Capital Structure and Dividends
The major scope of the audit process generally involves the review of non-financial as well as financial, organizational information for any significant differences between what is presented and what actually is. The following stages are involved in audit process:
Procedures of Audit and Analysis
Planning: The precise outline of the approach that is going to be undertaken for the audit process is called planning for the audit. This audit plan includes the audit objectives, wider scope, audit approach and the involved audit team (Power, 1997). There are also a number of analytical procedures, which makes up the planning process:
Comparisons of account:
This activity involves comparing the adjusted and unadjusted accounts for a given period of time and check for any deviations. The surety of consistency will be given by the approach of this kind.
Significant ratios calculation:
This involves calculating the main ratios for two periods and comparing them. Any possible frauds will get uncovered with the help of ratios.
Data Regression: The regression analysis will help understand how the Company’s data flow will differ from the same data in the industry.
Reviewing Reports and drafting:
Following the collection of all the required information, a report will be prepared that highlights the main notes in the process of investigation. The report will help the auditor back up his opinion with evidence that he has collected from the field.
The review of data follows the given procedures:
Data with similar orientation are compared for two years for the same company and also for the industry. The discrepancies in the industry data will be duly reduced with ratio analysis. Graphs will be the appropriate option to display this. Another method through which the auditor can indulge in the computation of data for many years and for separate periods is the trend analysis, which ensures data consistency (American Accounting Association, 1981).
It is very important to review the transactions of the business. There will be a need for recorded data review by the concerned Companies and also in the books of accounts so that the true nature of the transactions can be understood. I would take the given steps for audit purposes:
Reconciliation of receivables accounts:
The amount that is being owned by the debtors is the receivables amount. There needs to be a process of contact by the auditor to these debtors so that the true nature of the recorded data can be established.
Reconciliation of payables accounts:
The payable accounts indulge in the record of firm obligations towards the suppliers. The surety on the existence of data should also be maintained by the auditor.
Determination of future transaction by scanning through:
There may be cases where the firm gets carried over and thus some of the obligations may end up affecting the firm position. There needs to be a check by the auditor on the probability of occurrence of these events.
Review the changes in audit trail:
The current year and previous year data may be taken as the references for audit changes. The true and fair conduction of audit will be ensured by this.
Since the audit process also involves comparison of data across periods of time, it is advisable to do sample the transaction computations online. Amazon could be one of the alternatives. Trend analysis could also be done for long periods of time, and general data trend be taken for an organization, followed by comparison in the industry. Various factors could be analyzed such as tax claims.
If there is found to be significant risk in the transactions of the Company, there can be the following focus areas:
The internal controls: In the organizations where the internal control is weak, the cash and revenue streams are at risk (Madu, Christian, Kueiyyyy & Chu-hua, n.d). The transaction completeness becomes one of the major factors in such cases. The scope of internal controls may be from duty segregation to individual transaction processes (Melville, 1999).
Complexity in the accounting calculations:
The correctness of the revenue calculation method should be considered. The issues that cover the recognition of revenue should be taken into consideration.
One of the factors that need to be checked is the congruency and consistency between accounting principles and the GAAP standards. The genuine nature of the transactions will only be confirmed if there is accuracy in the cash transactions.
Charts and Figures of Management: The chart provides the information on duty flow in the organizational hierarchy. This will give an account of the whole recording process.
Past data: The past records also give an account of how past transaction records were kept. It should also be ensured in all departments that the handling of transactions is not only in one person’s hand.
Policy book: This book ensures that the knowledge of the treatment of accounting transactions is handy with the auditors. The correct determination and treatment of risk by the auditor will thus be ensured.
There is a need for documentation by the auditors in the form of a final report. The consideration that I would have is the use of narrative notes so that the gathered information significant to the report can be presented. This will give information on audit timeline, audit support as well as the relevant information related to the findings.
The auditor should consider all the transactions based on the assertions below
The above assertions should be made the bases for confirming that informed decisions are made by the auditor.
American Accounting Association. (1981). Auditing. (Auditing: A Journal of Practice & Theory.
Madu, & Christian N. (Christian Ndubisi) ; Kueiyyyy Chu-hua. ; World Scientific (Firm). (n.d.).Handbook of sustainability management. World Scientific Pub. Co.
Melville, R. (1999). Control self assessment in the 1990s: the UK perspective. Int. J. Audit,3(3), 191-206. doi:10.1002/(sici)1099-1123(199911)3:3<191::aid-ija53>3.3.co;2-9
Power, M. (1997). The audit society: Rituals of verification. Oxford, [England: Oxford University Press.