This is missive is to inform you of the programs for the beginning of the audit procedure that we plan to take to finish the audit of Apollo Shoes. There are many parts to the procedure and we will discourse each within this missive. The beginning of the audit procedure is to depict the aims of the audit. and the duties and schemes to finish the audit.
The primary aim of the audit is to publish an sentiment on the fiscal statements of the company. With this sentiment. the users of the fiscal statements are able to cognize that the fiscal statements are presented reasonably and in conformity with the Generally Accepted Accounting Principles. “An auditor’s sentiment enhances the grade of assurance that intended users can put in the fiscal statements” ( Arens. Elder. & A ; Beasley. 2014 ) . If the statements are non reasonably stated. so we will advise all users with the study.
Following are the duties of the direction and the hearers. Management is responsible for many things from guaranting that internal controls are in topographic point. fraud hazards are identified. and effectual administration is established ( University of Nebraska-Lincoln. 2015 ) . With these duties accomplished. the users have confidence that the fiscal information is dependable. The auditor’s chief duty is to observe any material misstatements that may hold been found within the fiscal statements. The hearer will utilize the Generally Accepted Auditing Standards as a model for the audit.
Some schemes for finishing the audit are first to obtain sufficient grounds to back up all of the information given and the averments of direction about the fiscal statements. Besides before the audit is even completed. “the hearer must hold a thorough apprehension of the client’s concern and related environment. including cognition of schemes and processes” ( Arens. et Al. . 2014 ) .
Analytic processs are used during an audit to derive some cognition of Apollo’s concern and its hazards. “Business hazards are the factors that could forestall or impede the accomplishment of organisational ends and objectives” ( Accounting Simplified. 2013 ) . The processs that are done can be every bit simple as comparing the fiscal ratios of Apollo with anterior old ages or even the norm of the other companies in the same industry. If the ratios are different by a big sum. so the hearer can look into the parts of the ratios and may happen a misstatement.
The analytical processs are performed during the planning. proving and completion stages. In the be aftering portion of the audit. the processs help place important affairs necessitating particular consideration later in the audit ( Arens. et Al. . 2014 ) . During the testing or carry oning portion of the audit. the processs support the information from the history balances. The hearer computes the ratios and compares them with the expected ratios. The hearer must include all certification of these trial ratios. Finally. the trials are done to take a last expression for any misstatements that may hold been missed. This concluding expression is normally done by the more experient spouse of the audit house.
When planing the audit. we will be besides discoursing the consideration of materiality and hazard. Materiality is the step of the estimated consequence that the presence or absence of an point of information may hold on the truth or cogency of a fiscal statement. When a stuff misstatement is found. the hearer will hold to convey it to the company. The application of materiality is done in a twosome of stairss. The hearer will find the public presentation materiality every bit good as the materiality of the statements as a whole foremost. Then the hearer will gauge the each portion of the fiscal statements and unite them to acquire one misstatement. The last measure is to compare them with the preliminary judgement to see if the fiscal statements are acceptable.
Audit hazard is the hazard that the hearer will non happen any material misstatement during the audit. There are many hazards associated with the audit. Planned sensing hazard is when the grounds collected for the audit will neglect to observe misstatements. This hazard helps the hearer find how much grounds is needed to do certain that no material misstatement exists. Another type of hazard is built-in hazard. This is measures how susceptible a direction averment is to a material misstatement. Next is control hazard. Control hazard is when an hearer thinks that a misstatement could go on but it would non be found or stopped by the internal controls implemented by direction. Last. there is acceptable audit hazard. “AAR is a step of how willing the hearer is to accept that the fiscal statements may be materially misstated after the audit is completed and an unqualified sentiment has been issued” ( Arens. et Al. . 2014 ) .
Information Technology will be implemented into the audit. The computing machines help travel from manual controls to automatize controls so the hazard of human mistake is reduced and the information available via the computing machine is readily available. The scrutinizing done with IT is done two different ways. scrutinizing around the computing machine or through the computing machine. Auditing around the computing machine is when the hearer will finish the audit of the internal controls the same manner they would make it with a manual accounting system. Auditing through the computing machine means that the paperss needed to finish the audit are merely available electronically. The hearer will finish different trial because of this. The hearer will utilize one of three attacks. The first is the trial informations attack. This means that hearer will utilize the company’s system and plan to run informations and the system should either accept or reject the information. The following attack is parallel simulation. This is when the hearer
runs the same information as the company at the same time utilizing generalized audit package ( GAS ) . The last attack is the embedded audit faculty attack. Using this attack. the hearer has the ability use existent dealing done by the company to compare with what end product is generated by the company and the faculty.
The planning of the audit will be done with all of these facets incorporated.
Accounting Simplified. ( 2013 ) . Audit Riskes & A ; Business Risks. Retrieved from hypertext transfer protocol: //accounting-simplified. com/audit/risk-assessment/audit-risk-business-risk. hypertext markup language Arens. A. A. . Elder. R. J. . & A ; Beasley. M. ( 2014 ) . Auditing and Assurance Services ( 15th ed. ) . Upper Saddle River. New jersey: Pearson. University of Nebraska-Lincoln. ( 2015. Winter ) . Management’s Responsibilities. Retrieved from hypertext transfer protocol: //audit. unl. edu/managements-responsibilities
Engagement Checklist. Timeframes and Milestones
1 ) Plan and plan the audit
a ) Decide to accept client or non
B ) Conduct research about the client’s industry and concern
degree Celsiuss ) Examine concern hazard and execute analytical processs d ) Set materiality
vitamin E ) Asses control hazard
degree Fahrenheit ) Compute fraud hazards
g ) Develop scheme and audit plan ( milestone # 1 )
The first portion should be completed before fiscal statements are issued. Due 9-30-07
2 ) Perform trial of controls and minutess
a ) Examine the degree of control hazard. Can it be reduced?
B ) If yes. perform trials of internal controls over fiscal describing degree Celsius ) If no. execute substantial trials of the minutess
vitamin D ) Asses likeliness of misstatements ( milepost # 2 )
This testing will be completed throughout the twelvemonth but must be done by 10-31-07
3 ) Analytic Procedures and Trials of balances are completed now ( milepost # 3 )
a ) Perform substantial analytical trials to measure rationality of balances and minutess b ) Trial of inside informations of balances
This will be completed by 12-31-07 and so there will besides be more analytical processs done after books are closed. Books planned to be closed by 1-8-2008.
4 ) Finish Audit and publish study
a ) Test presentation and revelation
B ) Evaluate consequences of audit
degree Celsius ) Issue Report ( milestone # 4 )
vitamin D ) Discuss with audit commission and direction the audit study
Apollo Shoes Inc.
100 Shoe Plaza
Shoetown. ME 00001
Dear Management of Apollo.
The petition to scrutinize the fiscal statements of Apollo Shoes. Inc. from the twelvemonth stoping December 31. 2007. which include the balance sheet. income statement. statement of hard currency flow and the statement of shareholders equity. has been accepted by our audit house. We will carry on the audit with the aim of showing our sentiment on the fiscal statements.
The audit will be conducted in conformity with GAAS. the criterions of scrutinizing in the United States. Harmonizing to those criterions. we must execute the audit to obtain sensible confidence that the fiscal statements are free from what we deem as a material misstatement. We will besides measure the estimations made by direction. the utility of accounting policies and the presentation of the statements. which includes all notes and revelations.
In finishing the audit. there is a hazard involved in which a stuff misstatement may non be found. This can go on even if the audit is decently planned and executed right. Besides. internal control will non be tested but we would pass on with you if we found a lack in internal control in authorship.
The audit will necessitate the aid of direction. Management must let my squad to hold entree to all information that was needed to fix the statements. They must besides give us entree to anyone that may hold any of the audit grounds that we will necessitate to fix our study.
The fees associated with the audit will be billed as yearss are completed. The hours worked will be used as the chief factor. Any other disbursals incurred will besides be billed. We estimate entire fees to be about $ 150. 000. 00. You will be notified if we think that we will travel over that estimation.
At the terminal of the audit. we will publish a study. The study will travel to direction and the board of managers.
Please mark and return this missive to bespeak you recognition of. and understanding with. the agreement of the audit of the fiscal statements.