Currently, auditors employ risk-based audit methodology in the conduct of audit assignments. Under this approach, auditors identify accounts most at risk of being materially misstated in order to better manage their audit assignments by allocate resources according to the assessed audit risk. Thus, the assignment’s objective is to provide students the opportunity to apply auditing and assurance standards, including audit theories and risk-based audit methodology into a real-life situation.
The purpose of this task is to: - assist students in learning key auditing concepts and to apply these concepts to a specified financial report of a real organisation
LO1. Investigate the audit process and the techniques used by auditors including business risk analysis, internal control assessment, evidence collection and evaluation, use of computer assisted audit techniques and audit reporting
LO2. Investigate and develop an insight into the audit of specific transactions and account balances
LO3. Articulate the auditor's responsibility in completing an audit
LO4. Clarify and advocate other assurance engagements that can be offered by accounting firms
- Using the information on the organisation provided at the beginning of the block, download the annual report of the prescribed organisation;
- Research the organisation at the economy, industry and entity levels;
- Identify five accounts most at risk of being materially misstated by applying the analytical procedure - simple comparison to the income statement, balance sheet, statement of cash flows and statement of changes in equity.
- Assess the audit risk of those accounts
- Discuss your findings in a report
- Submit your report via the designated dropbox.
- Critical analysis of the key audit concepts and principles
- Application of relevant audit theories to the case study
- Conformity with Harvard
For the purpose of the assignment, you assume the role of an auditor and your firm has recently been appointed as external auditor of an entity. As required by Auditing Standard ASA300, you are assisting your Audit Manager in preparing an audit plan for the audit of the entity’s financial statements.
Using information in the company annual report and other relevant information, preparing a report for your Audit Manager. The report should include the followings:
- Introduction (4 marks)
- A summary of the client's operations (10 marks)
- Five (5) accounts you consider most at risk of being materially misstated (10 marks)
- Assess the audit risk for each of the five (5) accounts selected (10 marks)
- Conclusion (4 marks)
- Appendix/references (2 marks)
The following additional information is useful for the purpose of the assignment:
- The summary of the client's operations should include: brief information on their financial position and performance for the year, applicable financial reporting framework, industry in which the client operates and economy wide factors affecting the client.
- Use analytical procedure - simple comparison to identify accounts most at risk of being materially misstated. In general, accounts with significant movement in the balance between two financial years are most at risk.
- Use the audit risk model to assess the audit risk of the selected accounts. The audit risk model: AR = IR x CR x DR where AR = audit risk; IR = inherent risk; CR = control risk; and DR = detection risk. Generally, where IR and CR have been assessed as high, auditor must reduce DR to a low level in order to reduce AR to a low level.