Planning an Audit & Designing an Effective Audit Program
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). Use the Internet to select a public company that appeals to you. You may also use the company dossier in the Nexis Uni database to find company information.
Imagine that you are a senior partner in a public accounting firm hired to complete an audit for the chosen public
Write a 3-4page paper in which you:
Outline the critical steps inherent in planning an audit and designing an effective audit program. Based on the type of company selected, provide specific details of the actions that the company should undertake during the planning and designing of the audit program.
Examine at least two 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 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.
Audit Planning and Control
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Audit Planning and Control
The selected company to perform an audit for is Starbucks: - an American leading coffee company headquartered in Seattle, Washington. The paper analyzes the audit planning process and other programs that help understand the company’s financial statements. The organization’s audit planning process will also be significant in supporting audit compliance and transparency.
Critical Steps Inherent in Planning an Audit and Designing an Effective Audit Program
The first critical step is to establish an audit plan and strategy. The general audit strategy would entail the particulars of the beverage products provided by Starbucks. The second step involves understanding its clients and the environment (Promtong & Ussahawanitchakit, 2016). To understand the environment, the company would have to conduct risk assessment procedures. It would also be imperative to evaluate the potential business risks faced by the organization. The third step entails analyzing the inherent risks, risks of material misstatements, and the audit design processes. Based on the audit design, it would be appropriate to associate the audit procedure with the evaluated risk of material misstatement at convenient levels (Boritz et al., 2014).
Performance Ratios and Analytical Procedures
The performance ratios used to determine the analytical tests include profitability ratios and risk ratios. The auditor will use the profitability ratios to assess Starbucks ’ net profit, gross profit, asset turnover, and return on capital (Hamed & Nobanee, 2020). These elements will enable the customers to know the amount the company makes from all angles. Risk ratios will be used to calculate the gearing interest ratio. This information will be used to tell the company’s possibility of repaying the loan plus interest.
Auditors use analytical procedures to assess financial data. While determining the analytical tests to perform, I would test assets account and receivable account. Asset account would help me record the assets owned by Starbuck. On the other hand, account receivable would help me identify any money owned by customers for purchases made on credit (Hamed & Nobanee, 2020). The three analytical procedures I would use in my audit include rending analysis, risk analysis, and model-based approaches. These procedures would enable me to gather the information needed to create awareness of the firm's internal controls.
Risk analysis enables the auditor to suggest the company’s material misstatements (Boritz et al., 2014). The significance of this procedure is that it helps the auditor find out if the financial statements are materially correct. A model-based method involves using the client operating data and relevant external data to predict the account balances (Promtong & Ussahawanitchakit, 2016). Trend analysis compares the current a...