Audit Planning And Control Report For Trunkey Creek Wines Limited

Account

Analysis

Audit Risk

Audit Steps to reduce risks

Accounts Receivable

The number of days of collection of debts has increased substantially in the year 2018 in comparison to the year 2017 and year 2018.

The bad debts or uncollectible debts can show a false impression of the company’s performance. The aging of debtors can be misled by the company as well.

The aging register of the debtors should be verified by the auditors.

The bad debts should be cross-checked with the allowances for bad debts as approved by the management.

It should be ensured by the auditors that the debtors’ ledgers are checked with the debtor confirmation statements.

The auditor should also verify the collection letters issued to the debtors by the company to analyse the collection procedures adopted by the company.

Investments

The times income earned from investments has decreased in comparison to previous year.

The audit risk is that the investments might have been undervalued or there might have been a misstatement while recording the value of investments, as the interest of investments has gone down through the years (Manoharan, 2011).

The auditor should verify the reason for a decrease in interest earned.

The investments should be checked with respect of their disposal. In case the investments have been disposed of, the documentation should be checked for the disposal transaction such as broker contract note, receipts, bill of costs, etc.

The receipts from the sale of such investments should be verified by the auditor (Baldwin, 2010).

Property Assets

The return on property assets have shown the following changes :

In case of beef production, the return on assets have shown a considerable increase which comes to 1.67% in 2018 from -0.82% in 2017 and -3.45% in 2016.

On the other hand, the return on assets in case of grape and wine production have decreased in comparison to last year.

The audit risk is that the company might have inflated the sales of beef in order to present a better financial position of the company, as in previous two years the company has been getting negative returns in this sector (Baldwin, 2010).

The auditor should verify the sales and profits of the beef sector to check the reason behind the sudden increase in returns for beef production (Matthew, 2015).

The sales ledgers must be verified with the sales order registers for orders received (Cappelleto, 2010).

As an audit partner, the company’s return percentage and its components should be scrutinized so that the figures arrived can be cross-checked and in this way, the audit team can arrive at the genuineness of the calculation as well.

The internal controls related to sales and returns shall be verified. This will ensure the auditor whether or not proper recognition of revenue and sales has been done by the company (Deegan, 2011).

Marketing Expense

Marketing Expenses have increased in comparison to previous two years. This might be as a result of the increased exposure of the company towards the beef sector.

The audit risk is that the marketing expenses might include personal expenses of directors or any other expenses disallowed. This can be assumed due to the reason that the proportion of increase in the marketing expenses does not match with the proportionate increase in the sales or returns of the current year in comparison to previous years (Madura & Fox, 2011).

The auditor team shall cross verify each and every voucher of marketing expenses (Matthew, 2015).

The supporting bills should be checked.

Also, the auditor should see whether these bills were approved by some management official or not.

The expenses bill of personal nature or irrelevant in marketing expense which is of a considerable amount should be noted by the auditor in his report.

Effective Control

Risk alleviated

Test of Control

Management staff receives bonuses on the basis of agreed-upon targets like monthly sales, etc. This is quite a good technique to involve the staff in sales promotion in a justified manner.

There might be a possibility that the management staff gets involved in unhealthy practices in order to achieve their monthly targets (Niemi & Sundgren, 2012). This might hinder the reputation of the company.

There should be a check on the activities of the management staff who are involved in the sales promotion. It should be checked that they are not making any fake promises to the clients which shall further annoy them as the same would not be fulfilled by the company (Niemi & Sundgren, 2012).

The company has implemented a proper automated IT system and strict passwords are there to access the programs.

Although there is an IT system prevalent, the same is not been handled by a competent IT professional. Instead, the company has allocated this duty to the management accountant who does not have an expertise in this field and this could lead to a lot of errors (Peirson et. al, 2015). Further, there are no passwords for access to the databases which again is a major risk.

The company should first hire an IT expert for handling the IT system.

Further, there should be another management person involved in the checking of the IT data along with the management accountant so that in case any errors have been done, they can be rectified in time (Peirson et. al, 2015).

The database should be password protected and the IT data should be checked with the manual documentation in place (Hoffelder, 2012).

The supply management is handled department wise.

The purchase managers might place wrong orders below $10000 as there is no dual checking system below this amount of order.

The purchase requisition issued by the departmental managers should be crossed checked with the inventory records to check whether there was actual requirement of purchase or not (Rezaee & Kedia, 2012).

The supplier information is stored in supplier master file and the orders are placed through computer ordering system to the approved suppliers only. If by default the order gets placed to the unapproved suppliers, the same gets rejected and is sent to the management accountant for approval (Rezaee & Kedia, 2012).

There is a risk that even the approved suppliers may have changed their rates and that has not been entered into the supplier master file database (Hoffelder, 2012).

Every time the orders are placed, even to the approved suppliers, their rates must be confirmed before placing the order.

The invoices are received electronically from the supplier and are matched with the orders by the accounts clerk. The payment file for the same is verified weekly by the management accountant.

There is a risk that although the orders are matched with the invoices, there might be a problem in the orders for which payments should be stopped or deferred (Rezaee & Kedia, 2012). But after matching the order file and invoice, the payments file is approved and sent to the bank.

The responsibility of the payments process should not solely be in the hands of a management accountant and should be jointly shared with another person from the payments department. The payments for defective orders are to be deducted and the same may not get reflected in the software (Geoffrey et. al, 2016).

In case repairs are required in the wine department, the responsibility of the same is of the department manager. He generates online orders and the ultimate payment process is completed by the approval of management accountant.

There is a risk that there may be undue expenses on the repairing as there is no supervision on the repair service requests done by the wine department manager. The accounts clerk and the management accountant come into picture only once the service is completed and the service provider has raised his invoice to the company (Gay & Simnet, 2015).

The repairing function should be cross checked by some management staff so that there can be a check on the requirement and expenses being incurred on the repair services.

Weakness

Justification

No checking with stores registers

The purchase orders are not checked independently with the stock of goods which may result in overstocking of goods in the warehouse.

Over reliability on the approved suppliers

The suppliers are only given orders on the basis of their past reputation and other factors are not considered like change in prices, change in time of delivery or change in terms.

No separate files prepared for defective orders low quality goods.

The accounts clerk matches the order details and the invoice and then sends the invoice to the payment file. There might be some goods which are of low quality or are defective which are nowhere accounted for by the accounts clerk (Roach, 2010). Only the paper documentation is checked.

Weakness

Justification

No supervision by top management on the payments approval process

The management accountant is solely responsible for the approval of payments file and uploading the same to the bank.

No daily checking of payments files

The payments file are checked only once a week and that too by the management accountant only.

No reconciliations of the accounts payable and the payment made

The management accountant is totally dependent on the IT system for the payment file generating and other work but no accounts payable ledgers and their reconciliations are made (Roach, 2010).