Financial Statement audit is carried out to determine whether the board of director prepare and present the overall financial statements of a company in according to the acceptable accounting principles. The financial statement audit also needs to express an audit opinion whether the financial statements that prepared by manager are show a true and fair view. Increase the credibility of reported financial position and performance of a business is the main purpose of the financial statement audit. Financial statement audit is independent auditor such as external auditor audits the financial statement of the entities and disclosures it. Besides, the reason why the financial statement audit is compulsory for the private and public company is want to make sure the financial statements are free from material misstatement. The company engage the auditor to audit the reliability of the financial statement which prepared by the manager and the duties of the external auditors are report to the shareholders on whether the financial statement prepared by them are show a true and fair view. The financial statement audit will also provide a complete report for the users who will make their economics decision base on company’s financial statement such as internal stakeholders and external stakeholders. Furthermore, one of the advantages of financial statement audit is the control system of a company may improve more efficiently and the business transaction will also easy to control than the company that do not engage auditor to do auditing. The another benefit of financial statement audit is disagreement or dispute between shareholders and management may be solve more quickly because financial audit will provide independent information about the improve the communication and privity between owners and managements. Moreover, the disadvantages of financial statement is the payment fee for an auditor will incurred and usually the fee that pay for an auditor is more expensive than the internal accounting staff.
Question 2
The set of rules, policies, and procedures conducted by organization which is contained in the internal control system in order to reinforce the policies, enhance efficiency and provide direction. The internal control system implemented by the company in order to obtain reasonable assurance for whether the financial report is reliable and the operation is effectiveness and efficiency. The objective of internal control system is plan by management to achieve the goals by stopping any mistakes or error and provide correction through the process. Management can often improving the system or quality and adherence the company to standards by using internal control system. Objective of management to plan this internal control is to avoid loss, reduce expenses in the business and also gain the profit in maximum. Besides, management want to create a business which is in modern, efficient as well as effective to make sure the business is always keep updated. There are also can discover and prevent the mistake based on the law and regulation with undertaking any policies. Moreover, internal control system can often trusty prepare the financial report in time. It can provide an good environment for convenient the employees to the company’s objective as fast as possible. Internal control system should make sure the data can goes smoothly and do not interfered by others and make sure the system is strong and no one can steal it. Management must provide a safeguard by create a high password security to against fraudulent activity by employees.
First of all, Top Sdn.Bhd. is a business that sell office furniture at a shop and selling the furniture with using online trading. The customer can pay for the furniture by using credit card, online payment, cash and cheque. The office furniture are mainly purchase from four local manufacturers. Besides, The company has two departments such as sales and marketing department and operation and admin department. Sales and marketing department has four sales staffs are administered by a sales manager and two warehouse assistants and one driver are administered by one warehouse manager. For operation and admin department, two accounts clerks are administered by an accountant. According to the management style of the company, the risks may incurred due to the reason of the internal control system is weak especially on purchasing process.
The risk faced by the company is the purchases for the office furniture may inappropriate that means the furniture may cannot be use and sell so that the company will making losses and the sales department have to find the other ways to sell the furniture at lower price. Besides that, the other risk will faced by Top Sdn.Bhd. is the purchase department will buy the goods from the supplier who will charges the higher price compare with the other suppliers due to the internal control system is weak. Not only that, the goods that bought from suppliers may not be received by warehouse also is a risk that will incurred in the company. This is because the goods received note may not be properly checked by appropriate staff. Moreover, the purchases amount and period will may recorded wrongly due to the system cannot provide the proper information. Furthermore, the other risk will also faced by the company is inventory being stolen and misplaced. For the reason that the inventory could not have check at regular time by the staff. Hence, the company have to follow critical step to reduce the risk that may incurred in the transaction of the business because these risks will cause a material misstatement.
Under the control procedure, there was show that the purchasing executive from the operation and admin department and the two out of four sales staff from sales and marketing department are separated to the purchasing department. The purchase executive cannot be under the operation and admin department because of the big amount of purchases transaction. The two staffs prepare the purchase requisition and send it to the purchase executive for approval. The purchase executive will check the purchase requisition and decide whether the requisition can be approve. If the requisition has been approved, the purchase executive will obtain the quotation from four manufacturers and assist the company to select the lower price suppliers and the selection will approve by accountant. After select manufacturer, the purchase executive will issue purchase order which was checked by the accountant to the manufacture. The manufacture will transfers the goods to the company after they received the purchase order. Then, The warehouse will received the goods from manufacture and the warehouse manager will check the invoices and good received note after received the goods from the manufacture. After that, the purchase executive will prepare the payment voucher which was checked by the accountant for the purchases and pay the purchase invoice to the manufacturer. After complete all the payment, the accountant will record into the cash book.
According to the new internal control system, the risk that will received inappropriate furniture will be reduce. This is because the warehouse manager and two assistants have check properly when the goods are received. The possibility risk of purchase goods from the higher price manufacture also reduce because the purchase executive has selected the lower price manufacture based on the quotation from four manufacturers and approve by the another department. Besides, the warehouse manager has check the goods received note so that the goods may not be received risk will be resolve. The record for the transaction of purchasing may accurate as the accountant will record it regularly. The probability risk of the inventory may being stolen and misplaced also will be reduce because the warehouse assistants will do their duties to ensure that the inventory is safe.
For the information of the system, the company need to utilize a system that record all the purchase transaction such as purchase module software. Purchase module software able to record the goods receiving, purchase orders, supplier details and so on. Therefore, the purchase transaction will be recorded completely and the misstatement will be reduce. Apart from that, purchasing executive have the responsibility to communicate with the staff about the purchasing process through the meeting, email or face to face communicate in order to improve the efficiency of the purchasing process.
For the monitoring of control in the internal control system, the executive director operate the company by monitoring the internal control system in order to achieve the company’s goal by giving the reasonable assurance. The executive director can utilized the on-going monitoring and separate evaluation to monitoring the internal control system. It is because the monitoring of controls will make sure the operation is efficiency and effectiveness. Therefore, the internal control system would become stronger.
Question 3
Audit procedures are the particular actions and processes that auditors carry out to collect audit evidence. This is to help them to obtain conclusion on the audit objective set and also deliver their opinion. Audit procedures normally prepared by auditor at the planning stages after they identified risks, audit approach and audit objective. Auditors design audit procedures to helps company solve all of the problems and reduce the risk-management plans.
The purpose of audit procedures is to detect any risks that occurs and establish the require audit evidence are acquire adequate appropriately. Usually, before audit team manage to start perform their testing, audit procedures must needed be approved by the audit partners. There are a total nine types of audit procedures such as scanning, physical inspection of assets, physical inspection of documentation and so on.
The first type of the audit procedure is enquiry. The auditor usually use a simple method to collect the information from the accountants of the company, managers and other related staff by asking some question. The auditor ensure that Top Sdn.Bhd. is free from risk by asking about how the financial transactions are recorded and also ask for the processes of the business. The auditor may ask the executive director how to keep the financial record. The auditor also can obtain the information from the purchasing department about the purchasing process. However, the auditor may not accept the answer themselves for an confirmation but they may build additional testing criteria by utilized the responses to their enquiry.
The second type of the audit procedure is physical inspection of assets. The counting and condition the tangible assets will be audited by the auditor. It can produce high reliable audit evidence about the existence of the assets because the physical inspection of assets is very useful for the audit assertions. The physical is not only audit the documents of the Top Sdn. Bhd. because they will audit a company’s document by observation of the auditor. The physical inspection of assets can let the owner of small enterprise greater assurance the record of the company can accurate to represent the business assets.
The third type of the audit procedure that auditor can obtain the audit evidence is physical inspection of documentation. The auditor have to examine the documents whether the source documents are record accurately by Top Sdn.Bhd.. The auditor have to check the completeness and occurrence of the source document.
The fourth type of the audit procedure is observation. The auditor can obtain the audit evidence by observation. The auditor may observe how the Top Sdn. Bhd. doing an activity and see whether exist of any risk in activity like how the clerk collects or counts the money.
In short, the computation type of audit procedure also can be used by the auditor to obtain the audit evidence.The auditor have to checking arithmetic accuracy of source document and accounting record prepared by Top Sdn. Bhd. This type of audit procedure view as highly reliable because it is performed by auditor.
