Question:
Discuss About The Alternative Products Their Research Costs?
From the case study, it has been analysed that there are different accounts associated with the audit program. This audit mainly includes accounts receivable, current investments, property assets, intangible assets and research as well as development capitalisation. Account receivables are the amount which is received by the companies on delivery of goods or services to the customers. It is important for the companies to monitor their account receivables as decides the credit worthiness of the customers. The current assets which are accounted in the balance sheet of companies are defined by the current investments (Stewart and Shamdasani, 2014). The amount of net worth for the companies is calculated on the basis of present liabilities and assets and is decided by the proper assets. The assets which are not physical by nature are mainly comes under intangible assets. This mainly includes intellectual property like patents, copyrights, business methodologies or trademarks. The activities expenses which are required to improve or create process or products come under research & development capitalisation. It is difficult to analyse the future expenses of assets comes under research & development capitalisation.
Accounts receivable can be analysed using days required for trade receivables. From 2017, it is analysed that company takes too much time to receive its money from the customers that is about 83.07 days while unaudited which is not a good sign for the company. However, company has taken fewer days to receive its amount in year 2016 and 2015 which is about 60.65 days and 53.24 respectively. Current investment is analysed using current ratio. From 2017 (unaudited), data, it is analysed that current ratio of company is about 1.80 which is better that the previous years that is 2015 and 2016 which indicates that company is able to manage its short term obligations but creates issue to manage their working capital (Fung, 2014). Property assets can be analysed using net profit margin ratio. On comparing ratio for all three years, it is analysed that net profit margin for the company has been significantly reduced for the company which indicates that the company is not able to generate estimated sales and has affected its overall profits.
In addition, return on equity ratio has been significantly reduced in 2017 as compared with past two years that is 2015 and 2016. This has comes about 7.19% which indicates that accounts receivable for the company has been decreasing. The company has also observed downfall in its return on total assets as compared with past two years that has also affected the account receivable for the company. It has also been analysed that gross profits has been significantly increased in present year that is 2017 as compared with 2015 and 2015 whereas, net profits has been decreased in the same duration which is not a good sign for the company (Power and Gendron, 2015). The liability of company has also been increased as it has borrowed about $5 million from bankers. It is also analysed from the case study that the tangible property market value for the company has been declined which indicates that company needs not to invest more on property assets as will affect vale for the existed property assets of the company. From the case study, it has been analysed that there are so many possibilities for the audit risk in the present scenario. The errors or invalid values within the financial statements of the company or data misrepresentation by the management may also create lots of audit risk for the auditor. The manager of accounts can also misguide the auditor by increasing the capital for the accounts receivables within the balance sheet in order to indicate more earnings (Zadek et al, 2013). It is also analysed from case study that company has approximately borrowed $5 million from bankers which is represent high value of liability that can be used by the company to impress their auditor by decreasing borrowing amount from the balance sheet and wrongly guide the auditor by hiding true financial position of the company within the marketplace. It has been analysed that property value for the company is reduced in 2017 and in that case if manager tries to enhance property value will surely raise audit risk for the company in terms of property assets.
There are different steps which can be taken in order to reduce overall audit risks for the company by the auditors. This mainly includes,
It is evident that there are more chances for errors within the auditing while done in the manual manner. In order to avoid audit risks, software can be used by the auditors as they are more feasible and reliable than the manual process (Dennis, 2015). Audit software certainly enhances operational efficiency of the auditors as facilitates automatic calculations where auditor is just requires to insert appropriate data and will able to track all the financial transactions happened in the company in more effective manner.
The auditor needs to use the exact value or number during the auditing process. The auditor needs to avoid usage of rounded numbers or figures as will eventually enhance mores chances for audit risks.
The auditor needs to prepare their report on the basis of reports associated with the tax returns made by the companies (Dennis, 2015). This will surely help the auditors to reduce overall risks within the audits.
From the case study, it is analysed that company is prone to several business risks which mainly includes,
It is analysed that the company has conducted research for developing new device for laser surgery in 2016 and for that has borrowed about $5 million from bankers. But in 2017, its one of competitor has developed similar type of device and has also applied for its patent (Barton and Bruder, 2014). This was a huge setback for the company as it will not able to develop that device and will also face huge financial losses as invested huge money in order to develop the device. In addition, the company may also face huge challenge in case bankers will demand for repayment on immediate basis.
It has been analysed from case study that value for property assets of company has been significantly reduced in 2017 which will certainly affect overall business operations of the company for remaining of the year. Due to reduce value for the property, overall revenues for the company will be decreased and that will surely affect overall investments of the company which is a major business risk for any company.
The companies which are performing their business operations with help of other companies are more prone to the strategic risks. Due to this, if desires or preferences of the customers may be changed will surely affect the business efficiency of the companies like GSPA in the present case (William et al, 2016). As the company is indulged in various activities like distribution for the medical equipments, investment within the property market, etc, then there will be more chances for the strategic risks for the business operations.
From the case study, it is analysed that the company is dedicated to develop new infrastructure of IT for its business operations. This step will surely enhance operational efficiency of the company but will create major challenge for the company to accomplish required skilled IT workforce to handle new systems (Knechel and Salterio, 2016). GPSA will not able to control its IT infrastructure with its existed employees and in order to accomplish that target, the company will require adequate IT training for the employees or needs to recruit new employees who are efficient enough to deal with the latest IT systems.
Effective control is the process which assures effectiveness for business operations using internal auditing in order to effectively accomplish business objectives. Financial controller for the company is working towards internal control for business operations by implementation of new policies for control. The staff will be awarded with bonus on achieving their targets as decided by the company and this policy will help to enhance overall efficiency for the company which in result will also enhance profitability for the company (Furnham and Gunter, 2015). The company has also developed new infrastructure for IT system and also able to resolve its implementation problems with effective control system. This new system will help the company to manage their financial data in more accurate manner and also enable them to enhance their production level.
From the case study, it is analysed that company has adopted several polices for controlling the audit risks. GPSA will award bonuses to their employees on achieving their targets as decided by the management. This strategy will surely motivates employee to enhance their performance level which tends to enhance overall sales for the company that will certainly beneficial for overall growth for business operations of the company (Louwers et al, 2015). In addition, the company has also introduced new IT system which surely helps the company to make automated calculations and more feasible financial statements for the company. This control strategy will reduce possibility for manual errors within the financial data and at the same time, also ensure privacy or confidentiality for financial data. This will also provide more accurate and reliable results and enable the management to take more adequate financial decisions.
The audit procedure used by the auditors for testing effectiveness for control policies and also used by clients for detecting or monitoring possible risks is defined as test of control in audits. The company will give bonuses to employees on completion of their targets but this will not make sure that all employees will able to achieve their targets (Beasley, 2015). In addition, IT system developed by the company will not be more reliable or feasible for users in case not able to use it effectively. It will also create more risk for database as company has decided that there will be no requirement for the passwords in order to access or retrieve the data.
Documents are considered as vital factor for the business transactions of the company. The documents need to be accurately arranged or numbers in order to ensure business transactions are accurate or not (Louwers et al, 2015). The accountant will not able to describe sales or trade receivables if documents are not maintained in proper manner.
There is more possibility of errors in case a single person is assigned with several tasks. The data can be recorded multiple times and will raise problems for auditor to effectively describe sales or trade receivables of the company.
This is the key factor which needs to be considered during the internal control for the sales as well as trade receivables (Furnham and Gunter, 2015). It should be mandatory that all cash transactions will not be performed without the approval of managers or top management of the company otherwise create more problems to control sales receivables.
If the company will recruit unethical employee then it will surely hamper overall business performance which will be major challenge for the company (Beasley, 2015). So, company needs to hire employee with immense dedication and have a character to perform as per organizational objectives.
If company will not recruit skilled employee to review different receivables then, it will be a big issue for internal control of trade or sales receivables.
References:
Barton, H. and Bruder, N. (2014) A guide to local environmental auditing.UK: Routledge.
Beasley, M. (2015) Auditing cases: An interactive learning approach. USA: Prentice Hall.
Dennis, I. (2015) Auditing Theory.UK: Routledge.
Fung, S. (2014) Hong Kong Auditing: Economic Theory & Practice. HK: City University of HK Press.
Furnham, A. and Gunter, B. (2015) Corporate Assessment (Routledge Revivals): Auditing a Company’s Personality.UK: Routledge.
Knechel, W. and Salterio, S. (2016) Auditing: Assurance and risk. UK: Taylor & Francis.
Louwers, T., Ramsay, R., Sinason, D., Strawser, J. and Thibodeau, J. (2015) Auditing & assurance services.UK: McGraw-Hill Education.
Power, M. and Gendron, Y. (2015) Qualitative research in auditing: A methodological roadmap. Auditing: A Journal of Practice & Theory, 34(2), pp.147-165.
Stewart, D. and Shamdasani, P. (2014) Focus groups: Theory and practice (Vol. 20).USA: Sage publications.
William Jr, M., Glover, S. and Prawitt, D. (2016) Auditing and assurance services: A systematic approach.UK: McGraw-Hill Education.
Zadek, S., Evans, R. and Pruzan, P. (2013) Building corporate accountability: Emerging practice in social and ethical accounting and auditing.UK: Routledge.
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