Auditing
Student’s Name
Institutional Affiliation
Auditing
The purpose of the report is to outline the audit processes that would apply to a public company in ensuring that the annual reports are prepared in accordance with the accounting principles. The discussion will include the steps that should be followed in the planning and design of an audit program of the firm, and the analytical procedures that should be used to examine the performance ratios. Additionally, the paper will examine the methods that are suitable for analyzing the income statement and the balance sheet, and the outline the responsibilities of the auditor in case an unqualified report is issued by the auditing firm. The public organization that will be used for the case study is Apple Inc.
Planning and Design of an Audit Program
One of the steps in the design and planning of an audit is to determine the business undertaken by the public company. The second step would be to determine the objectives of the audit that would be attained at the end of the process. Thirdly, the scope of the audit should be determined, and it outlines the specific areas that should be covered depending on the time specified. Fourthly, the auditor should perform pre-audit planning which is carried out to determine the type of risk inherent in the organization. Finally, the auditor should prepare an outline of how the data will be gathered (ISACA, 2018).
Performance Ratios
Analytical Procedures
The analytical procedures are much applicable to the audit process. The application of these procedures can be used to create and analyze any problems with the financial records which can be then investigated thoroughly to create. In the analysis procedures, I would choose the risk ratios and profitability ratios. The profitability ratio will give the percentage of gross profit, net profit, return on capital, and asset turnover. The ratio gives a guideline on the performance of the business and how much they make in a given financial year. The risk ratio will estimate the interest cover of the company and the gearing ratio. The procedures will help me present to the client the performance level and advise them on any internal controls to put in place. The three analytical procedures to use in the audit are the trend analysis, risk analysis, and the model based procedures (Knapp, 2016). The risk analysis will help in making an opinion on any material misstatements. The trend analysis gives a comparison of the current account balance. The model based procedures check the company’s operations and external data which build up the account balances. I believe that the three analytical procedures would be beneficial to making a correct opinion.
Balance Sheet and Income Statement Analysis
In the balance sheet and income statement analysis, the method of evidence collection involve planning for audit procedures, actual audit process, examining the data and cross-checking, and later making a conclusion on whether the evidence is viable and will be used in making a judgment (Knapp, 2016). They are some of the major things that affect how the organizations work towards the development and cross-checking of any inconsistent or noncoherent information in the business sector. Sufficient appropriate audit evidence must be provided as support for the conclusions expressed in the assurance engagement report. The method used to determine the sufficiency of audit risk for the company is to analyze the source data used, consider the assumptions in the income statement and balance sheet and finally test the data for a better conclusion (Knapp, 2016).
Audit Risk Model
The internal audit risks are one of the core methods that can be used in the auditing technique in Apple Inc. It is a core method that can be applied in the auditing process to develop a coherent method of dealing with any risk in the management scale. The audit risk model is the risk technique mechanism that is used by the auditor to express an inappropriate opinion that can be seen or found within the financial statements. In this case, the auditor scrutinizes all the viable data within the income statement technique to analyze the financial statements and express any concerns that may jeopardize or affect the general accounts (ISACA, 2018).
The audit risk model comprises of various components which can be analyzed to create and depict the full explanation that there is something that is worth explaining in the income statement analysis. In this case, the model itself may be considered as a combination of various risks that can be grouped to create a coherent analysis and arrive at a meaningful conclusion that there is something worth attention in the organization. One of the components of this model is the inherent risks. The inherent risks are any material misstatement in the financial statements. These misstatements arise from the omissions or errors that touches on some vital things in the statement. Such errors or omissions will have some inherent effects on the general outcome of the financial statement. It is worth noting that the errors captured in this sector are only limited to the errors or any omissions and not in the scientist of the production or the failure of control factors (ISACA, 2018).
Furthermore, there is the existence of the control risk in this model. The control risk is any risk of the financial misstatement that is often found in the financial statements which may arise due to the failure of in the mechanisms or any operations of the relevant controls of the entity. The organization itself can check this through having and depicting adequate internal controls which can be used to prevent and detect any instances of fraud that may jeopardize the operations in the organization (Knapp, 2016).
The next component of this model is the detection risks. This is the risks that the audit may fail to detect any material misstatement in the financial statements. Here, the auditor should apply all the auditing techniques to ensure that any slight mistake in the financial statements that may be either due to fraud or even the errors in some vital information is fully checked to deal with such instances. The detection risk requires the auditors to fully use the sampling method for the selection of transactions methods to use (ISACA, 2018).
Having full knowledge of the audit risk model is one of the key techniques that every auditor must possess. This will help in dealing with any error or any problem that may jeopardize the whole application of the organization through failing to check the state of finances. This model can be applied in examining the inherent control risks that pertain any audit engagement while gaining the general understanding of the entity that they ware working under and while at the same time applying all the control risks to check on this concept (Knapp, 2016).
The best tool of the audit sampling model that can be comfortably applied within Apple Inc. is the application of the detection risks. This is one of the major components of the audit risk model that can be applied in analyzing and creating the most efficient way of detecting any fraudulent activities or any risks that may, in the long run, create massive effects in the organization.
Assuming the end result is an unqualified audit report, the primary responsibility of the audit firm is to add explanatory language which explains other additional responsibility of their outsourced firm. The audit firm is also expected to emphasize a matter, and give examples of uncertainty that could have a materiality impact on the financial statements.
References
ISACA. (2018). Audit plan activities: Step-by-Step. Retrieved on 22nd Nov 2018 from
https://www.isaca.org/cobit/documents/Audit-Plan-Activities_res_eng_0316.pdf
Knapp, M. (2016). Contemporary Auditing. Cengage Learning Publishers