Public Auditing For Secure Cloud Storage

Areas of Concern for Auditors

Question:

Discuss About The Public Auditing For Secure Cloud Storage?

The accounting from Miller Yates and Howarth is responsible for preparing adit plan of GPSA. GPSA is one of the long standing and significant client of accounting firm that is engaged in research and development of medical equipment’s, acquisition of property and manufacturing and distribution of medical equipment. Auditors are concerned about specific areas and they are placing great re4laonce on internal control system of business. The internal control system would be reviewed and they have been pursuing new internal control manual (Eilifsen et al., 2013). Extensive work faced by organisation would be reduced by placing reliance on internal control.

The five types of accounts where auditors have expressed their concern are current investment, account receivable, property investment, research and development capitalization and intangible assets. It is perceived by them that these accounts would pose risks while carrying out audit (Brusca et al., 2016).  

New internal control manual has brought changes in the system of trade receivable account, as the trade receivable clerk is responsible for handling all the transactions relating to sales. All entries made in the computer system would be made by him and he would be responsible for reconciliation of debtor account into general ledger (Hayes et al., 2013). Some of the current investment is made in research and development activities relating to development of new laser surgery device. For financing of such investments, GPSA has borrowed a loan of amount $ 5 million from banks. However, organization is required to maintain debt equity ratio and d 1.2:1 and an increase in ratio would make them repay the amount of loan borrowed. Furthermore, investment made in property market, their return is also uncertain because of decline, and they are susceptible about the investment.

While conducting audit, auditors faces several risks associated with accounts that is regarded as one of the relevant part of conducting audit. Performance risk analysis would help auditors in prioritizing, identifying and evaluating risks while management of all accounts. When clerk records looking at trade receivable account, values of data relating to transactions and it is certain that there is possibility of manipulating data or conducting certain errors. Sales director is involved in looking at information technology function that is not considered as full time job by management. There is lack of duties segregation that might impose possible risks on carrying out audit. Due to decline in property market, investment made in such areas might lead to inflating the value of their investments (Beasley, 2015).

Steps to Reduce Audit Risks

Audit plan should be conducted by complying with the requirements of International standards.  Some of the steps that would help in reducing audit risks are as follows:

• Management and several reporting authority within organization should be integrated with inspection and observation process.
• Identification and assessing risks associated with normal course of transaction and account receivable.
• Performing analytical procedures for recognizing probable relationship between several accounts.

Tool of ratio analysis can be used for evaluating the business risk and auditors would be able to obtain significant audit evidence by analysing ratios over several year. Ratios have been calculated for analysing the efficiency, profitability, liquidity and solvency position of organization.

Ratio	2017 (Unaudited)	2016 (Audited)	2015 (Audited)
Return on equity %	7.19	18.61	22.17
Return on total assets %	4.86	13.7	15.52
Gross margin %	31.76	30.00	24.94
Net profit margin %	10.38	20.27	17.85
Times interest earned	1.90	3.51	4.10
Days in inventory	166.53	127.89	115.85
Days in accounts receivable	83.07	60.65	53.24
Current ratio : 1	1.80	1.54	1.66
Quick asset ratio : 1	0.89	0.78	0.82
Debt to equity ratio : 1	1.11	1.02	1.04

Debt to equity ratio has increased considerably increased in year 2017 to 1.11 as compared to 1.02 and 1.04 in year 2016 and 2015 respectively. Return on equity has declined significantly to 7.19 in year 2017 as against 18.61 and 22.17 in year 2016 and 2015. This depicts that efficiency of organization has reduced in generating return to shareholders and they are increasingly depending on loans for financing their capital requirements. Days in inventory and days in account receivable has increased considerably for consecutive years. This is indicative of the fact inventories are talking time to be converted into sales and accounts receivable are being collected frequently (Louwers et al., 2016). Current ratio has also increased to 1.80 in year 2017 compared to 1.54 in year 2015 indicating improved liquidity position of GPSA.            

Internal control system of GPSA is so designed that helps in obtaining reasonable assurance for achieving the objective of business, improving the financial reporting reliability and making operations efficient.

It is required by GPSA to refine the internal control system as they have not been change for years and no internal audit function exists. Data regarding the several business transactions should be recorded and documented. After the manual delivery of products has been done, it is the responsibility of dispatch department to raise the orders for sales. Proper procedures are adopted for follow up of procedures of trade receivables (Louwers et al., 2016). Some relevant aspects examine procedures of internal control system of organization are done by auditors.

Adopting the effective internal control system will help in alleviating the risks associated with several accounts. Trace receivable accounts are exposed to several risks of data manipulation and improper recording and reconciliation of accounts. While preparing debtors list and sales orders, there is a high chance that some error can arise while recording. If GPSA has such internal control system that are properly designed for dealing with such tasks, risk arising from account management would be reduced. Coordination among several departments such as operations, finance and sales department would be enhanced by implementing effective system of internal control (William et al., 2016).

Importance of Effective Internal Control System

Authorization	In order to make system of internal control effective, proper authority should control operations department. This will enable auditors to grasp proper, appropriate and reliable information from departments.
Organizational control	For the trade receivable account and sales system, written procedures for accounting needs to be adopted by employees.
Segregation of duties	Different staff members should be involved in looking after the information technology functions and sales department. Moreover, two separate employees should do sales invoices and recording of data. Posting of invoices and customer receivable two different members of sales team should do accounts maintenance (Stojanovic & Andric, 2016).
Physical control	Invoices are created by using the computer system that involves manual recording of data. in this regard, adequate control should be exercised over such system.
Accounting and arithmetic	Proper recording of accounting transactions should be done by incorporating se of numbers. This is done by numbering the invoices generated and prompt recording the same.

• GPSA lacks internal control function that leads to arising of weakness by accounts department in recording transactions of sales. This leads to arsing of possibility of inaccurate and improper recording of details sales transactions.
• Targeted monthly volume of sales and deviation or variation in the overhead of departmental budget forms the basis of bonuses received by sales staff management and sales team. In the event of any non-completed transactions and not meeting the desired target, risks of not making bonus payment would arise (Cannon & Bedard, 2016). In order to facilitate the internal control check, calculation of bonus amount should be separated from sales made by sales department.
• Trade receivable clerk is responsible for recording all the aspects of trade receivable accounts and invoice generation. He should not be integral for managing and recording of all such transactions. It is also responsible to enhance the volume of sales. This might lead to evolving of conflict with the maximization of sales volume and risks minimization.

Conclusion:

GPSA intends to create new internal control manual for facilitating the internal control system, as it needs to manage the diversified range of activities. It can be observed from the above analysis of several aspects of the system; there exist some risks that needs to be evaluated by auditors for planning audit. The new internal control system would help in alleviating some risks that might arise while managing accounts. However, weakness have also been identified in the system that can be managed by making the internal control effective. Auditors would adopt test of control for dealing with the identified audit risks attributable from managing the specific accounts discussed.

References:

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