Tesco: Case Study In The Audit Planning Process

Question 3 A) Planning is significant, if a business is targeting an efficient, consistent and 'true ' and 'fair ' audit report. Therefore, in order to participate in the audit planning process an auditor must complete sufficient background research. There are various sources that will provide information that would be valuable.

First of all, financial statements from previous years of Dust&Rolls could be revised in order to understand the financial position of the company; assets, liabilities, income and the expenses stated in former reports. In addition, the published material about the firm also could be useful; the website of the company and articles in financial press could be used to gain in depth knowledge in relation to the

Therefore the objective of an auditor is to minimize that risk to a minimum. The below list represents the audit risks of Dust&Rolls:

1. Risk of material misstatement- The auditors of Dust&Rolls have to verify that all the expenses attributed to the refurbishment are recorded and allocated accurately, since overstatement or understatement may cause loss to the firm. For instance, the Tesco case mentioned above.

2. The cash situation of the business (Inherent risk)- The auditors must consider the solvability of Dust& Roll, since the company has borrowed 1.6 million to fund the refurbishment. If there is any potential risk of insolvency, then that must be addressed to the management.

3. Susceptibility of misappropriation (Inherent risk)- as the current inventory valuation method suggested by the finance director is a close approximation to the cost, the auditor must consider the appropriateness of the suggested method and the probability of any potential

For instance, through introducing a disciplined approach IA can enhance and assess the efficiency of risk management, control and governance processes. The requirement for establishment of IA differs from the requirement for external auditors. However, The UK Corporate Governance code demand all listed companies to obtain an IA department. In order to found an efficient internal audit department, there are several factors that must be considered. Therefore in this text we are going to discuss in brief some of the factors that Dust& Rolls ' finance director must consider prior establishing such department (Millichamp and