Audit Plan- Glaxosmithkline

In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).

Knowledge about risks related to the company evaluated as part of the auditor 's client acceptance and retention evaluation; and the relative complexity of the company 's operations. ( Auditing Standard No. 9 //. (n.d.).

Creditors take the biggest risk when lending money due to the fact that they have all the skin in the game and are taking a calculated risk. The review of the three aforementioned financial statements seem to be the clearest way to come to a conclusion about whether or not a creditor should lend a company money.

2 Managing fraud risk: The audit committee perspective Fraud in a fi nancial statement audit

Preliminary analysis to understand the client‘s business and risk - Understanding the auditee’s business, environment, and risks

Audit risk is the risk that the auditor gives the wrong opinion – this can either be stating errors when there are none or when there are errors stating that there are none. This risk cannot be eliminated as auditors can only provide a reasonable assurance and not absolute, but instead this can only be managed and reduced to a minimum.

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

As a result, holding cash would be essential component of the firm strategy. To develop new products, buy new equipment or expand geographically, firm has to spend money on marketing research, product design, prototype development and so on. Moreover, if a recession hits and the economy start to slow down,

The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.

“Audit committee members or their agents may proactively examine areas, functions, and personnel where collusive fraud risk is reasonably likely to be perpetrated,” (Zmags). The search for fraud, even if performed in the same location multiple times, may continue until the audit committee feels confident that they have ruled out the probability that fraud is prevalent. One of the biggest risks of fraud is management override of controls, requiring the extensive search for risk in, “journal entries and other adjustments and reviewing accounting estimates for possible biases that could result in material misstatements,” (Nysscpa).

Eli Lilly is a profitable company and is one of the top pharmaceutical firms. The company has faced losses in the year 2008 but appears to have been recovering strongly. While Lilly has much lower earnings than its competitor, Pfizer, Lilly’s ROA and ROE are substantially higher than Pfizer. However, Lilly’s earnings fell by 14.2% in the year 2011, and ROA and ROE also fell during the period. Its P/E ratio fell substantially since 2008 due to the market’s lack of optimism about Lilly’s future. Lilly’s management is under considerable pressure to reverse the declining trend. Thus, management would have incentives to manipulate the areas of accounting that require judgment call like revenue recognition policies and valuation allowances to boost in earnings in 2011.

Covenant’s balance sheet and income statement is a comparison of the years 2010, 2009, and 2008, and shows the company as struggling due to the current economy situation. The company’s total current assets decreased by 10.50% and include cash, short-term investment as well as inventory. The company had an increase of 9.23% in their total liabilities that was due to increases in their long-term debt as well as other liabilities. The net tangible assets for Covenant showed an increase of 7.24% over the twelve-month period. The income statement showed a decrease of 8.9% in the company’s gross profit during 2011. It also showed

The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.

This article initiates with the introduction on what is audit planning. It basically addresses the audit plan strategy of K & S Corporation limited’s Financial Statements. Being an external auditor of the company, key factors to be considered in auditing the financials of the subject company have been discussed in the article. The most significant accounts at risk being materially misstated have been critically examined citing the possible risks associated with such accounts. Last but not the least, the article concludes with recommendations with respect to audit assessment plan of the company. Hence, this article seeks to act as a ready reckoner guide for an audit manager in audit planning of K & S Corporation Limited.

Harris and Reviv (1990) gave one more reason of using debt in capital structure. They say that management will hide information from shareholders about the liquidation of the firm even if the liquidation will be in the best interest of shareholders because managers want the perpetuation of their service. Similarly, Amihud and Lev (1981) suggest that mangers have incentives to pursue strategies that reduce their employment risk. This conflict can be solved by increasing the use of debt financing since bondholders will take control of the firm in case of default as they are powered to do so by the debt indentures. Stulz (1990) said when shareholders cannot observe either the investing decisions of management or the cash flow position in the firm, they will use debt financing. Managers, to maintain credibility, will over-invest if it has extra cash and under-invest if it has limited cash. Stulz (1990) argued that to reduce the cost of underinvestment and overinvestment, the amount of free cash flow should be reduced to