Auditing Plan and Professional Practice †MyAssignmenthelp.com

Question: Discuss about the Auditing Plan and Professional Practice. Answer: Audit planning Audit plan is the particular guideline that is required to be followed during the audit procedure. The audit plan helps the auditor to gain sufficient and required information that may used to obtain audit evidences as per the requirement. Further, the audit plan helps the auditor to minimise the costs as well as misunderstanding during the course of audit (Arens et al., 2016). It involves the analysis of the companys financial statements to assess the accuracy of the statements and the level of materiality involved. Effective audit plan is important for focusing on the areas with greater risk and carry out the audit procedures accordingly. Analytical review Analytical review is defined as the process on the basis of the financial ratios of the company to recognize the risk involved areas and materiality. It is one of the financial procedures for audit that assist the auditor to understand the business of the client and changes taken place in that during the year (Kerr, 2013). The analytical review procedure also assists in recognizing the potential risk areas for planning the audit procedures. Preliminary judgement regarding materiality Preliminary estimation for materiality that is also known as the materiality planning is the judgement on financial statement of the company. It is the highest value by which auditor projects that the statement could have been misstated by intentional or unintentional error, fraud or misinterpretation that will not have material impact on the decision of the decision makers (Titera, 2013). However, as materiality is a relative term, it is required for the auditor to establish the bases or levels for judging materiality to judge whether any changes is material or immaterial. First account selected Cash at bank Rational for selection Irrespective of the changes in the amount, the auditor shall give special attention while auditing cash as cash is exposed to the risk of fraud, misstatement and embezzlement (Revinskaya, 2015). Assertion and explanation From the balance sheet of SJC Corp is is recognized that the Cash has been increased by 5,000 over the 9 months period and is expected to increase further by 14,135 for the rest 3 months period. Cash balance is associated with various risks like error or fraud as it is the most liquid form of asset (Makarenko Yardanova, 2015). Recommended audit procedure All the record related to payment and receipt shall be checked properly to ensure that no transactions related to cash is missed. Further, the auditor shall check that all payment vouchers are properly authorised. Further, all the receipts and payment vouchers shall be matched with the payment and receipt register. Finally the cash register shall be reconciled with the bank balance. Second account selected Gross profit Rational for selection The expected gross profit of the company has been reduced by 3.52% instead of increase in expected sales by 0.83%. Further, the expected cost of sales for SJC Corp has been increased by 9.29% that was not in proportion with the increase in sales. Assertion and explanation Gross profit is generally concerned about 2 items, those are revenue and cost of goods sold. Assertions involved with the sales are that it may have been recorded at lower amount and sales of the current period may have been deferred to the next period. Further, the cost of sales as can be seen from the income statement that it is increased by 9.29% whereas the sales are increased by only 0.83%. Therefore, the risk involved there that the cost of goods sold has been recorded at higher amount or cost for previous period has been recorded in the current period (Melikhova Nikolayenko, 2017). Recommended audit procedure All the sales related documents like sales invoices, sales registers receipts for the payment received shall be checked properly. Further, for cash sales the receipt shall be matched with cash register and for for credit sales the sales amount shall be matched with the account receivable. Third account selected Wages Rational for selection Irrespective of the amount involved, the auditor shall focus on wages while auditing as the management has the opportunity of misstating the wage payment through misstatement of the payroll sheets. Assertion and explanation From the income statement of SJC Corp it is recognized that the wages expenses has been reduced by 5,000 or by 9.43%. The possible reason of reduction may be the retirement of some employees during the year. However, it may also be the case that for recording higher (Ruhnke, Pronobis Michel, 2014). Recommended audit procedure All the records related to wages shall be checked to ensure that the employees who were in active engagements are only paid and no fictitious payment has been included. Further, the payroll data shall be matched with the salary entitlement sheet to ensure that the employees are not overpaid or underpaid. Moreover, the payment shall be matched with the days present register to ensure that the employees are not paid for the days on which they have not worked or have not paid for the days worked. Fourth account selected Depreciation on motor vehicle Rational for selection Depreciation on motor vehicle has been increased by 27.04% through there were no addition in the amount of motor vehicle. The amount of motor vehicle was 66,000 for both the year. However, the amount of depreciation has been increased from 21,000 to 26,678. Assertion and explanation Generally, the depreciation expenses are reduced over the times until some new additions have been made to the asset during the year. It can be observed from the balance sheet of SJC Corp that though no additions have been made to motor vehicle, the depreciation is increased by 5,678. The reason may be that the company has changed its depreciation method or they charge depreciation on the asset which is not yet ready to be used (Eilifsen Messier Jr, 2014). Recommended audit procedure The details regarding the motor vehicle that is the purchase date, purchase price, useful life and expected salvage value of the asset shall be checked. Further, the method of depreciation applied on the asset shall be matched with the depreciation amount and the auditor must ensure that the method is consistently applied all over the year. If the method of charging depreciation on motor vehicle has been changed from weighted average method to diminishing balance method or from diminishing balance method to weighted average method then the auditor shall check for the disclosure notes. Fifth account selected Inventory Rational for selection For any kind of business, inventory is the major component. Therefore, inventory shall be checked with more cautions as the inventory can be subjected to fraud, error or misstatement (Legoria, Melendrez Reynolds, 2013). Assertion and explanation Expected inventory of the company has been increased by 17.77%. It is expected to be increased to 204,919 from 174,000 over the one year period from 2015 to 2016. Therefore, chances are there that the inventory has been misstated. Recommended procedure The inventory shall be matched with the cost of goods sold and with the opening and closing stock. Further, the method of calculating the inventory shall be checked with the amount. The auditor shall also check that the valuation method of inventory is consistently applied for all the inventories throughout the year. Further, the purchase cost and sales price of every item from inventory shall be matched with the inventory register. References Arens, A. A., Elder, R. J., Beasley, M. S., Hogan, C. E. (2016).Auditing and assurance services. Pearson. Eilifsen, A., Messier Jr, W. F. (2014). Materiality guidance of the major public accounting firms.Auditing: A Journal of Practice Theory,34(2), 3-26. Kerr, D. S. (2013). Fraud-risk factors and audit planning: The effects of auditor rank.Journal of Forensic Investigative Accounting,5(2), 48-76. Legoria, J., Melendrez, K. D., Reynolds, J. K. (2013). Qualitative audit materiality and earnings management.Review of Accounting Studies,18(2), 414-442. Makarenko, A. P., Yardanova, T. H. (2015). Development of a program of inventory audit.Naukovi pratsi Poltavskoyi derzhavnoyi ahrarnoyi akademiyi,2(11), 40-48. Melikhova, T. O., Nikolayenko, N. S. (2017). Development of an inventory audit program to increase financial security of the enterprise.Ekonomika ta derzhava,1, 51-55. Revinskaya, L. Y. (2015). Features of the organization of cash flows in metallurgical holdings, Audit Fin. Ruhnke, K., Pronobis, P., Michel, M. (2014). Audit materiality disclosures and credit lending decisions. Titera, W. R. (2013). Updating audit standardEnabling audit data analysis.Journal of Information Systems,27(1), 325-331.