Misstatement Type on Achieved Audit-Free-Samples for Students

Questions: 1.Explain how your resultsIinfluence your Planning decisions for the audit for the year ending 30 June 2015. 2.Explain why it is a risk and how it may affect the risk of Material Misstatement in the Financial Report. 3.Based on the background Information for DIPL contained in the case, identify and explain two key fraud risk factors relating to Misstatements arising from Fraudulent Financial reporting to which DIPL may be susceptible. Answers: 1.In order to carry out the audit procedure auditor need to carry out various processes to provide opinion on the financial statement. For this the auditor need to conduct analytical procedure to provide the evidence for carrying audit activity. These procedures give the result that the organizations books of accounts are prepared without any error and misstatement. Analytical procedures are the detailed examination of the items and information provided in the financial statement. These are helpful in determining whether the transactions have been prepared in legible manner and without any fraud conducted by any of the employees on management of the company. The result obtained on the procedure supplied by the auditor helps in determining and preparing the plan for conducting audit and assurance procedure. Auditor gets the knowledge about the areas which he need to concern more and the areas which are less in priority. The evidence received on performing analytical procedures becomes the part of the documentation of the auditor for the future reference. A detailed plan can be made which includes all the areas of high concern and of high value where are the chances of fraud greater. On the basis of results obtained by the analytical procedure the auditor is in a position to ask from the person charged with governance about the reasons and the steps taken by them to correct the error in the financial statements. On the basis of the review of the financial statement of auditor decide upon the reply received from the management (Brown-Liburd, et. al., 2015). In the present case firm is conducting printing activity for which he takes orders on online basis. It is very important to check that the online orders received in confirmation to the delivery made for the orders. What is the auditor need to check whether the documentation is proper and all the documentation are related to the orders received through online mode. If any Outsourcing is carried by the firm it should be checked by the Outsourcing form and evidence should be taken to confirm with the firm books of accounts. Related to cash balance the auditor should tally the actual cash balance with the cashier with the balance shown in the cash statement. Also the cash can be verified by actual verification by the auditor. It can also be checked that the proper segregation of duties is undertaken by the firm to avoid fraud and error by the employees. All the payments which are large amount should be verified with the documents attached with the transaction undertaken. This will help the auditor in determining the strength of the internal control system of the organization and depth to which he has to conduct its activities to get the actual result for the operation undertaken. All these procedures provide auditor a direction towards which he has to work in order to get the result for which he can formulate report which depicts true and fair view on the financial statement. The results of the analytical procedures heavily affect the decision of the auditor in performing Audit and assurance. If the result obtained in performing this activity is positive he will conduct the audit in less detailed manner taking the reference of the internal control system of the firm. On the other hand if he encounters weakness in the internal control system he will focus more on the information provided by the organization and will go in detailed manner in order to provide opinion (Christensen, 2012). From the above discussion it can be proved that planning of the auditor is very important to carry out the activity in a planned manner. Therefore analytical procedures are performed in mathematical or physical manner in order to check the genuinity of the transactions recorded in the financial statement. The results obtained by the procedure applied make the altar in a position to question the management about the mismatch of the result with the transactions recorded. Whether the organization is small or large auditor need to apply these procedures in order to come to the result to get the direction of work to be performed by him. This not only provides him the knowledge to conduct the activity but also about the chances of fraud conducted by the management. 2.Inherent risks are the risks which are inbuilt in the internal control system of the organization. These risks are difficult to be detected by the auditor until he undergoes the detailed examination of the internal control system of the firm. This affects the quality of the financial statement but also the opinion and the report formulated by the auditor on the same. The inherent risks which the organisation can face are provided as: Material misstatement: This is a inherent risk which can be present in any type of organization. These are the errors which can be intentionally or non intentionally performed by the person providing the information in the financial statement. This can be happen even if the person takes due diligence in performing the activity. Therefore it is important to understand by the auditor about the knowledge possessed by the person who is recording the transactions so that he can form the opinion on the true and fair view of the financial statement. To check the auditor need to study the internal control system to make Reliance on the knowledge and capability of the person recording and preparing financial statement (Messier Jr, 2010). Person charged with governance: Where the person in management or those who are charged with governance to take care about the financial statement and to provide the information needed by the auditor it is necessary to check about the decision taken power and the knowledge possessed. If the management has proper knowledge about the financial statement and have the capability to analyze the mistakes it can we analyze that the internal control system of the organization is strong and the auditor is in a position to provide true and fair view on the financial statement. These inherent risks affect the quality of the audit performed by the auditor and the report formulated on the true and fair view of the financial statement. If the auditor is not able to check the inherent risk of the organization he will not be able to report correctly on the records of the organization. If the auditor is able to detect the inherent risk he will perform the audit procedure in that manner by which all the areas will be covered and he will be able to analyze every aspect connected with the inherent risk so that proper view can be taken 3.DIPL is a firm conducting printing activity. There can be chances of fraud in the organization either from the employees or through management. The chances of fraud can be occur through orders taken through online mode. The organization has to take care about the recording of the orders received and proper documentation should be present so that any person connected with the activity cannot perform fraud and take personal profit out of it (Norman, 2010). This firm is conducting its activity all over the world especially in Australia and other Asian countries so it is very important to check the recording of the transactions which are in different currencies. Proper conversion should be there by the person recording the transaction and should be followed by the management to check that proper care is taken and the person is not indulging in any fraudulent activity. The system should be developed in such a manner that there are no chances by the personal in carrying out fraudulent activity. Proper updating of the system should be there and each activity should be supervised properly. If proper care is not taken by the management it will affect the procedure undertaken by the auditor and he will not be able to perform does that procedure while conducting audit activity. This will also affect the reporting requirements and the opinion of the auditor which will ultimately affect the true and fair view of the report on the financial statement (Budescu, et. al., 2012) The higher the fraud risk is there will be more chances to lower the quality of the report and the results obtained. It is not necessary that order will be able to detect the error or fraud as he is placed to check the transactions and their fairness and he is not investigating the records. So it is very important for the firm to provide every assistance and documents to the auditor so that he can perform its duties in a proper manner. From the records obtained by the firm he will able to detect the chances of fraud and the strength of the internal control system which will help in preparing its report in a clean manner and we will be able to provide true opinion on the fairness of the financial statement. The quality of audit is dependent upon the strength of the internal control system which provides the chances of fraud in the firm. References Budescu, D. V., Peecher, M. E., Solomon, I. (2012). The joint influence of the extent and nature of audit evidence, materiality thresholds, and misstatement type on achieved audit risk. Auditing: A Journal of Practice Theory, 31(2), 19-41. Norman, C. S., Rose, A. M., Rose, J. M. (2010). Internal audit reporting lines, fraud risk decomposition, and assessments of fraud risk. Accounting, Organizations and Society, 35(5), 546-557. Messier Jr, W. F. (2010). Opportunities for Task?Level Research within the Audit Process. International Journal of Auditing, 14(3), 320-328. Christensen, B. E., Glover, S. M., Wood, D. A. (2012). Extreme estimation uncertainty in fair value estimates: Implications for audit assurance. Auditing: A Journal of Practice Theory, 31(1), 127-146. Brown-Liburd, H., Issa, H., Lombardi, D. (2015). Behavioral implications of Big Data's impact on audit judgment and decision making and future research directions.Accounting Horizons,29(2), 451-468.