The case study is divided into two parts (the word count equally between Parts A and B).Workings for any computations carried out in relation to the assignment should be included as an Appendix and need not be included in the word count.
PART A. From the financial statements, the management commentary in the annual report and other sources, and using appropriate auditing procedures, identify THREE areas of heightened audit risk relating to the audit of this company this year. Explain in detail, using some quantitative analysis, why you consider these to be areas of increased audit risk. (50%)
Part A: 3 headings (about 250 words each)
– Identify areas of heightened audit risk
– Explain in details and reasons for these areas
Areas: Tax, Expenses, Cost of sales, Pensions (other loss/profits), Share options, Borrowings (current/non-current), Trade payables, Receivables, Inventories, PPE, Profits of Napier, Non audit services…
PART B: In relation to ONE of the areas selected in Part A identify in detail, and explain the reasons for, FIVE substantive audit procedures you would carry out in attempting to reduce audit risk to an acceptably low level. (50%)
AUDIT PROCEDURES: RGF COMPANY – PAYROLL
Part B: 5 headings (about 150 words each)
– Identify in detail a relevant procedure
– Explain reasons for this procedure
– Detailed analytical procedures: specific
– Tests of detail: samples in relation to assertions, completeness, occurrence, classification, accuracy, cut off, disclosures
– Month by month analysis of payroll costs, unusual fluctuations, what is the reason for fluctuations? Independent investigation – number of employees? Hours worked? Rate of pay? Overtime pay? Commissions? Bonus? Is there a reasonable explanation?
– Are there the relevant number of entries (12/52) covering the year
– Have all employees been included? Sample from HR department employee records files/starters or leavers dates/for a month – all elements of gross pay are included accurately/Ers NIC/Pension contributions/transferred to appropriate NL account/NL a/c to FS
– Fictitious entries: sample from payroll records for individual employees, does this person exist? Physical check, proof of ID.
– Starters/leavers – check dates from payroll to HR records
– Payroll records to supporting calculations. Payroll to NL. Net pay to bank statement entries.
– Identify accruals for payroll. Re-computation or recalculation of year end adjustments
– Review NL accounts for unusual journals near year end. Seek explanation.
Questions to consider
1.What does the company do and where does it do it?
2.Do the financial statements indicate any anomalies requiring further investigation?
3.Are there any ethical issues affecting this audit?
4.Are there any recent changes in the economy, the industry, or the organisation creating risks?
5.Are there any recent changes in accounting regulation affecting this company for this year?
6.What are the key problematic accounting areas for this company?
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