After evaluating the current audit process, it is unreasonable for Daisy to expect the assurance from an audit. This unreliability is generated from inherent limitation of the audit process, which has been used by the professionals, while determining the nature, scope and time of the test. In addition, sampling procedures are used for collecting the audit evidence, while the evaluation of the conclusive nature of available evidence is evaluated. However, audit procedure allows the organisation to detect reasonable level of assurance in the auditors, report regarding the no material misstatement, which is found in the financial report.
Moreover, the financial report is mainly calculated on the assumption that the organisation is a going concern, which increases the need for auditor test. With the auditors test relevant reasonableness of the assumption is conducted, while it is unreasonable to undertake the guarantee that the entity will continue the existence. However, bankruptcy of an organisation can occur unexpectedly after the publishing of the auditor’s report under unforeseen circumstances.
After representing the audit evidence there is a possible and reasonable expectation that the organisation does not have any kind of material misstatement in their annual report, as there is no presence of fraud or error. However, it is unreasonable to expect that no frauds or errors are being conducted within the organisation. Nevertheless, due to the limitation of audit process it is not possible for detecting the material fraud conducted by the organisation.
(a) The conclusion of the audit is considered incorrect for the following reasons:
(b) On the other hand, audit assistance mainly concluded that there is no enough evidence of audit for relying on controls over payroll of the organisation.
Key Controls |
Test of Controls |
Payments are not received by cash, instead cheque is used |
The relevant handling of the receipt can be conducted for detecting whether no cash payments are accepted by the organisation. Moreover, adequate review of the deposit slips needs to be conduced for detecting the cash payments conducted by the organisation. |
Daily cash receipt report is printed |
Adequate review of the current accounting measure needs to be conducted for detecting evidence regarding numerical sequence of daily cash receipts |
The cheques are agreed to cash receipt report |
Adequate inspection of daily cash deposits and deposit slips needs to be conducted for identifying the daily reconciliation of the organisation. In addition, reperforming the reconciliation could help in ensuring effectiveness of the control. |
Deposit of cheque needs to be daily |
Adequate enquire needs to be conducted regarding the deposition of cash receipts, which has been conducted each day by the organisation. |
The test of controls for Movies Galore are mainly affeered as follows.
From the evaluation relevant audit procedures is used for indenturing subsequent events, which also includes the following measures.
Action |
Justification |
|
(a) |
Adjustment to the financial report |
The fire mainly occurred before the year end, while the detection of the news by the auditor was after the completion of the audit report. However, the information was detected before the preparation of annual report, which compels the organisation to depict the information in the financial report. Nevertheless, there is insufficient information about the current valuation of inventory harmed in the event and the possible insurance claim made by the organisation. There is adequate risk regarding the going concern, due to the loss of forward sales by the company. Hence, the information regarding the incident was received after the reporting date, while it actual depicts the condition, which occurs at the reporting date. |
(b) |
Disclosure in the notes to the financial report |
The occurrence of fire on 17 July is mainly considered to be a non-adjusting event. The event is considered non-adjusting because it occurred after the reporting date. |
(c) |
Take no action |
There was no action taken, as the event did not occur at the time of preparing the auditor’s report. Moreover, the discovery of the report was only conducted after the completing the report, which nullifies any obligations for amending the financial report. |
iii) The issue is considered material, as the organisation failed to adjust the pay increase in their annual report, which increases the material misstatement condition in the financial report. Hence, the organisation needs to take opinion from qualified auditor regarding the changes in both expense and liability section of the financial report, as payroll accrual has not changed.
iii) The situation indicates that the unmodified auditor’s opinion can be issued for the organisation, which is due to the presence of expert and adequate reliance on the information can be conducted by the auditor. The situation further indicates that the organisation enough evidence regarding the audit report has been depicted in the financial statement, which initiates the unmodified auditor’s opinion within the organisation. This mainly indicates that organisation has enough data for increasing the efficiency level of the financial report.
(a) Appropriate Action |
(b) Additional information to be obtained |
|
1. |
Adequate adjustment needs to be conducted in 30 June 2015 financial report, as on 15 July 2015 additional evidence was seen regarding the valuation of the current liability. The data regarding the valuation of liability section has existed at balance date. |
Relevant checking of invoice from supplier needs to be conducted with subsequent payments. This checking of payment from 30 June 2015 mainly helps in detecting the accuracy of the financial report. |
2. |
Relevant adjustments need to be conducted for the financial report of 30 June 2015, when the warranty claims are mainly considered to be viable. The warranty claim has been detected from the sales conducted in May, as it existed before the balance date. However, the customers raised the problem during 28 June 2015, which is mainly considered as an adjusting event. Moreover, the auditor needs to consider relevant validity of the claims, which mainly depicts the likelihood of the claim. Therefore, it could be detected that liability or contingent liability exists, as the claim is disputed. |
The checking of adequate legal actions regarding the customer solicitor needs to be conducted. In addition, checking of the likelihood for customers winning the case needs to be conducted, while adequate estimates of the cost also need to be detected. |
3. |
The relevant adjustment needs to be conducted for 30 June 2015 annual report, as the regulatory approvals was given before the report preparation of auditor’s report, which is 28 July 2015. This additional information is regarding the valuation of investment that was detected at the balance date. |
Adequate checking of the approval needs to be checked for regulatory authority. In addition, relevant review on the impact of the value of project needs to be conducted. |
4. |
There is no action required, as the settlement date occurred after the financial report disclosure date. The settlement date occurred during 30 September 2015, which is mainly at the end of the auditor’s report. |
The date of settlement confirmation was mainly after the singing and mailing of the auditor’s report. |
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