Audit Planning and Control

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AuditPlanning and Control

AuditPlanning and Control

Auditplanning describes the scope and how an assessment can be conducted.On the other hand, audit program explains the nature, time, anddegree of procedures for the planned review while implementing theoverall process.

Criticalsteps in planning an audit

Mypublic accounting company of interest is the Ernst &amp Young. It isan international company with its headquarters in London. The serviceit offers to the clients involves auditing and assurance, taxservices, consulting, and advisory help to companies across theglobe. On the other hand, the public company of my choice is EXXONMobil Corporation (XOM). It is an American company that deals withoil and gas, and it is headquartered in Texas.

Thefirst step is accepting the customer and performance of the initialaudit planning (Whittington and Pany, 2013). In this step, XOM willgive a reason as to why they need an auditor and I will inquire fromthe present one if such acquisition has been made in an appropriatemanner. We will then develop the terms of engagement. Secondly, theauditor will have to understand the business of the client and theindustry he is operating in. The company will bestow the prospectusand its internal controls to enable me to understand it as well asits environment. Thirdly, the auditor will assess the risk thebusiness is associated with. The company will give evidence on how ithas attained its objectives and the possible factors that posed asbarriers in the process. XOM will avail the financial statements sothat I can examine the presence of material misstatements risk. Inthe fourth step, the preliminary analytical procedures will have tobe developed. The company will have to give out the performanceratios among others which I will compare with those of the industryat large. The company will also avail figures for the previous years.Fifthly, the materiality findings will be set aside after which theacceptable and inherent risk will be determined. The firm will issueall the financial statements of the current accounting year. In thesixth step, the auditor will work towards understanding the internalcontrols of the client as well as assessing his control risk. XOMwill allow me to examine their internal controls without interruptionwith an aim of assessing the control risk. The seventh step willinclude collecting the information that will help assess the fraudrisk. Having granted the financial statements, I may go a step aheadand interrogate some members of the audit company as well as otheremployees face to face nevertheless, I will rely on documentedevidence. Lastly, the auditor will come up with the overall auditplan and program to accomplish the reviewing process of the client.This is an opinion, and so I may not require any document orclarification from XOM.

Performanceratios and analytical tests

Theperformance ratios that I can use include the debtor days that canmeasure how efficient the firm is in collecting the debts from thecustomers who they offered services to in credit. This will enable meto conclude if the method used is appropriate in collecting the debtsor an improvement is required. Secondly, the creditor days are alsoapplicable in cases where the company needs to pay the suppliers.They need to be paid within the shortest time possible so that theywould continue providing their services to the company. In this case,the type of tests to be carried out is the substantive ones becausethey are derived from the financial reports and they are meant todetect the material misstatements. The balance sheet in particularwill be of great importance as all the accounts to use are part ofits elements.

Thereare two accounts in this case that I will concentrate on. Inparticular, I will look at the debtors and creditors account.Similarly, some procedures are applicable in this case. First is thepreliminary analytical review that majorly focuses on the riskassessment. This process enables the auditor to understand thebusiness and the environment it is operating in so that assessing thematerial misstatement is easy. Secondly, the substantive analyticalprocedures are used when there is a belief that the risk of materialmisstatements can be kept at very low levels. Lastly, finalanalytical reviews can be taken on the financial statements inoverall to test if they are in order to the understanding of theauditor.

Analysisof the balance sheet and income statement

Afteranalyzing the balance sheet and the income statement of ExxonMobilCompany, I realized that there are accounts payable and accountsreceivable which will substantially contribute to my part of interest(ExxonMobil, 2016). There are circumstances where the company issuedits goods in credit, and the customers had not paid as at the date ofpreparation of these financial reports. This is where the accountsreceivable will be applicable. On the other hand, some suppliersoffered their services to the company in credit, and ExxonMobil hadnot paid by the end of the accounting year. This will comprise of theaccounts payable by the firm. The creditors are part of theliabilities whereas the receivables are on the assets side. Themethod I will use to collect evidence is the inspection. In thismethod, I will examine the source documents, both in paper andelectronic form. The reports will provide both direct and indirectevidence. The types of fact I will seek to collect from thisdocuments include confirming whether the recorded figures match thesource documents or not. The documented evidence will be veryappropriate compared to testimonial ones. Before I make conclusions,I will ensure that the audit data is sufficient. I will takeadvantage of the persuasive audit evidence rather than the conclusiveone (ACCA, 2015). The level of proof I will collect should enable meto make compelling information concerning the accounts I willexamine.

Auditrisk model

Anassessment risk arises when an auditor gives an inappropriate opinionconcerning the financial statements of a particular company. Thecomponents of audit risk model include the inherent, control, anddetection risk. For the production of promising results, the threeelements should be considered in relation to one another. One type ofthe model should never be relied upon in making justified decisionsas the outcome might mislead the auditor. Each component of the riskshould be weighed if they are to be assessed, and how they areassociated with one another. In cases where control and inherentrisks are high, the detection risk has to be kept at low levels forthe review uncertainty to be accepted. Keeping the detectionuncertainty at low levels depends on the sample size that is used inthe auditing process. Similarly, detection risk should be maintainedat high levels if the auditor believes that the inherent and controlrisks should be very subtle. I will use the sampling techniquespecifically, the random sampling method so that each item of theaccounts has an equal chance of being selected. Though I will notexamine all the items in each of the two accounts, I will randomlypick them without following any particular format.

Responsibilitiesof the auditing firm

Unqualifiedreport means that after the auditor had examined the financialstatements of a given company, he found out that they fairlyrepresent its financial position and performance as well asconforming to the GAAPs. The third parties can, therefore, use thestatements to make decisions concerning that company.

Inthis case, the auditing firm has the responsibility to write a reportthat gives surety to the users on the matters discovered in thefinancial statements. The company should also confirm that thechanges in accounting policies were appropriately and adequatelyapplied. It should also assure the users that the report does notindicate that the company under consideration is in a stablecondition financially, but the opinion is based on the transparencyof the financial statements. The report should then be publishedwhere the public has access to and giving the additional notesconcerning the use of the opinion provided by its auditors.

References

ACCA.(2015). AuditEvidence and Specific Considerations for Certain Items,Retrieved fromhttp://www.accaglobal.com/us/en/discover/cpd-articles/audit-assurance/specific-considerations.html#mainContenton August 13, 2015.

ExxonMobil.(2016). FinancialStatements and Supplemental Information,Retrieved fromhttp://cdn.exxonmobil.com/~/media/global/files/investor-reports/2016/2015_Financial_Statements.pdfon August 13, 2016.

Whittington,R &amp Pany, K. (2013). Principlesof Auditing and Other Assurance Services: 19thEdition.McGraw-Hill Higher Education Publishers.

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