Semester 1-2013 ASSIGNMENT This assignment is to be completed in groups of three and comprises twenty per-cent of the marks for this course. Assessment Criteria: Student work will generally be...

Solution 1
Accounting firms do a lot of work out of which auditing is one of the most important works
done by them. It is impossible to do 100% co
ect auditing as it is very big and cumbersome
tasks. For example while doing the audit of Microsoft it is impossible to get 100% co
ect
esult as there are lakhs of vouchers in Microsoft so the auditors have to rely on some other
aspects of the audit. Hence, this is one of the important limitations that accounting firms are
facing presently. Moreover the accounting firms are losing their ethics and professionalism
y giving wrong audit reports for the sake of money. For example in case of Satyam
computer services, the accounting firm gave a wrong report for the sake of money.
A good step to control of growing co
uption in the field of accounting is publishing of an
annual transparency report if the company conducts audits of 10 or more significant entities.
It helps to know the information about the Cu
ent status of the auditor and keeps an internal
check on the quality of results given by the auditor and hence works as a safeguard for the
public. Because of the work load reports are given without doing a thorough audit. This step
is also helpful in giving information about when an audit was conducted on a auditor by an
another authorized body. It will not only give an answer to auditors independence but also
work for the continuous development of auditors professional quality. It also gives a account
of the profit and loss of an auditor thus giving an information about the revenue of auditor
from audit and other non-audit activities. ASIC is empowered to issue an audit deficiency
eport in relation to an individual audit firm if it identifies an audit deficiency in the auditor's
quality control system or if the conduct of an audit is detrimental to the overall quality of the
audit. This is important because it cu
s the wrong business. As they are the one who conduct
audits hence they directly affect the growth of our economy. With the wrong business there
will be no growth in our economy.
This can be rectified if thorough and proper analytical and substantial procedures are
followed by the accounting firms. Analytical Procedure is the heart of the entire procedure of
audit. Once the auditor is satisfied with the general queries like bank, cash, purchase and
sales vouching it get deep into the depth of the accounts of an entity. This is mainly done by
the head person of the audit as it checks the growth of an entity. The analytical procedure is
done very thoroughly.
At first the Gross Profit rate of an entity is compared to the Average Gross Profit Rate of an
entity. For example if the gross profit of an entity is 12% and gross profit of industry is 16%
then, the auditor will conduct further queries to know why the gross profit rate of entity is
less than the industry rate. This is one of the most common analytical procedures conducted
y the auditors. Secondly the Auditor will compare the gross profit rate of the present year
with the previous year and emphasize whether there is a significant growth or not in the rate
of Gross Profit of an enterprise. The Auditor should also check the Sales turnover as there
should be at least 10% growth in the sales turnover every year. In Stock land Company, the
turnover it is 2990 million and profit without tax is around 440 million that is 15% which is
considered excellent for any company. Another Analytical Procedure which is done by the
auditor is that he checks the days for which account receivable is outstanding as compared to
the previous year. The auditor can also do ageing analysis that is dividing the debtors
outstanding more than 180 days and less than 180 days and compare this with the previous
year. This helps to know the strength of the Collection department and to have co
ective
measures in the future if there is weak Collection Department. The important ageing analysis
is done by the auditor by comparing the bad debt expense as a percentage of gross sales with
that of the previous year. For example if the sales is previous year was 1000 million and Bad
debt was 3 million hence the Bad debts percentage was 0.3% in the last year and if for the
present year it is 0.6% , than it acts as a check for them in collection of receivables . These
are the analytical procedures which must be followed while conducting audit.
In case of substantive procedures, its audit procedure goes into the depth of the audit if they
find that a particular department is weak. For Example if the auditor has a doubt that whether
the sales department is weak for an entity or not than he might go for 100% vouching and
check all the items which are related to sales i.e. The auditor does a thorough analysis of the
eceivables by doing the ageing analysis of the receivables. Substantive procedure can also
e done by the auditor in another way that is by going for the independent sources of
verification. If he is not confirm with the debater’s balance in the books of accounts, than a
confirmation is taken...