Audit Planning and Control

Critical Steps in the Planning of an Audit and Designing an Effective Audit Program 

Walmart Inc. is headquartered in Bentonville, Arkansas, the United States of America. The company is ranked among the top retailer stores in the United States of America and the rest of the world. Walmart's success over the years has been associated with the company's financial prowess, which has been contributed to by consistent and regular auditing. One of the steps used to audit Walmart is as follows. Firstly, the company is classified into the retail industry to ensure that measures put in place during the auditing process are relevant to the company and its industry. Basic discussions regarding the auditing process are discussed with Walmart as the client of the procedure (Walmart, 2019). The review of the audit documentation follows. The audit documentation is used to develop the required outline of the auditing process. The planning of the audit then takes the next step, which is to inquire on the recent developments at Walmart such as the mergers and acquisitions, which include their economic worth. The next step in planning the audit is to analyze the interim financial statements to determine the financial accounts and transactions that are found to differ from the expectations of the financial performance (Walmart, 2019). Since Walmart is an expansive organization, it hires different personnel to carry out various finance-related tasks. For instance, the company hires personnel to carry out tax preparation. The next step in planning the audit is to consult such personnel who are regarded as non-audit. The next step is to staff the process, which precedes the setting of the timelines, determining the amount of external assistance required and the pronouncements that are made on the accounting principles. In designing an effective audit program, Walmart has to ensure that the above steps are put into consideration. 

Performance Ratios Used to Determine Analytical Tests to Perform 

It is essential for Walmart to identify the various analytical procedures that facilitate the process of auditing. The company makes use of various performance ratios to determine the analytical tests that can be used to perform the auditing process. One of the types of ratios that the company uses is the profitability ratios, which include the return on capital employed and the total assets turnover. The two ratios are used to determine the profitability of the venture against the invested amount and the assets that the company already owns. The other group of ratios that the company uses is the liquidity ratios. Some of the ratios that Walmart uses are the current ratio and quick ratio. Both ratios are used to determine the ability of the company to pay off its liabilities, and especially the short-term ones using its liquid assets. In the process of auditing, the company would need to make use of the following analytical procedures. The first one is the comparison of the days' sales outstanding metric, which is computed as the amount for the years preceding the selected financial year. The relationship between the accounts receivables and the sales made should be constant unless there have been adjustments such as in the customer base or the credit policy. The other procedure is the review of the current ratio over a number of financial reporting periods, such as annually, quarterly or semiannually. The last procedure is the comparison of the ending balances in the compensation expenses account for some years. The amount is expected to rise with the current increase in inflation in the world. 

Method of Evidence Collection 

In the audit planning and control for Walmart, it is crucial to collect auditing evidence. Auditing evidence is referred to as the information collected to review financial transactions and internal control practices. One of the methods that can be used to collect audit evidence in the case of Walmart is inspection (Bragg, 2017). Inspection is used to monitor the varying degrees of reliability of a company's financial documents such as the balance sheets and the income statements. Regarding the balance sheets, inspection can be used to determine the physical assets that Walmart records on its balance sheets. Therefore, the actual inspection of the physical assets ensures that the evidence collected is highly reliable (Bragg, 2017). The other method that will be used to collect the evidence of auditing at Walmart is observation. Observation can be applied to Walmart's application of the procedures and policies that are meant to assure reliable financial information for auditing. Observation can also be applied to the monitoring of Walmart's inventory to justify the information that the company posts on its balance sheet. The other method of collecting auditing evidence that Walmart can make use of is external confirmation (Bragg, 2017). As aforementioned, the planning procedure for auditing involves the auditors reaching out to the third-party personnel to countercheck the reliability of information on the income statements such as taxation. The contacting of the third parties in the prices of auditing ensures that the information collected as evidence is right. 

Audit Risk Model 

In the field of auditing, the audit risk model plays the role of determining the total amount of risk that is connected to an audit and provides a vivid and detailed explanation on how the risk can be managed to avoid interfering with the normal activities of the organization (Askary, Arnaout & Abughazaleh, 2018). Some of the elements of the audit risk model that will be inherent to the determination and minimization of accounting risk at Walmart are as follows. The first one is control risk that is contributed to by the failure of the existing controls or the complete absence of the controls, which leads to the incorrectness of the financial statements. The second element is the detection risk that is contributed to by the auditor failing to find out a material misstatement in the accounting reports provided by a company (Askary, Arnaout & Abughazaleh, 2018). The last element of the audit risk model is the inherent risk, which stems from the omission or error that arises from the other factors apart from the failures regarding control. Some of the non-sampling techniques that can be used in the case of Walmart are analytical procedures and the obtention of the management representations (Askary, Arnaout & Abughazaleh, 2018). The two techniques are relevant to the process of auditing at Walmart. They also contribute to the establishment of the preliminary judgment regarding materiality at the organization. 

Primary Responsibilities of the Audit Firm 

Some of the primary responsibilities of the audit firms are as follows. The first duty is to provide an opinion on financial statements. The external auditors' role does not cover the creation of financial statements as most managers expect in the process of auditing (Palmrose & Kinney Jr, 2018). Instead, the auditors are only tasked with the role of reviewing the statements that the managers have already created. The auditors do so by presenting the assurance to the company that its financial reports are free from errors and misstatements that may lead to issues with the administration. The audit firm thus assumes the role of giving assurance in the case of an unqualified report. The other function of the audit firm is to maintain independence in the attitude and the appearance of the autonomy from the business (Palmrose & Kinney Jr, 2018). The auditors are supposed to be unaffected by the internal factors in their process of auditing to promote the accuracy of the auditing procedure. As such, the audit firms should ensure that nine of their auditors have an interest or joint ventures with Walmart before the process of auditing begins. Such roles of the audit firms promote the accuracy and reliability of the release of an unqualified audit report. 

References 

Askary, S., Arnaout, J. P. M., & Abughazaleh, N. M. (2018). Audit Evidences and Modelling 

Audit Risk using Goal Programming. International Journal of Applied Decision Sciences , 11 (1), 18-35. 

Bragg, S. (2017, September 13). Audit risk model. Retrieved from https://www.accountingtools.com/articles/audit-risk-model.html 

Palmrose, Z. V., & Kinney Jr, W. R. (2018). Auditor and FASB Responsibilities for 

Representing Underlying Economics—What US standards actually say. Accounting Horizons , 32 (3), 83-90. 

Walmart. (2019). Audits . Retrieved from https://corporate.walmart.com/article/audits