Audit Risk Identification And Reduction For Trunkey Creek Wines Limited

Accounts receivable refers to the money that an enterprise has the right to get as it had delivered the clients with the ordered goods/services. As per the case study, it can be said that accounts receivables (for production of wine) calculated is recorded to be at 6.65, while the accounts receivables figure of the firm  for beef production segment is registered to be 36. On the whole, the requisite number of days of outstanding invoices of customers is reflected by the said numbers (Kokina & Davenport, 2017). Analysis of the figures of accounts receivables ratio reveals that the value for the same has declined for wine, indicating increase in efficiency of the firm. On the other hand, this ratio is said to have increased for the segment of beef, indicating an unfavorable financial situation (signifying that the firm requires higher number of days for collecting the outstanding amount that they need to receive for the purchases made by their clients).

Analysis of the case study reveals the fact that TCW undertakes marketing of their own products on credit terms. Therefore, the credit system attaches substantial risks on disbursements carried out by the clients. In essence, it can be hereby mentioned that there subsists certain amount of risk linked to completeness of the firm (Krahel & Titera, 2015). Fundamentally, this also reflects risks of firms associated to essentially validity. As such, risks associated to particularly completeness indicates that accounts of the business enterprise may perhaps not register and carry out documentation and appropriate recording of firm’s accounts correctly.

Based on results of the case study it can be said that accounts receivables (in terms of days) are increasing for the section of beef production of the corporation. Therefore, the receivables of the firm need to be properly reviewed on a regular basis and need to be discussed with TCW’s management. Also, any kind of allowance particularly for doubtful debt provisions needs to be undertaken without any kind of validation by upper echelons of management (Lisic et al., 2015). Furthermore, the systems of sanctioning of credit to clients also need to be assessed in a proper manner on a regular basis.

On the whole, the efficacies of investment of the business enterprises can be analysed by proper enumeration of total times of interest that is acquired by any specific investment (Louwers et al., 2015). . As per the results presented in the given case study, it can be said that time interest acquired for the firm TCW has decreased from the level 8.1 during the period 2016 to roughly 7.5 during the period 2017.

Fundamentally, it is necessary for sponsors to make payments for investment actions in a planned way in case if the risk levels related to the actions of investment is high (Mala & Chand, 2015). Essentially, the working capital of the firm shall be influenced by the overall risk related to investments carried out.

In particular, it is necessary for assessors to analyze investments undertaken by the firm TCW. It is important for auditors to understand whether the firm is undertaking any kind of unusual investment action that may perhaps have lessened overall interest earned by the company (Simkin et al., 2018). In essence, investments have the need to be assessed by the administration as a specific part of firm’s operations.

The situation in the arena of investment can be analysed by the enumeration of specific ratios that detected total number of times that corporations earn out of the investment actions undertaken by them (Trotman et al., 2015). Based on the results provided in the case study, it can be hereby stated that there is enhancement in return generated particularly on equity for different audited pecuniary assertions. Furthermore, return earned by TCW out of segment of beef production is said to have augmented. In addition to this, return earned out of the segment of wine as well as grapes production is said to have enhanced during the period 2017. 

It can be hereby mentioned that there are risks associated to documentation of property assets of the business concern TCW and difficulties related to asset valuation. In essence, the risks of audit related to property assets also can be associated to specific mechanisms that are utilized for depreciation calculation of the assets (Weirich et al., 2017). Owing to improper process of depreciation charging the amount of depreciation recorded in the financial statements of the firm might be wrong. Particularly, there can be incorrect process of valuation of assets and any incorrect process of registration (Aziz et al., 015). Moreover, there may possibly be wrong calculation of firm’s gains/losses on revaluation of assets. Analysis and asset exploration might perhaps be overstated that again might show the way to wrong representation of data

It is vital on the part of the auditors to undertake analysis of effectiveness and control mechanisms. In this connection, it can be said that depreciation need to be assessed for economic actions along with their consistency (Abbott et al., 2016). Essentially, there is necessity for regular assessment of accounts ledgers along with journals for particularly firm TCW’s property assets. As such, the clientele of the firm need to be enquired regarding any kind of assets that may have been removed. However, for the purpose of ascertainment of subsistence of firm’s property assets, evaluator needs to assess documents of acquirements. 

The marketing expenditure of the business concern can be expressed as a specific percentage of the entire amount of expends enhanced from the level of 15.2 during the period 2016 to approximately 17.9 during the period 2017. Essentially, this enhancement in the overall percentage indicates towards the fact that marketing expends of the firm TCW has risen in the current year as compared to the year ago period. The actions of marketing are essentially dispersed throughout the business concern (Bell et al., 2015).

It can be hereby mentioned that there might perhaps not be sufficient disclosures associated to linked transactions of parties. The data associated to this kind of activities might also be improperly presented for developing situations that can alter stakeholder’s insight.

It is crucial for assessors to undertake thorough analysis of different marketing actions and substantiate their registration in the firm’s files. In essence, there need to critical analysis of different expenditures linked to marketing actions (Boyle et al., 2015).

Effective control

Risk alleviated

Test of control

Computerized system of ordering

This can assist in the process of generation of adequate and at the same time complete records of accounting without missing any data. In essence, there is said to be effectual utilization of password for acquiring accessibility to any particular program (Mala & Chand, 2015).

Assessors have the need to observe the process of preparation as well as presentation of deposits as well as mails by workforces (Simkin et al. 2018). In essence, a specific sample of confrontation needs to be chosen for the purpose of monitoring the process of documentation of receipts as well as deposits that are put to the bank.

Electronic invoice generated from suppliers

Accepting electronic invoice from firm’s suppliers can help in the process of averting risks associated to errors (intentional or unintentional), delayed disbursements and conformity that are common with manual generation of invoice (Trotman et al. 2015).

Sales invoices should be chosen by assessors and the enumeration of these invoices needs to be performed for assessing the accurate recording.

Online endorsement of payment file by accountants and uploading documents to bank

This system can aid in reassuring accuracy and completeness of accounting report and entry validation associated to this kind of records. Firms’ management can help in ensuring that control methods and schemes is effective due to the employment of online platforms for making disbursement. In essence, this can aid in lessening the fraud as well as theft actions on part of employees (Abbott et al., 2016).

There need to be control applications associated to standing data and business transactions pertaining to computerized or else  online system of disbursement (Boyle et al., 2015). The applications of control need to be recorded, registered, ascertained and analyzed by different evaluators so that it can aid in the procedure of determination of risks of material misstatements linked to financial statements (Aziz et al., 2015).

Generation of service order and undertaking automatic transfer to different providers of service

The creation of service order by the system of computer can facilitate timely arrival of requisite receipts of different orders and transferring the same routinely to different providers of service. This can help in averting delays in delivering orders. (Chen et al., 2014).

For assessors to make certain that data input is correct, there is need for digit substantiation by utilizing a procedure of algorithm. In addition to this, the reference codes of specific service order that is created internally need to be formatted in a suitable manner. In essence, upgrading of data files have the need to be carried out in a well timed manner (Chen et al., 2014).  

Limiting disbursements unless inconsistencies are resolved

If the disbursement can be carried out by the firm TCW without examining for any kind of discrepancies, then this can show the way to improbable cash generation that again might perhaps lessen total amount of earnings in cash. Solving inconsistency without making the disbursement can aid in making certain that there is no strange stream of cash and thereby can help in upholding strong and positive association between manager production of firms’ wine and suppliers (Cohen et al., 2017).

It needs to be evaluated by the auditors that there are not any unnecessary payments made on payments made to the suppliers.

Master file control

The master file of suppliers of the firm TCW consists of information associated to specific suppliers with each and every supplier possessing a distinctive code. This kind of master file can aid in the process of ensuring standing data reliability enclosed in the file (Farooq & de Villiers, 2017).

There is necessity for severe security controls to be undertaken by the business concern.  Furthermore, evaluators might consider implementation of control mechanisms for enumeration of totals and register counts. Appropriate processes need to be instituted over the data modification that can consist of limiting power to apposite individual and separation of duties properly ((Farooq & de Villiers, 2017).

In association to purchase account of the firm TCW, it can be said that there can be overstocking in case if the purchase made is not reviewed separately with firm’s stocks against the application of purchase. In this case, there can be false presentation of purchase order if there exists no appropriate accounting system of the series of orders together with the termination orders in incident of no actual incidence of purchase (Carson et al., 2016). 

In actual fact, in the nonexistence of accountant, there exists no second individual who can explain for any discrepancy between delivery and order (Cohen et al., 2017). There is possibility that the accountant might forget to compare between inspection report and receiving records which does not provide guarantee of recording the related items.

There can also be mistakes in accepting invoices namely errors integrating the incorrect stating of price along with posting in ledgers (Farooq & de Villiers, 2017).

There can be incidence of error in trail balance arrangement and preparation and inaccuracy on suppliers in placing the price along with volume of sales.

Weakness

Justification

errors present in the control account

Management accounts might not be engaged in standard comparison of control as well as accounts of credit ledger that can lead to incidence of error (Kokina & Davenport, 2017). Furthermore, there is no assurance that different items associated to accounts payable are accepted, registered.

Material weakness in firm accounts

There are numerous weaknesses in TCW’s account payable and this can be considered to be material. Essentially, this is related to internal control system (Lisic et al., 2015).