Audit Report Of Industry For Business Measurement

Analysis of Key Ratios

Describe about the Audit Report of Industry for Business Measurement.

1. For the analysis of the ratio, the audited report and Industry benchmark will be considered.

Current Ratio as per the audited report 2015 is 1.89 and as per the industry benchmark it is 1.8. It implies that Nirvana Produce Pty ltd is far above the standards of the company very much capable of paying the current liabilities in the form of long-term liabilities (Troy & Wilson,2014). It can be also said that company is having sufficient amount of cash for running the business and cash for converting the assets into cash.

Days in receivable comes under efficiency and activity ratio (Liang et al., 2016). It measures the number of times business will be collecting the average of the receivable in the year. Therefore, from the data, the analysis made is, the company is collecting the receivable more number of times than the usual benchmark, which is indicating, that the company is performing very well.

The inventory turnover as per audited report 2015 and industry benchmark both is 3 days. Inventory turnover is one of the efficiency ratios, which are used for comparing the average inventory with the cost of goods sold for the period (Brown, 2012). This ratio also measure the number of time the inventory is to be sold out for the period. While analyzing the position of the company in terms of given ratio, it is seen that company is truly fulfilling the criteria and meeting the industry benchmark. So the company is in good position.

Debt to equity ratio as per audited report 2015 is 0.50 and as per industry, benchmark is 0.20. It implies that it is one of the liquidity ratios which will be comparing the total debts of the company to the total equity of the business (Healy & Palepu, 2012). It also shows a percentage of the finance or investment which is coming from the creditor and investors.  So given the company is meeting the criteria far more than the benchmark. It can be said that companies pay its debt and interest more than the desired amount. The company also has huge number of investor and creditors in the market. 

Implication of audit is very necessary for an organization. Auditing helps an organization to know the real position of the company. Auditing helps in detecting and preventing errors and frauds, so there is compulsion of auditing in the maintenance of account. Auditing also helps in maintaining the regularity in the account to keep the morality on the maintenance of account. Auditing also helps in getting compensation occur from the business, insurance companies’ helps in getting compensation for the business. Auditing also helps in getting loan for the business, on the respect of audited financial statements. Auditing serves as evidence for proving the originality of the Financial Statements (Messier, 2016). Auditing helps in facilitating the sale of the company, after doing valuation of the assets and liabilities for knowing the correct price of the business. Auditing also helps in getting assess the tax to be given by the company, on the basis of the profit calculated by the auditor. Auditing will also help in facilitating for comparing the books of account of the recent year with that of previous year. Auditing also helps in getting the valuation of the business for getting the amount of deceased partner of the business. Auditing of the financial statement also helps in getting safe form the allegation received regarding the negligence of the auditor.  From the above case study implication of auditing has found to be true in two cases. The company has 0.50 Debt to equity ratio which is above the industry benchmark, which indicates that by showing or presenting the Audited report company it is able to get more than sufficient amount of investment and creditors from the market. This shows a good sign that company is getting more funds for the purpose of investment. Furthermore, it is seen that by the doing valuation of the business company is able to get portion of profit after the death of the partner (Porter et al., 2014).

Implication and Importance of Audit Report

Generally, a company has many risks, but in the case of auditing, there is two very important type of risk. Inherent risk and Control risk. Inherent risk occurs due to susceptibility of declaration to the misstatement, because of fraud and error. Control risk can be referred to as risk, which occurred due to the materiality of individual and in combination to individual and in combination with the timely detection of the internal control (Wang et al., 2013). This can be control by the proper verification and assertion of the statement before generating the statement. In the above case study there was number of duplication while making payment to the creditors of the company, so that needs to be properly checked and then carried on for further process as, this would help in generating correct report of the company. Secondly when customers came to receive their order their payment were made outstanding and on the basis of those outstanding invoices purchase was made in cash and this faults was not covered and misstatement in the financial statement occurred. After the process the purchase slips were sent to bookkeeper who maintained those transactions as on the cash basis, this caused an error for the statement (DeFond & Zhang, 2014).

The Business risk refers to the uncertainty in loss and profits, which will be occurring in the business. Uncertainties refer to the situation when some unplanned event occurs and mostly causes negative impact (Eilifsen et al., 2013). In the above case study the companies wishes to buy back the share of Anna, for which the company is planning to raise loan from the bank. The loan is taken by mortgaging the office and warehouse, which serve as risk for the company. If in the near future company is not able to pay the loan taken, then the only asset left for running the business is the office and warehouse. If warehouse and office is taken over by the bank, then there will be nothing left for doing the business. It is further suggested not to raise funds by mortgaging the office and warehouse as this will take the company in worsening condition. Further the debt to equity ratio is higher as per the industry benchmark, which also indicates negativity of the business. The more the company raises loan from the market the creditors or the investors will ask for return or dividend to be paid, this will create an obstacles in maintaining profit for the purpose of expansion and generating profit for the owners. Further there also indication of 90% payout ratio to be given as by the investor (Yang & Jia,2013).

2. In the above case study, the company number of Strength and weakness present in the internal control system which are as follows:

Identifying Risks

Strength

The company made use of the accounting software that helped in reducing the manpower (Markus et al., 2013).

The software fully protected by password for accessing the networked computer of the office.

Weakness

The software had no facility for generating file of the payment of the creditor which was to be uploaded in the bank account this leaded to the incorrect in reconciliation of the bank statement (Daniel, 2015). It will also be effecting in the maintenance of the record of the creditor payment, which will be leading to mismatch in the records of the financial statements. This will be causing a huge risk in the case of auditing. In the context of audit it will be shown as the misstatement of the material factor. For the improvement of rectification this error there has to be updating the information on the server as well as manually, and separate human force should be employee for checking of the data or information that is done (Jans et al., 2012).

On the basis of outstanding invoice the cash purchase were made and information for those was given to the bookkeeper and he reconciled with the cash purchase (Parker,2 013). Considerations of the outstanding invoices, leaded to increase in the cash purchase, which will be also affecting the unnecessary purchase, were made on the basis of those buying slips. In the financial statement, this effected to appear cash purchase instead of credit purchase. This point will be creating disadvantageous for the company, as while doing auditing there will seen a huge profit or cash generated from the business which is not in the real sense. This will be effecting for payment of more tax as to be given in actual. For improving, this point there has to be proper checking of the invoices. So that no extra purchases are made and which will lead to increase in the expense. In the auditing perspective there has to be proper data and information to be provided for doing the auditing (Xu et al., 2013).

The customer who came to collect the order, their orders was added to the original invoice system, and those payments were due for period of seven days. Due to this effect, this was seen as there was significant number of invoices which had short in the invoices. The payment of the outstanding customer came through ETF, which showed clear appearance of the turnover of the company, which will be affecting the increase in the payment of tax to the authorities (Zaman & Sarens,2013). The process of ETF should be avoided and no outstanding payments are to be done. This will be affecting the correct maintenance of the account. Transfer of fund through ETF will be generating extra expense for the business in the form of the service charge. ETF process may occur error in the processing of the fund to the correct account. Therefore, in the auditing perspective ETF should be checked time in order to maintain the regularity in the recording of the statement. The risk of this can be reducing with the manual entry of the accounts, which may increase the work force but will be reducing the risk faced by the company.

Strengths and Weaknesses of Accounting Software

Manual maintenance of the payment of the creditors is affected in duplication of the payments of the creditors. This is the process of occurring misstatement in the accounts of the creditors (gov.au.2016). The duplication of the payment of the creditor serves to be one of the major problems in matching the balances of the statement. In the auditing perspective duplication is considered to be one of the ways of making fraud statement. This will be making the company to be served as the misstatement or fraud representation of the information of the company. In order, stop this process one need to hire more number of employees for doing the process of collection of the payments from the client.

3. Outline of the networked personal computer based accounting software in engagement of the audit process:

CAATs are computer software and data that are used by the auditor for processing the procedures of the audit (Loabneh et al., 2013). Here are the two methods of CAATs for the development and justification of the process.

Audit Software – includes PC programs utilized in reviewing the aim for processing the data audit centrality from client accounting standards. It is utilized by auditor to see the PC component for recording and might be utilizing with taking in consideration both control of trial and the of exchanges substantive test. Adjustment will be made on the system, which will investigate the excess volume of data and focuses on data, leaving talented physical assets for focus on the investigation of outcomes. There are different types of audit projects which is as follow:

Program of generalized bundled – In any case, they should customize to every specific case by featuring configuration of documents which will be cross-examined through determination of the parameters which will be required and for the type of yield.

Projects composed of purpose – These are uncommonly composed work where it will be unrealistic to make adjustment in the bundle program as a result of sort of machine, for the preparing the document which will be utilized by the association (Cascarino,2012).

Utilization of the utility by the client – Utilized by component for performing data for the preparation of the capacities

Here are some of the benefits auditing software:

Calculation checks – Program gives a total sum of single passages for purchase day book during a particular period. The examiner will be taking the sum to sum posted in purchases of ledger control accounts.

Infringement of standard through detecting framework – Program sees that no customer has parity above determined limit of credit.

Detection of the unreasonable things – Programs sees that no customer has markdown of half or deals in record parity, which is more than the measuring the offers which will be made to client (Kuruppu,2012).

New figuring and examination: Measurable examination of stock developments is to distinguish moderate moving things.

Disadvantages in utilizing Audit program are as follows:

Expense for set up is high – Set up expense will be high, because at first client methodology will be researched and saw completely before audit programming can be utilized for getting and cross examining records.

Unreasonable Changes – If there is a variation to customer standard, this will be necessary for providing expensive modifications to the virtual review products.

Over-elaboration: Inclination to create intricate inquiry programs which is expensive for creation, tedious in preparation and checking on. Thus Audit cost goes up, and it is tough to legitimize the utilization.

Yield of Quantities – It might emerge that yield is very huge either due to poor configuration of product or for the utilization of improper parameters on the test.

Selecting things for audit testing – Getting stratified example of sales which will be recording the parities for utilization of the premise for a flow of borrowers.

Completeness checks: Checking coherence of offers solicitations to guarantee that they are all represented.

Test information – Audit test data is information, which will be presented by the reviewer in preparing, by the customers PC based bookkeeping framework with a specific end goal to test the operation of the undertaking’s PC programs. It might be prepared amid an ordinary creation run (running test information live) or amid an extraordinary keep running at point during the time which will be outside the typical cycle. Test data can be held like a bunch of archives that will be caught in the framework for testing both PC controls and manual (Abernathy et al., 2015). There are three fundamental ways for dealing in the utilization of test data which are as follows:

Information that is live – Processing of the genuine client, which will be the live information and after that watch controls and preparing are in a correct way.

Dummy information in an ordinary creation run – However yield of sham information handling ought not to be discharged in the live database general record.

Test modified controls in PC based bookkeeping framework – There are expansive volumes of exchanges that the evaluator will need to review. The reviewer will need to check if the modified controls are working accurately. The main compelling method for testing customized controls is through CAAT.

Test on a substantial volume of information – CAAT empowers reviewers to test extensive measure of information rapidly and precisely and in this way increment the certainty they have as they would see it.

Test on source area of information – CAAT empowers inspectors to test the bookkeeping frameworks and its records (e.g. circle documents) at its source area instead of testing the printouts of what they accept to be a duplicate of those records.

Cost successful – Once set up CAAT are prone to be a financially savvy method for acquiring review proof a seemingly endless amount of time gave that the customer does not change the bookkeeping framework frequently.

Comparison: A permit comes about because of utilizing CAAT to be contrasted with customary testing (Griffin & Wright,2015)

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