Auditor Preliminary Analytical Procedure

Auditor Preliminary Analytical ProcedureAuditors be required to prep atomic number 18 the preliminary uninflected procedure at the grooming as a part of the happen-assessment procedures under ASA 315.6. The definition of preliminary analytical procedure is that comparing of client dimensionns to industry or competitor bench marks provides an meter reading of the ships companys execution of instrument. The purpose of preliminary analytical procedure is to obtain understanding of the clients company and industry. (textbook)In common, two major stages, simple comparisons and ration abridgment, are apply by take stockors during analytical procedure however ration digest is a better understanding of the entity. Based on the data from question 6.33, the analysis procedure is entirelyocated in two major stages. (textbook)Simple comparisons.Simple comparison is to compare amounts between the 2009 fiscal statements and 2010 financial statements of Gourmet Pty Ltd.The net turn a return increases from $56 240 000 in 2009 to $63 562 000 in 2010, the tack magnitude amounts are up to $7 3220 000.The total shareholders equity increases from $141 300 000 in 2009 to $204 862 000 in 2010, the increasing amounts are up to $63 562 000.The performance of company is better from 2009 to 2010 in respect of above data, beca wasting disease company owns a steady and see wariness team attempts to extend the range of products in order to enhance controversy of industry and depends on appropriate strategy to acquire other smaller competitors. The simple comparison is a general analysis, however, meeter take up to use ratio analysis in order to obtaining the specific data.Ratio analysisBased on 6.33, following ratios could be calculated for analysis.The current ratio is 0.195 in 2009 and 0.280 in 2010. These two ratios are less than the better benchmark 2, even are lower than positive current ratio 1.5 as well.The quick asset ratio is 0.070 in 2009 and 0.096 in 2010 .The gross profit ratio is 0.481 in 2009 and 0.463 in 2010.The net profit ratio is 0.183 in 2009 and 0.193 in 2010.The debt to equity ration is7.30(a) The inborn danger is the susceptibility of an scotch equalizer, class of acts or disclosure to material misstatement given inherent and environmental characteristics, but without regard to ingrained rule. (textbook) Based on the punctuate schooling from 6.33, following factors could impact the inherent attemptA modern finance director has joined in the company. The change of important forethought position would increase inherent jeopardy. At the same time, the new finance director lead face pressure to outperform pervious firmness of purpose the pressure could provide an incentive for him or her to involve the misstatement and fraud of financial report. Also the inherent risk would increase.The company owned 25 outlets of vary sizes and geographic locations, which would increase inherent risk, because it is hard to be controlled by managers of entity. company has signed contract regarding the construction and development of a restaurant and diversion complex, which would increase inherent risk due to the lack of expertise or so the new market.The company installed a new computer system the change of information technology may non work as expect or may be unreliable and could affect the the true of financial report. Therefore, the inherent risk would be increased.(b)(i) Based on the audit risk model, three components consist of audit risk inherent risk, control risk and detection risk. The increase of inherent risk will result in that misstatements likely to occur in companys financial report, which would lead to the increase of audit risk as well.(textbook)(c) The level of physicalness should be considered as a key point to plan the nature, timing and extent of audit procedure, and the kindred between audit risk and materiality is inverse. (textbook)Therefore, the amount of preliminary mat eriality level shrivel upd from $5000000 to $3200000 after review of inherent risk, because that the inherent risk is higher than the hearers anticipation. Thus, listener should increase the extent of audit procedures, selecting a to a greater extent effective audit procedure and performing audit procedures closer to the balance date, particularly in respect to account is considered importantly by auditors.(text book)8.34(a) The objects of natural auditors are that Internal auditing is an independent, documental assurance and consulting activity designed to give value and improve an organisations operations. (Adam Cunningham). The indispensable auditors scope of work is comprehensive. It serves the organization by helping it accomplish its objectives, and improving operations, risk management, subjective controls, and governance processes.(http//www.theiia.org/theiia/ rough-the-profession/ immanent-audit-faqs/?i=1086)External auditor is to verify that the annual accounts pr ovide a accredited and fair picture of the organisations finances and that the use of funds is in harmony with the aims and objects as outlined in the constitution.The scope of foreign auditors(b) External auditor quarter adopt the information from internal auditor included thatThe internal audit function as a part of the internal control, will impact the outdoor(a) auditors assessment of control risk and the scope of audit procedures.The descriptions and other documentation of internal control will contribute the external auditor to gain an understanding of the companys internal control.The direct assistance by internal auditor will help external auditor to situate substantive test or tests of controls(textbook)(c) Along with internal auditor birth-to doe with in assessing the company strategy and identifying the associated risks, which will provide helps for the external auditor regarding to undertake a business risk approach to the audit. In addition, internal auditors sh ould hold adequate skills, knowledge, experience, integrity and objectivity to tick off the effective information for external auditor. (textbook) Based on the information on 8.34, Gourmet Pty Ltd owns an experienced and professional internal auditing team. However, the external auditor should consider carefully for these information, because that the objectives of the internal auditor should be the same as the objectives of the company (David A. Wood).Therefore, external auditor must select information under the requirement of independent audit.(d) The objective 1, objective 2 and objective 4 are associate to ensure the effective operation and acquirement of maximal benefit for company, which are not included in control activities. The control activities is that policy and procedures that pertain to performance reviews, information processing, physical controls and segregation of duties. (Textbook) Therefore, the objective 3, objective 5 and objective 6 are related to internal c ontrol activities, which are penury to be relevant to external auditor.9.35(a) The related internal control must be identified effectiveness if auditors plan to rely on this control. Therefore, auditors need to set out tests of control to confirm effectiveness of controls. From this case, the audit partner has decided to use the work of the internal audit group (LAG). unrivalled of the work papers from LAG is to examine payments made to creditors throughout the stratum and determine whether the procedures laid down in the Accounting Manual gull been properly followed. On the other word, this paper is related to the tests of control about payment. The result of this test indicates some fractures(i) Payments that were not matched to an approved purchase order, however, all other documentation was attached.The objective of this is to test the occurrence of purchases of stocktaking movement. This computer hallucination implies that related transaction may not occur or the tran saction is unauthorised.(ii) Payments that were not made to an approved supplier.The objective of this is to test the occurrence of purchases of inventory transaction. This error implies that related transaction may not occur or the transaction is unauthorised.(iii) Payments that were authorized by a second party, although this was not required.The notes excuse that new financial accountant being unaware of firm policy. Although it has been remedied, the related transactions may do not occur or is unauthorised.(iv) Payments that had no supporting documentation attached.The objective of this is to test the occurrence of cash disbursements transactions. This error implies that related transaction may not occur or the transaction is unauthorised or the goods or services may not receive.(v) Payments that did not bear evidence that computation on creditors invoices had been checked.The objective of this is to test the accuracy of purchases of inventory transactions. The error implies tha t related transactions are not put down correctly.Also, these errors indicate that the internal control regarding payments is not very effective, because the proportion of error is almost 28% of 60 samples. It means that the risk of this related internal control is higher than average level.(b) Under this situation, external auditors should consider whether the evidences follow by internal auditors are satisfied sufficiency and appropriateness. Particularly in respect of the appropriateness should be discussed here. Gourmet Pty Ltd is a large mystical company therefore it must have a large hatful of transactions. If internal auditors only selected 60 samples, it should be considered by external auditors that the amounts of samples are not sufficient and the control risk is higher than its actual level. Therefore, they can choose to increase the extent of test of control to try to reduce the risk level to an acceptable level. If the control is still not on the job(p) as they exp ected, they can choose increase the extent of substantive test in order to continual reliance on this control. If the control risk still can not be reduced by these tests of control, external auditors will give up the reliance on the control. In effect, auditors have determined that control does not exist or the existence of control can not provide reliable evidence. (textbook)