Nowadays the corporate world has welcomed the idea of audits. An audit refers to a systematic evaluation of a company’s, organizations’ or business’ accounts, documents, records and books. This evaluation, which is independent, is performed to determine whether the financial statements depict a fair and truthful view of the concern and the books of the accounts are correctly maintained by the concern outlined in accordance with the law (Cummins, Grace, & Phillips, 1999). The individual performing the audit is called an auditor. The auditor evaluates the functions of the company/organisation after obtaining evidence, and the auditor derives an opinion from his judgement, which is then issued to the company being audited as a report. This paper looks into the list of actions that YOUCPA will take in assessing the audit risk in the BakFirn Corporation. The paper will be divided into three parts which comprise of audit assessment steps, audit plan assertions and audit plan evidence.
Audit assessment steps
The initial audit risk of BakFirn is high. This is because there are numerous high-risk indicators, as auditors the levels medium or low risk audit do not qualify (Mock & Wright, 1999). The factors that made me decide this level are as follows: the initial tests of controls that were conducted on cash receipts depicted that there was a lack in procedure following by BakFirn. This reason is strong enough to qualify the initial audit risk as high. The next factor is that Account Receivables are taking a longer time to be collected, this leads to the fact that the company requires to look good to investors this promotes a reason for the manipulation of transactions.
Delegate your assignment to our experts and they will do the rest.
Sales is also another factor, whereby when sales are decreasing and Bakfirm relies on sales as it makes speciality goods meaning that they have targeted a specialty market. Hence their goods cannot be sold in wholesale outlets or cannot be distributed widely, this makes their markets smaller. The fact that their market is smaller depicts that their sales will continue to decline thus it is being described as a high risk audit. The company is taking a long while to collect Account Receivables this depicts that the debt management and credit management are inefficient. This also depicts lack of efficient managing qualities.
Audit Plan Assertions
The components that will be included in the audit plan are as follows; the planned nature, the time and the limit that the risk assessment procedures will take. This component will be included because the auditor is expected to obtain enough evidence that is appropriate enough to raise reasonable doubt on whether the financial statements are free of any material misstatements. The audit plan will also be composed of the planned nature, time and the extent of all the tests and controls that will be applied together with the substantive procedures (Glover, Jiambalvo, & Kennedy, 2000).
The final component is all the other audit procedures that are to be performed. The use of tests and controls will be applied so as to evaluate each aspect of the company; tests will offer a standard that will guide the auditor in obtaining evidence and to figure out whether the financial statements are subjected to material misstatements. The tests will make a difference in the audit procedures as a thorough audit will be performed.
Audit plan evidence
The audit plan will rely on prior evidence; this is because the prior evidence was audits that were carried out by qualified auditors. These audits will provide a base and foundation on what should be done however, these prior audits will not be considered if it is proved that they are wrong and inconsistent. The evidence that the auditor will rely on will arise from observation and analytical procedures (Maletta & Wright, 1996). Observation will come into place when evaluating the already produced fiscal annual financial statements, analytical procedures will come in when using tests and controls this will ensure more specific and accurate evidence. The evidence that would be collected would prove an assertion on the reliance on a financial statement account. This is because the audits are based on financial statements.
Conclusion
In BakFirn, an audit will be conducted by YOUCPA, which will lead to the development in an audit report, which will include audit assessment steps, audit plan assertions and audit plan evidence.
References
Cummins, J. D., Grace, M. F., & Phillips, R. D. (1999). Regulatory solvency prediction in property-liability insurance: Risk-based capital, audit ratios, and cash flow simulation. Journal of Risk and Insurance , 417-458.
Glover, S. M., Jiambalvo, J., & Kennedy, J. (2000). Analytical procedures and audit-planning decisions. Auditing: A Journal of Practice & Theory, 19(2) , 27-45.
Maletta, M., & Wright, A. (1996). Audit evidence planning: An examination of industry error characteristics. Auditing, 15(1) , 71.
Mock, T. J., & Wright, A. M. (1999). Are audit program plans risk-adjusted? Auditing: A Journal of Practice & Theory, 18(1) , 55-74.
