Accounting Case Study

1.1 The primary role of an auditor is to review Financial Statements. Auditors draw samples from businesses and make a fair review for the third parties. They view weaknesses in system controls and present a Management Report.

1.2 An internal auditor works for a business and receives a salary from the business. The internal auditor’s main role is to make sure that policies are carried through properly and that internal control measures are working. An external audit is done once a year and is done by an auditor that is independent from the business.

1.3 There are multiple different businesses and therefore they have different main areas that need to be audited. A risk assessment is done on businesses with a big stock area. The four main areas that are audited are cyber security, banking, manufacturing and retail.

1.4 The discovery of inaccurate information or procedures that are not carried out by the business is put in the audit and management report. The management is made aware of material misstatement. In the case of fraud, the URBA follows up with the business. There is a fine line between fraud and material misstatement. It is an error when the bookkeeper tries to fix it.

1.5 Inspection of the bank balance and statements from creditors

Bank reconciliations – these get redone

Management representations

Minutes of meetings – board

Physical observations or inspection of assets (such as inventory or property)

Ratio calculations – correct or incorrect

Analytics – comparison between the last 5 years as well as re-calculating figures

1.6 This is based on professional judgement. Sufficient audit evidence must be obtained by the auditor to reduce audit risk to an acceptable low level. Appropriateness (quality of audit evidence...

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...2% of stock to be lost or stolen. Sales people are not able to change selling prices on the computer system. No discount is given to employees.

Recommendations

Stock takes and orders are done by sales assistant/manager. This could lead to problems because there is no separation of duties and therefore could result in theft. It is advised that the stock takes are done by someone other than the sales assistant. There is some old stock lying around. This gets disposed of in a proper manner by either being returned to suppliers or getting thrown away. I would advise that this gets done every 2 weeks to avoid a lot of old stock lying around. The old stock is located in the storeroom which many employees have access to and therefore it can result in this stock being taken. We would advise that these items be placed in a safer area where limited employees have access to.