Question

In: Accounting

Summarise risks, controls, and procedures for Plant, Property, and Equipment. The summary should identify eight to...

Summarise risks, controls, and procedures for Plant, Property, and Equipment. The summary should identify eight to twelve meaningful risks of material misstatement or "what can go wrong" for the Plant, property, and Equipment. For each material misstatement or "what could go wrong" explain: (100 points)

> SPECIFIC AUDIT OBJECTIVES

> RISK OF MATERIAL MISSTATEMENT OR “WHAT COULD GO WRONG”

> RELEVANT FINANCIAL STATEMENT ASSERTION(S) eg. completeness, existence, cutoff etc

> ONE OR MORE CONTROLS YOU WOULD EXPECT THE COMPANY TO EMPLOY TO PREVENT OR DETECT “WHAT COULD GO WRONG”

> ONE OR MORE CONTROL TESTS YOU WOULD EXPECT THE AUDITORS TO PERFORM TO ASCERTAIN THE CONTROLS ARE EFFECTIVE

> ONE OR MORE SUBSTANTIVE PROCEDURES YOU WOULD EXPECT THE AUDITORS TO PERFORM TO MEET THE SPECIFIC AUDIT OBJECTIVES

Solutions

Expert Solution

AUDIT RISK

Basically, audit risk is the risk arising from carrying out audit work. It is the risk of the auditor 'suffering loss' as a result of giving an inappropriate audit opinion. Is related to materiality, as it is the risk that the auditor come to an invalid conclusion in audit report, namely that either:

* The audit report is unqualified but subsequently material error is found in the financial statement.

* The audit report is qualified but subsequently no material error is found in the financial statement.

This may arise from:

* Not gathering appropriate audit evidence.

* Being deliberately misled by those providing the evidence that conceal evidence that would have led to a different opinion, or who falsify evidence.

* Misinterpreting (drawing inappropriate conclusions from) the evidence gathered.

Audit Risk = Inherent Risk x Control Risk x Detection Risk.

CONTROL RISK

It is the risk that a misstatement that could occur in an account balance or class of transactions and that could be material either individually or when aggregated with misstatement in other balance or class, would not be prevented or detected and corrected on timely basis, by the accounting and internal control system.

Identifying and Assessing the Risks of Material Misstatement

To provide a basis for designing and performing further audit procedures, the auditor should identify and assess the risks of material misstatement at

  1. The financial statement level.
  2. The relevant assertion level for classes of transactions, account balances, and disclosures.

For this purpose, the auditor should:-

  1. Identify risks throughout the process of obtaining an understanding of the entity and its environment, including relevant controls that relate to the risks, by considering the classes of transactions, account balances, and disclosures in the financial statements.
  2. Assess the identified risks and evaluate whether they relate more pervasively to the financial statements as a whole and potentially affect many assertions.
  3. Relate the identified risks to what can go wrong at the relevant assertion level, taking account of relevant controls that the auditor intends to test.
  4. Consider the likelihood of misstatement, including the possibility of multiple misstatements, and whether the potential misstatement is of a magnitude that could result in a material misstatement.

AUDIT OBJECTIVE

The main objectives of audit are known as primary objectives of audit. They are as follows:

  1. Examining the system of internal check.
  2. Checking arithmetical accuracy of books of accounts, verifying posting, costing, balancing etc.
  3. Verifying the authenticity and validity of transactions.
  4. Checking the proper distinction of capital and revenue nature of transactions.
  5. Confirming the existence and value of assets and liabilities.
  6. Verifying whether all the statutory requirements are fulfilled or not.
  7. Proving true and fairness of operating results presented by income statement and financial position presented by balance sheet.

Subsidiary Objectives of Audit

  1. Detection and prevention of errors
  2. Errors of principle
  3. Errors of omission
  4. Errors of commission
  5. Compensating errors
  6. Misappropriation of cash
  7. Misappropriation of goods

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