Audit Planning and control Julianna Balog Daniel Terfassa Auditing 1 5/30/18
Audit Planning and control
In the company Deloitte, they have more than 150 years of hard work and commitment to making a real difference in the accounting industry. They have approximately 245,000 employees in 150 countries and territories. (About Deloitte, n.d.) Some of the services Deloitte provides are: audits, assurances, tax, legal, risk and financial advisory, and consulting services. (About Deloitte, n.d.) Getting a job with Deloitte in my opinion would be a dream for anyone who wanted any of the jobs mentioned above. For this particular paper I chose General Motors, also known as GM to be my public company.
Audit engagements should be used to prepare auditors for an audit. By doing this auditors can be focused on important areas and be organized. This also helps auditors identify potential problems quickly. Audit planning consists of learning about the client’s business and industry this is important because every business is different and not every auditor is going to audit the same business. Conducting mock audits will allow companies to figure out where they might need to make changes. Defining the roles and responsibilities of the accountants is important because not every accountant does the same job. Conducting risk assessment is also a very important step to ensure a successful audit. GM should have a management team that helps deal with audits put together to help ensure that everything within the guidelines are done. They will also ensure the audit has been done with due diligence and all the important areas have been covered. Because GM is a part of the automotive industry, the auditor who is chosen to perform this audit should have knowledge of how the automotive industry works. They should know which accounting standards GM is using to ensure that funds are being stated properly. GM has multiple locations all over the world and many cars throughout different offices and states. (General Motors, n.d.) An audit for a company this large would require a lot of planning and execution.
There are many performance ratios but for a company the size of GM I would use profitability ratios and risk ratios. Profitability ratios are a class of financial metrics that are used to assess a business’s ability to its expenses and other relevant costs incurred during a specific period of time. (Profitability Ratios, n.d.) The profitability ratio would allow you to get the following: gross profit percentage, net profit percentage, operating percentage, return on capital, and asset turnover. All of this information will help inform the client on how much profit the company is making from all angles of accounting. Risk ratio will allow you to see the interest ratio and the interest cover. This information will help inform clients on whether they will be able to pay back loans and its interest they may have. The evaluation of financial data is what analytical procedures can be used for. GM has many different accounts that one can test, I would recommend trying to test accounts receivable and their assets. The analytical procedures that I would use are risk analysis, model-based procedures, and trend analysis. These procedures would be very helpful for GM, they help show internal controls. Risk analysis is the process of defining and analyzing the dangers to individuals, businesses, and government agencies posed by potential natural and human-caused adverse events. (Risk Analysis, 2010) An auditor will be able to see any misstatements with this procedure. Model-based procedures are used for client operating data and also for relevant external data. This can be for industry and/or general economic information to help develop and expectation the account balances. Trend analysis is an aspect of technical analysis that tries to predict the future movement of a stock based on past data. (Trend Analysis, n.d.) This gives an idea of what could happen in the future because of the past. Also, trend analysis will help give the comparison of a current account balance or item with a trend or more on the prior periods balances. I believe that all three procedures will be helpful in GMs audit.
An audit risk model is when audit risk equals inherent risk this is the risk that errors will occur times control risk times detection risk. (Financial Risk Ratios, n.d.) Financial statements are sometimes misstated and this can be unknown to the auditor. Sampling techniques can be used to establish a preliminary judgment about materiality. Random sampling can allow a chance for items to be selected. This gives one information on any sample that can be bias information. This test will help auditors with knowing if the risk control is high or too low. This information will help inform clients on the risk of the company and whether investment or loans are risky with respect return and repayment.
The primary responsibility of audits is to add help explanatory language to its report and to indicate a division of responsibility with another CPA firm. This will help to indicate any inconsistencies in the application of accounting principles.