Question

Use the Internet to select a public company that appeals to you. Imagine that you are a senior partner in a public accounting firm hired to complete an audit for the chosen public company.

Write a four to six (4-6) page paper in which you:

Outline the critical steps inherent in planning an audit and designing an effective audit program. Based upon the type of company selected, provide specific details of the actions that the company should undertake during planning and designing the audit program.

Examine at least two (2) 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 (3) 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.

Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Answer 1

PART 1 Specific action to be taken while planning and desinging the audit

1. Terms of his engagement and any statutory responsibilties .

2. Nature timing of reports or other communication.

3. Applicale legal or statutory requirements.

4. Study the MOA and AOA of the entity as to ensure that the object clause of MOA permits the entity to engage in the busniess.

5. Examination of Internal control aspect that whether internal control has been working effectively and efficiently or not.

6. Identification of significant audit area.

7. Setting of materlity levels for the audit purpose.

8. Degree of reliance to be placed on the accounting system and Internal control.

9. Nature and extent of audit evidence to be obtained.

10. Allocation of works to be undertaken between joint and the procedure to be followed.

11. Establishing the coordinating staffing requirment.

Part IInd

Performs Ratio that you use to determine analytical test of perform

Stock Turnover Ratio

assets turnover Ratio

Net profit to Turnover Ratio

Identication of accounts that we will test

Cash account

Fixed assets account

Capital Account

Debtors Account

Analytical procedure that you would use in audit

Understanding the client business.

Identify areas of potential risk.

determine the nature timing and extent of his other audit procedure.

Analytical procedure in planning an audit use both financial data and non financial information such as number of employee , machine hours , number of goods produced and similar information.

Part IIIrd

Statistical Sampling

(i) Random selection of the sample items. and

(ii) The use of probability theory to evaluate sample result , including measurement of sampling risk.

This method is more scientific as it involves use of laws of probability.

This method has reasonably wide application where a population consists of a large number of similar items.

Non Statistical sampling

(i) A sampling approach that does not have characteristics of random selection and use of probability theory is considered as non statistical sampling.

(ii) In this method the sample size and its composition are determined on the basis of personal experience and knowledge of the auditor.

(iii) This method because of its simplicity in operation was in comman application for many years.

If that the end result is an unqualified audit report, the auditor's primary responsbility is to issue the audit report to the shareholder describing that financial statement are free from material misstatement and shareholder can take decision on the basis of the report.