In: Accounting
Assume you currently work at a CPA firm. During the assessment of internal controls, your firm concluded that your publicly traded client did not have accounting staff who met the firm’s criteria for having adequate accounting expertise to ensure the company’s financials were prepared in compliance with appropriate accounting principles. This was identified as a material weakness and an adverse opinion was issued.
In a PowerPoint presentation, prepare information to further train the audit team on how to handle issues, which includes:
the communication that is required with the client.
the actions that the client must take to mitigate the weakness.
the course of action your firm should take as it relates to the financial audit.
After the report had been issued, assume that the client hired a CPA with extensive reporting experience to manage the accounting department. What part does this hiring decision play, if any, in your firm’s decision?
Communication required with client |
Auditor should communicate all significant findings with Client’s management stated as below: 1.Views about significant qualitative aspects of the entity’s accounting practice, including accounting policies, accounting estimates and financial disclosure. 2.Significant difficulties, if any encountered during audit 3.Significant matters arising from the audit that were discussed, or subject to correspondence with management. 4.Written representation the auditor is requesting. 5.Circumstances that affect the form and content of audit report. 6.Any other significant matter that in professional judgement, are significant to financial reporting process. |
Action that client must take to mitigate weakness: |
•As internal controls are put in place to ensure reliability of accounting systems also. keeping in mind about this, Accuracy and reliability are important for accounting world and while doing compliance with appropriate accounting policies. •Foremost action should be hiring of experienced and compatible accounting staff as per client’s recruitment policies. •Client should have appropriate control over separation od duties according to their respective qualification. •Client must have access controls like login, passwords, lockouts. •Proper maintenance of documents used for financial transactions such as invoices, expenses reports etc. •Using double entry accounting system enhances reliability by ensuring that books are always balanced. •Perodic reconcilations which can reveal errors and discrepencies. •Approval authority requires specific managers to authorise certain types of transactions which also improves reliability to such transactions. |
Course of action auditor must take: |
1.Decide scope of audit 2.Define audit objectives. 3.Set the relevant benchmark to evaluate subject matter consistently and reasonably 4.Understanding the client’s significant internal controls 5.Consider Materiality in both qualitative and quantitative terms. 6.Risk Assessment is an essential part in performing an audit 7.Planning and performing audit procedures 8.Gather sufficient appropriate audit evidence 9.Evaluate audit evidence as these evidences are to be used in preparation of financial statements 10.Proper documentations of audit evidence supports conclusions and confirms that audit has been conducted in accordance with relevant standards. 11.Communication with clients throughout the audit process will help auditor to make audit process more effectively and efficiently. |