Introduction:The risk associated with the overall operations of a business entity is called as the potential risk. It is the risk of undesirable outcomes resulting from the hazards. So an auditor as a consultant is required for risk management, who recommend some business strategy and necessary changes.
Requirement 1
Potential risk areas and the cause they represent potential risks
Introduction: The risk associated with the overall operations of a business entity is called as the potential risk. It is the risk of undesirable outcomes resulting from the hazards. So an auditor as a consultant is required for risk management, who recommend some business strategy and necessary changes.
Requirement 2
The possible explanations for representing potential risk
Introduction:To determine the quality of financial information that are provided by the clients,
Requirement 3
the accuracy of client’s data in Audit procedures
Introduction:In business practice, sometimes there may be involve altering accounts receivables to embezzlement of cash. To conceal such amount is a fraudulent activity known as lapping scheme. This method involves considering subsequent receivables payment from a transaction and uses that to cover the embezzlement of cash.
Requirement 4
the way that the CFO use
Introduction: Professional skepticism is a foundation of auditing profession. It always uses validate information through critical assessment of evidence. This skepticism must be applied at each stages of audit process.
Requirement 5
The importance of professional skepticism during performing planning analytical procedures
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Auditing: A Risk Based-Approach to Conducting a Quality Audit
- Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different for-profit and not-for-profit entities. Two years ago, Luisa Mellina, Ginnians partner in charge of operations, became concerned about the amount of audit time required by not-for-profit entities. As a result, she instituted a series of training programs focusing on the auditing of not-forprofit entities. Now, she would like to see if the training seemed to work. So, she ran a multiple regression on 22 months of data for Ginnian for three variables: the total monthly cost of audit professional time, the number of not-for-profit audits, and the hours of training in the audit of not-for-profit entities. The following printout was obtained: Required: 1. Write out the cost equation for Ginnians audit professional time. 2. If Ginnian expects to have 9 audits of not-for-profits next month and expects that audit professionals will have a total of 130 hours of not-for-profit training, what is the anticipated cost of professional time? 3. Are the hours spent auditing not-for-profit entities positively or negatively correlated with audit professional costs? Is percentage of experienced team members positively or negatively correlated with audit professional cost? 4. What does R2 mean in this equation? Overall, what is your evaluation of the cost equation that was developed for the cost of audit professionals?arrow_forwardFOR THE ANSWER OF THIS QUESTION IN THE AUDIT RISK COLUMN, WITH THE EXPLANATION COULD YOU ALSO WRITE DOWN WEATHER IT IS CONTROL RISK, INHERENT RISK OR DETECTION RISK PART B - QUESTION You are currently planning the audit of your client, DEF plc. Its year end is 31December 2019 and the forecast profit before tax is £15.5 million. DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc. Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team…arrow_forwardListed below are various risks identified during audit planning that you have been asked to evaluate to assess whether they are significant risks. Fernandez Wholesalers sells energy drinks to various distributors. As they have expanded sales to additional customers, there has been some increase in the age of accounts receivable, which could require an increase in the allowance for doubtful accounts. Sansone Construction builds light commercial real estate properties. This year they started a new project that is three times larger than previous projects completed by the company, and is the first one that will take more than one year to complete. The company has limited experience with percentage of completion contract accounting, and the project is running significantly behind schedule. Horton Sports produces high-end sporting gear. Sales and receivables have increased significantly in the fourth quarter over the previous year, and the company has pressured customers in the past…arrow_forward
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- You are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit forthe year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located inSydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s majorsuppliers went bankrupt one month ago, causing major product shortages. To overcome the problem,Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electroniccomponents to Vesta Tech Ltd through his private company. There is no formal agreement in placewith Jonathon Marshall, however, the goods are being provided at competitive prices. You areconcerned about the electronic components that Jonathon Marshall’s company is supplying, becausehis products are new to the market and you have heard some of Vesta Tech Ltd’s staff complainingthat they are of poor quality.The board has informed you that although sales have been strong this year, Vesta Tech Ltd hassuffered significant…arrow_forwardDaisy CPAS are auditing the accounts of Focus Inc., a regional power cooperative. The audit team assigned to the audit of accounts receivable has noted from prior audit experience that the majority of clients pay their bills on time and in the correct amount. One of the audit team has also noted that the cooperative has hundreds of thousands of customers. Based on this information, what might be a prudent approach to substantive testing by Daisy CROS?arrow_forwardYou are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem, Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic components to Vesta Tech Ltd through his private company. There is no formal agreement in place with Jonathon Marshall, however, the goods are being provided at competitive prices. You are concerned about the electronic components that Jonathon Marshall’s company is supplying, because his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining that they are of poor quality.The board has informed you that although sales have been strong this year, Vesta Tech Ltd has suffered…arrow_forward
- You are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem, Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic components to Vesta Tech Ltd through his private company. There is no formal agreement in place with Jonathon Marshall, however, the goods are being provided at competitive prices. You are concerned about the electronic components that Jonathon Marshall’s company is supplying, because his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining that they are of poor quality. The board has informed you that although sales have been strong this year, Vesta Tech Ltd has suffered…arrow_forwardYou are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem, Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic components to Vesta Tech Ltd through his private company. There is no formal agreement in place with Jonathon Marshall, however, the goods are being provided at competitive prices. You are concerned about the electronic components that Jonathon Marshall’s company is supplying, because his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining that they are of poor quality.The board has informed you that although sales have been strong this year, Vesta Tech Ltd has suffered…arrow_forwardYou are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit for the year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located in Sydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s major suppliers went bankrupt one month ago, causing major product shortages. To overcome the problem, Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electronic components to Vesta Tech Ltd through his private company. There is no formal agreement in place with Jonathon Marshall, however, the goods are being provided at competitive prices. You are concerned about the electronic components that Jonathon Marshall’s company is supplying, because his products are new to the market and you have heard some of Vesta Tech Ltd’s staff complaining that they are of poor quality.The board has informed you that although sales have been strong this year, Vesta Tech Ltd has suffered…arrow_forward
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