Audit Plan- Glaxosmithkline

4420 Words Jan 14th, 2011 18 Pages
Audit Plan- GlaxoSmithKline (GSK)

Key business and audit risk:
In order to make the report more efficient we must identify the key areas of business risk and auditing risk. Business risk can be defined as the risk, which could affect an organization’s ability to achieve its objectives (Gray and Manson, 2007).

Audit risk is defined as the risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated (Soltani, 2007). In Gray and Manson (2007)’s book Audit Risk can be split into three separate elements :
1- Inherent risk reflects the auditor’s opinion on the possibility of material misstatement on financial statement.
2- Control risk is the risk that internal control policies and
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Firstly, misstatement via the means of non-existent sales or sales which have been realised in the incorrect period. Secondly sales may not be recorded in order to lower sales so provide evidence in further periods of higher growth than is actually correct. Thirdly sales could be incorrectly entered into the system providing incorrect figures. Therefore one would need to verify the sales books, and the controls in place to prevent errors either intentional or unintentional.

Debts
The level of debt that a company holds and their ability to repay this debt is an important risk factor for GSK. There is a higher risk for GSK than for some of its competitors, as GSK has a higher leverage than the likes of Pfizer and J&J (Financial Times, 2010). However this in itself can in some cases be more efficient as long as the entity has the cash flow in order to repay these debts. Therefore one has to ensure during the audit that GSK will have sufficient cash flows to meet its repayments for the year.
Cash management
Sufficient liquid cash in a company is important to defend against economic uncertainty. A small cash reserve/ cash flow, can be a control and detection risk, which may result profitable projects having to be scrapped or assets sold to increase cash flow
Also one has to ensure that the book values for GSK’s debtor and creditors are correct and verified as they make up large sections of the balance sheet and a misstatement of these values would

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