Question:
Describe about the concepts, the role and importance of auditing and audit plan in today’s more challenging and competitive business environment?
This research report is designed to understand the concepts, role and importance of auditing and audit plan in today’s more challenging and competitive business environment. In addition to this, this research paper also represents the audit plan for the MTO in an effective and proper manner. Furthermore, this research report also analyzes and evaluates a beginning audit plan assessing interior risk and providing groundwork ruling for discovery risk. In the same way, this report presents auditing standards, laws and rules. On the other hand, this research paper would also analyze and evaluate specific substantive procedures that could be conducted for the WIP inventory. This research was conducted through evaluating secondary sources such as articles, books and online sources. Independent research was considered the auditing standard while perform the audit in appropriate way
Information about the case
On the basis of given case, it is identified and analyzed that, Thomas Smith is a senior accountant with the organizations Delen & Jay. In addition to this, he is also assigned as in charge auditor of Mathra Tool Inc. (MIT) in order to conduct the auditing and to make the plan. Along with this, it should also be noted down that, this company is also the client of auditing company from a very long period of time. Moreover, it is also interpreted that, MIT organizations is fully owned by George Mathra that is an experienced machinist. Apart from this, it is also found that, this business was established by the George before 20 ago. Moreover, the company has an excellent reputation in the market for the highly quality machined parts (Cascarino, 2007). Apart from this, it is also analyzed that, the company also has various clients in the different business sector. For case, the main clients of the company are in the health care as well as automobile business sector.
In the current time, there are several organizations or business firms that create, make and develop audit plan for the fulfillment of accounting and financial objectives in an effective and proper manner. Along with this, it should also be noted down that, audit plan is also the more beneficial, significant and important for the organizations in order to control its expenses and remove its weakness in an effective and significant manner. In the same way, audit plan helps the firms to enhance financial performance in the market effectively (Thomas & Chizek, 2003).
Moreover, audit plan is also ensure the company in reducing a wide range of financial and non-financial risks and issues effectively. For case, audit plan helps the companies and organizations in identifying business dangers, assessing the importance of the dangers, evaluating the probability of their event and choose about activities to address those dangers. Along with this, it should also be noted down that, the company can get a wide range of tangible and intangible benefits with the effective use of audit plan (Whittington & Delaney, 2011). For instance, the management of the company would be able to utilize organizational financial resources effectively to improve the financial performance in the market. In the same way, the company can improve their marketability, market share, profitability, creditability, revenue level etc. In the same way, organizations should support audit plan by implementing the audit plan to improve their financial condition in the market in an effective and significant manner.
In order to design this report, secondary research methodology is used to obtain the needed data and information. For this, articles, websites and text books are used to develop understanding about the importance of auditing in service products.
In order to accomplish this research, various research objectives will be covered during the study. For instance, the main aim of this research paper is to identify the role and importance of audit plan. On the other hand, this research study also deals with various significant objectives as well as issues such as:
Thus, above are a few goals that will be accomplished to fulfill this exploration paper and to create legitimate and dependable results for improving seeing about the part of inspecting.
This research paper would be more beneficial, valuable and effective for the readers, researcher and students. It is because this research paper will help the readers and students in understanding concepts, role and importance of auditing and auditing plan in an effective and proper manner. In addition to this, it is also analyzed that, this research paper would also be more beneficial and comprehensive for the readers in analyzing and understanding various concepts associated with the audit planning, internal risk, and preliminary judgment for detection risk. At the same time, this paper would also helps the readers in understanding the specific substantive procedures that could be conducted for the WIP inventory.
As a senior partner to complete an external audit of the MTI, firstly outlines the critical steps related to audit planning that will help to plan an effective audit program. As an external audit partners primary responsibilities are identifies items that causing the financial statements to be materially misstated, execute or design tests to identify whether misstatements have happened, and test the internal control effectiveness over financial reporting thorough use of financial items (Thomas & Chizek, 2003). The below diagram is shown the audit planning is a three step process that is underlined by the external auditor, audit committee during evaluated the each audit cycle. International Standards on Auditing (ISA) no.300 has characterized three stage of the review arranging process that is depicted in the underneath:
These three steps are said in the below diagram of audit plan.
(Source: Thornton, 2010)
According to the above described the audit process, the senior partner company should undertake performance ratio examine and financial statement analyze actions during planning and designing the audit program. In the audit plan, firstly selects auditors or person those are responsible for conducting audit and measures progress of strategic implement plan of MTI (Homaifar, 2004). The person is responsible for audit planning and developed an annual audit plan for evaluate the success of the strategic implementation plan.
In addition, MTI could have obliged powerful bookkeeping gathering those guarantee that the organization’s income or costs was appropriately recorded and archived. Moreover, the organization could have additionally obliged apply the credit hazard administration and inside control works, so the bookkeeping gathering completely uncover the noteworthy evaluating the organization’s interior shortcoming or danger (Whittington & Delaney, 2011). In the meantime, the administration advisory group is mindful to apply the credit hazard administration capacities for guaranteeing that the organization’s stipend comported with bookkeeping guidelines and rules.
In an internal control framework the organization could have enlisted or employed inspector and the organization paid it. The organization could have concentrated on the Sarbanes-Oxley Act of 2002 and haired interior inspector that individual for the most part included in the organization’s monetary records. The Sarbanes-Oxley Act obliges that the reviewer is autonomy, take their obligations genuinely to figure out the material misquote and don’t delegate to administration (US Securities and Exchange Commission, 2015). The CFO (Chief Financial Officer) could have additionally helped and underpinned the examiner to keep up the inner control framework and helped abstain from being included with this kind of circumstance. In this way, through apply of credit danger administration and inside control capacities and contract autonomy inspector in an inner control framework, the organization could have being dodged this sort of infringement circumstance.
Auditor develops graphical time scheduling is incorporated in audit planning through include the all activities of auditing. Auditors or responsible person will analyze and evaluate of the already existing risks and control risk that are related to internal control. Auditors will evaluate and identify risks that are impacted on the transactions and financial report of the firm. Auditor will evaluate the WIP (work-in-process) inventory that is the large item on the MTI’s balance sheet to evaluate the internal control of the company (Manresa, 2010).
The primary responsibility of the audit team or auditor is to ensure audit’s is done right and with integrity. In the case of end result is an unqualified audit report, the audit team responsibility is to detect fraud or misstated financial reporting or information and after find the issues or fraud report in question in the final audit report (Choudrie & Middleton, 2013). At the same time, the audit team played major role in assessing internal risk and providing preliminary judgment for detecting internal risk.
The sampling technique would use as the assessing the internal control risk model to support the preliminary judgment about materiality. The sampling technique is widely adopted method of auditing because it provides the option for the auditor to get the minimum audit evidence that is appropriate to form valid conclusions on the preliminary judgment materials (Tickner, 2012). This technique is widely used to reduce the internal control risk of over auditing at the audit review stage.
The audit team uses the particular subtractive methods that could be led for the WIP (work-in-process) inventory. Moreover, the auditor will use the audit software to evaluate the WIP inventory level and total sales of the company to assessing the internal weakness and risks of the company (Fox, 2011). The audit software helps the audit team to identify the fraud, error and mistake in the WIP amount or quantity as well as accessing the fraud, error and mistake in the total sales of the particular time period.
On the basis of the specific subtractive procedures, the audit team planned three audit procedures and tasks that is planning, executing, and reporting to carry out in response to the high financial risks or problem areas in these companies. Moreover, MTI’s faced internal control risks, so that the audit team would have firstly identified risks and then planning of auditing. Moreover, planning of audit includes recruitment of auditor, collects importance information, discusses the scope and objectives of the audit with management or auditor, decides audit processes, evaluates existing controls, and planning of the remaining audit steps (Choudrie & Middleton, 2013). In the next process, the audit team would have executing the audit process and then finally reporting audit findings, and recommendations for improvements related to financial or internal control risks or short-term obligation issues on the base of proof collected in the executing process.
In the context of the specific subtractive procedures related to audit plan, each auditor identified the financial risks or short-term obligation issues during the audit processes. On the basis of analytical review on the financial statements (, Balance Sheet, Cash Flow Statement Income Statement) of MIT, the audit team considered the auditor opinion about the risks identified during the audit processes (Manresa, 2010). The main strength of the auditor’s opinion is represented the actual risks or weaknesses of the company. In addition, the auditor’s opinion is also provided or recommended appropriate solution of these risks or issues that would help the MTI’s to improve its internal control process or system.
Identify and underline risks in auditing that account or disclose mistakes in internal controls due to fraud, error and mistake. Moreover, through auditing the full implementation plan, the auditor will able to identify fraud, error and mistake that helps it to adjust plan according risks for achieve objectives of strategic implement plan (Homaifar, 2004). The auditor will be able to identify the fraud, error and mistake in the WIP inventory level and total sales of MTI that helps it to provide preliminary judgment for detection risk.
Moreover, the auditor and audit team members is required to done its job effectively during auditing to complete the security audit at the right time and according to the budget or scheduling. The auditor or members of audit team contributes to implement the audit plan and identify the weak area of the company internal control or internal system that contributes to solve the issues and minimize threats related to security. In addition, the security provider also important stakeholders related to the security audit (Cascarino, 2007). The security provider main job is install security oriented technology devices and provides expert advice of auditor or team members so they are able to effectively conduct security audit. Thus, these stakeholders (CFO, CEO, director, evaluator, review colleagues and security supplier or security master) are played major role in successful conduct audit and internal control or internal system.
Conclusion
On the basis of the above discussion, it can be finally described that a preliminary audit plan would be helped the MTI’s to assess internal control risk and preliminary judgment for detection risk. Moreover, MTI’s could be used the specific subtractive procedure that is planning, executing, and reporting and use the audit software to identify fraud, error or mistake in the WIP inventory. In addition to this, it is also concluded that, in the current time, organization also faces a lot of problems due to its irregular audit process as well as its faulty coding process. Along with this, it is also observed that, the organization should adopt and implement Audit methodology for the effective audit. This methodology would helpful to analysis the accuracy of clinical coding in an effective way. In addition, it is also noted down, that there are a lot of ways as well as guidelines that are helpful to diminish the coding errors and documentation issues in a proper manner. In addition, the organizations should perform internal audit and also develop a programme to improve the documentation techniques and coding of records effectually. Thus, the coding evaluating methodology assumes a basic part in the change of coding accuracy and to remove the errors in an effectual way.
References
Cascarino, R. (2007). Internal Auditing – an Integrated Approach (2nd ed.). SA: Juta and Company Ltd.
Choudrie, J. & Middleton, C. (2013). Management of Broadband Technology and Innovation: Policy, Deployment, and Use. UK: Routledge.
Fox, K.B. (2011). For Everyone: Words and Paintings. USA: BalboaPress.
Homaifar, G. (2004). Managing Global Financial and Foreign Exchange Rate Risk. USA: John Wiley & Sons.
Manresa, M. (2010). How to Open and Operate a Financially Successful Import Export Business. USA: Atlantic Publishing Company.
Thomas, E.M. & Chizek, C. (2003). The Seven-step Process to Risk-based Auditing. The Institute Of Internal Auditors, 2(4).
Thornton, G. (2010). Planning the external audit. Retrieved from: https://www.grantthornton.com/staticfiles/GTCom/Audit/Assurancepublications/Audit%20committee%20guides/ACH-Guides_Planning-External-Audit_WEB.pdf
Tickner, P. (2012). The Successful Frauditor’s Casebook (2nd ed.). UK: John Wiley & Sons.
US Securities and Exchange Commission. (2015). Accounting and Auditing Enforcement Releases Archive: 2013. Retrieved from: https://www.sec.gov/litigation/admin/2013/34-69442.pdf
Whittington, O.R. & Delaney, P.R. (2011). Wiley CPA Exam Review 2012, Auditing and Attestation (9th ed.). USA: John Wiley & Sons.
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