Audit risk Audittor’s response
New adit client Crown co should ensure it has a
Magpie co is a new client of crown co, the experienced team ehich is assigned to
new audit team is not familiar wth the audit. For better understanding of of
work and policies of magpie co, there will magpie co, a sufficient amount of time
be an increased detection risk. should be allocated to the members. And
the risk of material misstatement invluding
a detaied team briefing to cover the key
areas of risk.
Ppe expenditure Audit team should review supporting
During the year 0.65m is been spent on documents like notes to accounts invoices
the refurbishing of its stores. This to establish that they are accounted
expenditure has been recognized as according to there nature. And obtain a
property plant and equipment in the schedule of cost which have been
financial statement. capitalized as part of the refurbishment
There is a risk that some itmes of revenue programme.
has capitalized which could result in
overstating of ppe and understating of
expenses.
New sales system The auditor should fully document and
During the year a new sales system was test the new accounting system and
installed but it was felt necessary to run should also perform substantive tests over
theold and new in parallel. the opening balances to ensure they have
So the opening bakances frim the old been correctly transferred from the old
system may not have been transferred system.
correctly, and further errors could have And also discuss with the finance director
arise. As a result receivables may be whether any issues have arisen from the
misstated. new sales system in operation
which may give rise to a misstatement in
the financial statements.
Prior year management report Discussion should be made with the
Last year management report highlighted directors whether the recommendations
a number of defiicnes in company’s payroll made by the aduit firm in respect of
cycle, f these deficiencies have not been payroll cycle have been implemented and
undertaken by the mangemnet can lead to carry of test of controls to check if they are
increase in risk of misstatement. operating effectively or not.
Wages and salaries expense and If the recommendations are not made or
employment tax accrual may also are not implemented or there are no test
be misstated. kf controls applied, then they should apply
fully substantiveapproach to check the
completeness and accuracy of salary and
wages.
Cash shortages Auditor team should discuss with directors
There is an increase number of cash whether these cash shotages may be
shortages at each store when comparing indicative of frauds, and hey should also
the contents of the cash register to the apply professional scepticisim throughout
reorts, is been showed when reports are the process as there can be frauds arises
sent to the head offices, due to shortages of cash.
As these are in small amounts, they are Extended substantive procedure over the
not investigated or reconciled so there is a cash sales cycle should also be carried out.
risk that these disprencies are resukt of
fraud and small cash shortages could
become material if they are
[Link] there is a control risk also
arises here.