Question

Using the integrated audit framework, develop an audit program presentation using relevant financial and operational information provided in the case. For this assignment, be sure to identify relevant areas that will be audited, objectives, control tests, substantive tests, documentation, and sampling procedures. The audit program should be developed based one of the following business cycles:

Review process

Purchasing process

Human resource

management process

Inventory management process

Financing and investing process

The relevant assertions to be used as audit objectives are as follows:

Existence

Completeness

Accuracy or valuation

Rights and obligations

Presentation and disclosure

The audit program should be designed for a well-known information technology company, HP. You should review relevant information from the case as well as perform further research regarding the company. Consider past and present issues that could be relevant or that could impact the audit. Include the methodology that was developed to design the audit program.

Your audit program should be developed in the form of a PowerPoint presentation with 4–6 slides and speaker notes for each slide.

The well known company is HP

Answer 1

Integrated audit can be defined as an audit that combines the audit of financial statements along with the audit of internal control environment in a company. The Sarbanes-Oxley Act initiated the audit of internal controls and had put the onus on Management for establishing, maintaining and reporting on internal control process within their organisation and the Act expects the auditors to opine on the the company's internal controls over financial reporting.

Presented below is the audit program for the inventory management process of HP. The design of the audit program will be based on objectives, control tests, substantive tests, documentation, and sampling procedures and the approach for each of them is listed below.

Objectives

The ojective of this audit is to ascertain whether the internal contol stucture for the inventory management process at HP is delivering the required results. The objectives could be further explained as to ascertain the existence of the inventory, ensuring the valuation of the inventory is accurate, physical verification of the inventory to ensure that the inventory recorded is complete and is not under or over reported. Considering HP will have proprietary Intellectual Property, we will focus on checking that there is no infringement on the same and validate that HP reserves its full rights on the entire inventory of its assets.

Control Tests

Internal Control Evaluation: We will verify the segregation of incompatible functions, standard form for recording movement of inventory, cross checking of data generated by different departments.

Substantive Tests

• Verification: determine if the management has conducted physical verification, whether evidence of the inventory exists, check the ownership and valuation.
• Examination of Records: will check the type of records maintained and increase the checks in case of absence or insufficiency of records maintained.
• Attendance at Stock Taking: will be present during stock taking, analyse the methods and procedures for stock taking, check whether the procedures adopted for stock taking and confirm if it is adequate, check the control over movement of stocks during stock taking and cut off procedures.

Documentation

We will provide appropriate documentation with all supporting and justification for our findings based on the audit.

Sampling Procedure

According to the definition of audit sampling in ISA 530 is:
"The application of audit procedures to less than 100% of items within a class of transactions or account balance such that all sampling units have a chance of selection"

We will consider four statistical parameters to determine an appropriate sample size to select for the planned control test:

1. Confidence level

2. Expected deviation rate

3. Tolerable rate

4. Population.