EarthWear Clothiers is a manufacturer and retailer of high-quality outdoor sports apparel especially water sports like hiking. Over its years of operation, it has grown to manufacture and retail casual wear, accessories, shoes, and luggage. The company operates in a catalog, retail outlets and online. This essay provides an analysis of the audit opinion by Willis & Adams to create traceability to the audit evidence.
Audit Opinion Analysis
The audit opinion is unqualified statement that the financial reports for years ending 31 st December 2015 and 2014 of the firm are fairly represented and they are prepared in accordance with the U.S. generally accepted accounting principles. There are three major audit risks that can affect the materiality of financial reports; inherent risk, control risk and detection risk (Ozcan, 2016) . According to the internal control report, the firm has effective internal control over its financial reporting. This is evidence that the financial reports of the company are not affected by control risks which may deter the materiality of its financial statements. This evidence traces the accuracy of the audit opinion on EarthWear’s financial reports.
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According to the management discussion and analysis, the financial performance of the company is well explained – the trend and the reason for such trend. For instance, selling, general and administrative expenses increased by 9% in 2015 while the same as a percentage of sales decreased due to lower catalog costs in 2015. This information traces evidence that was used to generate the audit opinion. It is easy for the auditors to analyze such information and determine the inherent risk.
Conclusion
Based on the audit evidence, it is accurate to concur with the audit opinion by Willis and Adams. The audit risks that may affect EarthWear are traceable in the audit evidence hence the audit opinion is accurate and reliable
References
Ozcan, A. (2016). Determining Factors Affecting Audit Opinion: Evidence from Turkey. International Journal of Accounting and Financial Reporting, 6 (2), 45-62.
