Assignment 2 Due Week 8: Audit Planning and Control
Assignment 2: Audit Planning and Control
Due Week 8 and worth 280 points
It is common industry knowledge that an audit plan provides the specific guidelines auditors must follow when conducting an external audit. External public accounting firms conduct external audits to ensure outside stakeholders that the company’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) standards.
Use the Internet to select a public company that appeals to you. Imagine that you are a senior partner in a public accounting firm hired to complete an audit for the chosen public company.
Write a four to six (4-6) page paper in which you:
Outline the critical steps inherent in planning an audit and designing an effective audit program. Based upon the type of company selected, provide specific details of the actions that the company should undertake during planning and designing the audit program.
Examine at least two (2) performance ratios that you would use in order to determine which analytical tests to perform. Identify the accounts that you would test, and select at least three (3) analytical procedures that you would use in your audit.
Analyze the balance sheet and income statement of the company that you have selected, and outline your method for evidence collection which should include, but not be limited to, the type of evidence to collect and the manner in which you would determine the sufficiency of the evidence.
Discuss the audit risk model, and ascertain which sampling or non-sampling techniques you would use in order to establish your preliminary judgment about materiality. Justify your response.
Assuming that the end result is an unqualified audit report, outline the primary responsibilities of the audit firm after it issues the report in question.
Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources
Audit Planning and Control
[Name of the Writer]
[Name of the Institution]
[Name of the Subject]
[Date]
Audit Planning and Control
Introduction
Ford Motors is one of the leading multinational auto manufactures headquartered in Dearborn, Michigan. The company was introduced by Henry Ford in the year 1903. Ford Motors is involved in the selling of commercial vehicles as well as automobile under the Ford Brand. In addition the company also sells luxury cars under the Lincoln Brand. This particular paper will involve audit planning and control for Ford Motors. Being the senior partner in McGladrey, I will lead the audit planning and control process for the Ford Motors. The company is listed on the New York Stock exchange.
Critical steps inherent in planning an audit
An audit is the standard procedure and the chief purpose of performing it is analyze the financial accounts of an organization, business and individual. The audits can be broadly classified into two types: external audit and internal audit. The latter type is usually performed by the internal member of the organization (King., 2011). On the other hand, the external audit is carried out by the external individuals belong to private auditing firms or the government agency. The audit for Ford Motors will be carried out in six steps that are the part of the standard auditing procedures adopted by the McGladrey firm. Along these lines, the first step is to request the financial documents. In this step, the auditor will request Ford Motors to provide documents as per the preliminary checklist. Some of the main documents that will be requested from Ford Motors will include ledgers, receipts, and original bank statements as well as past audit reports.
In the second step, the auditor will analyze the information present in the documents and at the same time plan the auditing process. In the second step, the auditor will invite the key administrative staff as well as the senior management of Ford Motors for an open meeting in which the scope of the audit will be underscored. The information gathered during the open meeting will be utilized by the auditor to complete the audit plan. Subsequently, the auditor will carry out a field work in which he will review the processes. The auditor will conduct tests for determining the compliance of Ford Motors with the procedures and policies. The next step will involve the drafting of the audit report consisting of the crucial findings of the audit in Ford Motors. This particular report will incorporate several elements such as posting issues, mathematical inaccuracies as well as other discrepancies. Finally, the auditor will attain a comprehensive response from the senior management of Ford Motors to determine their agreement or disagreement with the issues highlighted during the audit process.
Performance ratios & Analytical procedures
In order to determine the most feasible analytical procedures in the case of Ford Motors, the auditor will utilize the risk ratios as well as profitability ratios. Along these lines, the profitability ratio that will be used to analyze the performance of Ford Motors include asset turnover, return on capital and asset turnover, net profit margin as well as operating percentage. On the other hand, the risk ratio will encompass gearing interest ratio of Ford along interested cover (Bedard & Johnstone., 2010). The risk ratio will inform the client about the capacity of the organization to pay back the loans plus interests. There are several accounts of Ford Motors that need to be tested. However, the auditor will test the assets and receivable accounts of the organization by the means of three analytical procedures including trend analysis, model based procedures and risk analysis. These procedures will certainly facilitate the auditor in attaining all the essential information for informing the company regarding their internal controls. To this end, the risk analysis will enable the auditor to recognized any material misstatements and share opinions accordingly. This particular step is extremely crucial for the reason that the ultimate purpose of the financial statement audit is to evaluate the accuracy of the financial statements. On the other hand, the auditor will make use of the model-based procedure to get acquainted with the relevant external data such as economic and industry information as well as client operating data. Finally, the auditor will use trend analysis to compare the present account balance with the two or more prior period’s balance.
Balance Sheet Analysis of Ford Motors
There are various elements that will be examined by the auditor will reviewing the income statement as well as balance sheet of the Ford Motors. This elements will include revenues, unpaid invoices, and overstated assets. At majority of the occasions when the inventory has been spoiled, damaged or becomes obsolete due to some reason, it has to be reported by the management on the balance sheet. In the case of failure to reassess the inventory, the assets will be oversta...