one of the largest Australian energy companies has in its statements played a major and a crucial role in the greenhouse gas emissions. The voluntary disclosure that it has put in place in its systems sees to it that the company reports the affects of the greenhouse gases that it releases to the environment. The company has on its part voluntarily pointed out some aspects that it will be keen in seeing to it that they will be completed and implemented in the business set up and running. This is through the systems and the controls that it seeks to put in place to aid in the seeing to it that the business is in a manner that is in line with the required framework of operation. Through his, the company seeks at being in line with the global requirements as to the carbon disclosures and also the GHG reporting as is required of it. The disclosure that has been put in place by the company and the factors that it has also implemented include the some aspects. Some of the points that have been pointed out include the commitment to responsible corporate engagement in the climate policy. The company also focuses on the seeing to it that it will report all the climate change information in the mainstream reports. The company has also vowed to stay committed to the adoption of a science based emissions reduction target. Through this, it will be in line with the relevant global standards that have been set as to the GHG emissions protocol. There are more points that the company has also put in place and that it is committed to their implementation. The first of this is the reduction of the short lived climate pollutant emissions. This is in order to see to it that longer lasting control measures are put in place. This will aid the company in the seeing to it that a long term procedure has been adopted and put into full use by the company. This will be for the better of the functioning of the company. The second part that the company is focused on is on the reduction of the commodity driven deforestation from all the supply chains of the company as from the year 2020. Through this, the forest cover in the areas of operation will be protected and well preserved. This will also be for the better of the company and its operations. The company has also vowed to be having a totally responsible corporate engagement in the climate policy. All the above are the measures that have been pointed out that the company intends to seek to implement in its operations (Derek, 2001). They will all aid in the creation of a stable working environment that is aware of the climate change concerns. In this analysis there are two audit assertions that will be crucial in the monitoring of the response of the companies to the GHG emissions and their goals that they have set. They are; a. Occurrence – the transactions that have risen out of the reporting on the greenhouse gas emissions have occurred in the course of the financial period of the companies and that they relate to the company. This is crucial in order to check the response of the company in its reporting and the accuracy of the reports that it puts in place for the operations of the company. b. Completeness – this is concerned with the seeing to it that all the matters that have been pointed out by the company for disclosure have been successfully completed and disclosed. This is therefore involved with the seeing to it that there is complete disclosure in the financial statements of the matters that appertain to the reporting by the companies of the matters around the greenhouse gas emissions and the protocol that should be followed by the companies in the reporting o their effectiveness and the efficiency of the operations. There are several audit procedures that can be used to arrive at the conclusion on the application of the audit assertions. The first procedure that can be used in this is audit sampling. This is concerned with the collection of a representative sample of the financial statements of the company. With the samples in place, it is easy to analyse them for the accuracy of the data that has been used and whether it has any effect of the GHG reporting protocol. The benefits of using samples are that they reduce the overall costs that are incurred in the undertaking of operations o the company (McKenna, 2011). The samples are also representative of the whole population of data. A slight mistake or disagreement in the samples raises a question as to the accuracy and the content of the other financial statements. Question 2 – legal liability of auditors Following the analysis of the financial statements and data, there is failed due care in the audit of Jacqui’s Jaunts. This is in the reporting of the financial statements of the company. It was the duty of the auditor to determine the financial performance of the company before giving a report as to their accuracy. This is therefore a complete failure in the audit. This is because the users of the financial statements and the audit report that having been undertaken and that it has been misleading to them. The auditor is required to be aware of the implications of the decisions and the report that he gives in regards to the collection of the data and also in the interpretation of the implications that the failure will cause to the organization that he reports on. The auditor should therefore retry to his level best to see to it that there is utmost care and accuracy in the data and also in the reports that he gives. This is in order to provide a decision of the financial status of the company. It is therefore the duty of the care to exercise due care in his reporting of the financial statements of a given entity. It is the requirement of the regulatory bodies that the auditors should express a true and a fair view of the financial statements of a given company on a given time. This is following the analysis if the financial statements. The auditors are also required to use due caution especially in companies which have reported cases of financial malpractices in the past. The audit of the company is therefore not undertaken in the professional manner as is required of it. It is therefore a complete failure in the part of the auditor for the lack of exercise of the due care as is required of him by the audit regulatory bodies. Jacqui’s Jaunts on their part are not liable in any way for contributory negligence. This is because contributory negligence arises in the case where the parties know of the effects and on the condition of the financial statements and collude to the seeing to it that there is a misstatement without raising a correction or objection to the auditor in the reporting of in the audit report. The issue of contributory negligence is therefore not applicable to Javqui’s Jaunts in this case. They should on their part ensure that the auditor has a good smooth environment to undertake his audit. The company saw it that this was dines and that the environment was conducive for the auditor to carry out his audit (Ladda, 2008). They should therefore be relieved of any doubts or remarks about their negligence as it is not their duty to report on their position and rather it is the duty of the auditor. The audit does not awe any duty of care in the carrying out of the audit. According to the definition of auditing, it is the expression of an opinion or the condition of the financial statements and the books of a given company (Gilbert and Terry, 2005). Through this, the people are under their discretion as to the accuracy or the reliance that they can place on the audit report that is provided by the auditor. The auditor in the carrying out of the audit and in the giving of his view or opinion on the financial statement condition does not owe any duty of scare to the users of the financial statements and in this case to Choice-Bro limited. QUESTION THREE: PLANNING AND RISK ASSESSMENT There are three ratios that are crucial in the process of an audit process. They are namely the current ratio, the quick ratio and the debt to equity ratio. This is because the ratios are useful in the determination of the processes and the measures that are being used by the businesses in the seeing to it that there is utmost control over the financial statements and in such things as the debts and the liabilities of the company. This is as shown below (Gilbert and Terry, 2005); (a) Ratio Current ratio – this is the ratio of the current statements of the financial position of the company. It shows the operations of the company through comparing the current assets to the current liabilities. Quick ratio – this is indicative of the levels of liquidity of a given company at a given time. It is determined by the formulae below; Cash + marketable securities + accounts receivables / current liabilities. It is equal to the current assets deduct the inventories then divided by the current liabilities. Days in inventory is a measure as to the period of time that the stock stays in the inventory before it so sold (b) Account balance Ratio currently is 1.3. This is higher than the budgeted amount or ratio of 1.2. The amount of the quick ratio increased to 0.81 from the budgeted amount of 0.77 The days in inventory in this case have increased from the budgeted period of 30.4 days to 33.1 days (c) Assertion There has been an increase in the current ratio of the company over the period of time and in the financial year. This can be attributed to various causes. The first cause that can result to an increase in the current ratio is the increase in the current assets of a company. This can also be due to a reduction in the current liabilities of the company. It is indicative of good financial performance of the company in the period of time of the operations. This is indicative of an increase in the cash items of the company. Through the elimination of the items of the inventories the current assets is still strong. This hence means that the assets other than the inventories of the company are strong in comparison to the current liabilities. This therefore translates to the fact that the stocks of the company are slow moving. This through a slow stock turnover rate, the yields of the stock are reduced over the period. High stock turnover rate means that the company is making increased sales in the operations. QUESTION FOUR: INTERNAL CONTROL THERE EXISTS MSEVERAL WEAKNESSES IN THE INTERNAL CONTROLS OF THE COMPANY. They are as pointed out below; 1. The passwords that are in use by the company are outdated. This is because they are easy to guess for the third parties and hence are insecure. 2. The use of the latest price as the price of the latest invoice is a wrongful assumption. This s because the invoice can refer to items sold at a period of time when the prices were very high or very low. It can also be misleading. 3. In the dispatch and receipt of the raw materials, the copies of the receipts that are either received or issued should be in three copies. Not two as is the case of the company. Through the existence of three copies, it will be foolproof. 4. The purchase orders that are generated should have more descriptive details of the product. This is in such things as the description and more information that will aid in the identification. 5. The purchase order that is supplied should be of more than four copies. This will eliminate any bias in the process, as is the case in many organizations. 6. The raw materials that are received should also be in more than four copies and not two as is in the company. 7. The scanning process should not be aborted in the case of a mismatch. This is because the mismatch may be due to other reasons than just disagreement in the items that are contained in the folder. There are several audit tests that are carried out in a given audit in an institution. They include the substantive tests and analysis of the financial statements. The tests can be on the accuracy, reliability and relevance of the items in the general decision-making process of the companies. There are several computer aided audit techniques and tools that are in use in the carrying out of audit tests and especially on the inventories. They include; a. Fraud detection – this is in the detection of frauds in the reporting or in the valuation of the inventories of a given firm. b. Analytical tests – this is to check on the reasonability of the data in the financial statements (ICAEA, 2016). This is through the determination of the actual value and number of the items in the inventories to avoid any misstatements that might be present. c. Data analysis reports – this is one the determination of the amount and the quality of the items on the inventory. This is through the analysis of the value specifications and the content of the data in the financial statements of the given firm. There are several tests that can be undertaken on the financial statements. They include; a. Substantive tests b. Analytical tests References Power, M1999, The Audit Society: Rituals of Verification. Oxford: Oxford University Press "Evolution of auditing" (PDF), New York, David Publishing. Derek, M2001, History of Auditing, The changing audit process from the 19th century till date, London, Rout ledge-Taylor & Francis Group. McKenna, F2011, "Auditors and Audit Reports: Is The Firm's "John Hancock" Enough?”. Forbes. Retrieved 22 July 2011. Ladda, R2008, Basic Concepts of Accounting, Sholapur: Lama Book Publication. Gilbert, W&,Terry J2005,"The Use of Control Self-Assessment by Independent Auditors” London , Rutldge. Amat, O2008, Earnings management and audit adjustments, New York, John Willey & Sons. ICAEA, 2016, "CAATs (Computer Assisted Audit Techniques) Courses", Retrieved on 27th April 2016, from; http://www.iacae.org/English/Training/CAATs_Courses.php Read More