Question

First, you will prepare a memo to be reviewed by the chief financial officer (CFO) of your chosen company that summarizes the audit process conducted. Then, you will assume the role of CFO of the company and prepare a memo to the Board of Directors as to what potential issues the external audit team might find and what the company's response should be.

Answer 1

Solution:-

Audit Process - An audit is a formal check of financial accounts of an individual, business or organization. An internal audit is conducted by members of the same organization or business, and an external audit may be conducted by a regulatory agency or governmental agency. There are six specific steps in the audit process that should be followed to ensure a successful audit.

Requesting Documents

After notifying the organization of the upcoming audit, the auditor typically requests documents listed on an audit preliminary checklist. These documents may include a copy of the previous audit report, original bank statements, receipts and ledgers. In addition, the auditor may request organizational charts, along with copies of board and committee minutes and copies of bylaws and standing rules

Preparing an Audit Plan

The auditor looks over the information contained in the documents and plans out how the audit will be conducted. A risk workshop may be conducted to identify possible problems. An audit plan is then drafted

Scheduling an Open Meeting

Senior management and key administrative staff are then invited to an open meeting during which the scope of the audit is presented by the auditor. A time frame for the audit is determined, and any timing issues such as scheduled vacations are discussed and handled. Department heads may be asked to inform staff of possible interviews with the auditor.

Conducting Fieldwork

The auditor takes information gathered from the open meeting and uses it to finalize the audit plan. Fieldwork is then conducted by speaking to staff members and reviewing procedures and processes. The auditor tests for compliance with policies and procedures. Internal controls are evaluated to make sure they're adequate. The auditor may discuss problems as they arise to give the organization an opportunity to respond.

Drafting a Report

The auditor prepares a report detailing the findings of the audit. Included in the report are mathematical errors, posting problems, payments authorized but not paid and other discrepancies; other audit concerns are also listed. The auditor then writes up a commentary describing the findings of the audit and recommended solutions to any problems.

Setting Up a Closing Meeting

The auditor solicits a response from management that indicates whether it agrees or disagrees with problems in the report, a description of management's action plan to address the problem and a projected completion date. At the closing meeting, all parties involved discuss the report and management responses. If there are any remaining issues, they're resolved at this point.

Potential Issue the external audit team might find:-

1. Issues in the Internal Financial Control as it is being required to be reported in there audit report. - The Company should focus on there better internal control and should follow all the policy and procedures which have been envised in the company documents.

2. Contingenies in respect of outstanding demand of Tax are an important area to be looked into as it is being reported in the financials.

3. Propert recording of all the transaction in financials - The same need to reviewed that all the transaction are being recorded in the financials on a accural concept so that the financials represents a true and fair view.

4. Financials that represents a true anf fair view.