Auditing and Accounting Issues Responsebility of Accountant

Question: Describe about the Auditing and Accounting Issues for Responsebility of Accountant. Answer: Part A: Audit Planning Preliminary judgment of materiality Materiality refers to the incorrect or missing information in the financial statements of a company which imposes significant impact on the decision making of the users. It is the key concept in accounting as because it helps auditors and accountants to decide which figures requires separate reporting (Berk and DeMarzo, 2007). The trial balance of Bobs Bikes shows the opening and closing balance of all the transactions from the year 2014 to 2016. The difference in the opening and closing balance of the accounts shows that there is incorrect information in the trial balance. The incorrect information means that the value of the company has increased or decreased during a period of time. Therefore, it is the responsibility of the accountant and auditor to analyze the financial statements and determining missing or incorrect information (Elliott and Elliott, 2008). The differences in the accounts in the trial balance are as follows: Trial balance Particulars Jul 1 2015 April 30, 2016 July 1, 2014 June 30, 2015 Differences Debit Credit Debit Credit Accounts receivable 124,320 112,000 -12320 Sales 201,515 187,450 -14065 Inventory 189,000 175,000 -14000 Depreciation 28,916 15,590 -13326 Wages 46,816 53,000 6184 The account receivable, sales, inventory, depreciation and wages account shows differences in their opening balance and closing balance indicting materiality in the accounts (Hillier, 2010). The values of account receivable, sales, inventory and depreciation has been overstated and the value of wages has been understated. Analytical review The trial balance is the account report that is shown at the end of financial year and listing end balance of each account. Trial balance ensures that all the debit amounts equal to the credit amounts that mean that there are no unbalanced entries in the journal. The trail balance of Bobs bikes shows all the debit and credit accounts that matches at the end of the report (Holton, 2012). The auditors uses the trial balance while conducting an audit and transferring the accounts into the accounting software. However, even if the debit and credit balance matches at the end of the trial balance report, it does not mean that there are no errors or omission in the listed account in the trial balance. The trial balance of Bobs bikes shows incorrect information and misrepresentation of the value of the company. Many accounts in the trial balance show incorrect value in the opening and closing financial income year (Keown, Martin and Petty, 2008). Trial balance is a report that is collected f rom the accounting records. The process of correcting any errors or omission in the trial balance as well as making adjustments in the trial balance is referred to as unadjusted trial balance. Five accounts selected and rationales The materiality has been found in the trial balance. The accounts that have been misrepresented are account receivable, sales, inventory, depreciation and wages account in the trial balance. The increase or decrease in the value affects the total value of the company. The account receivable has been overstated which means that the company has not received debt amount from the debtors (Moles, 2011). The inventory account has been overstated which means that the inventory has increased. The depreciation value has also been overstated showing high value. The wages has been understated showing that less wage has been paid by the company. The sales has been overstated which shows that the sales of the company has increased over the period. Part B: Sample selection Explanation/demonstration of sampling technique The primary aim and objective of the auditing is considered to secure the compliance with the clients works standards and thus helps to evaluate the overall financial performance of the company for the given fiscal year which eventually lead to the maximization of the profit (Saxena et al., 2010). Random Sampling Technique The random sampling technique in auditing is used by the auditor to select data without replacement. Once the account has been selected to test it is removed from population and it would not be subjected to the re selection (Shapiro, 2006). The random sampling technique can be used by the auditor in two ways: random number tables or computer programs. Systematic sampling technique Systematic Sampling technique enables the auditor to select sample data in such a way that there are uniform intervals between the sample items. In this sampling technique every Nth account is selected with random start (Spiceland, Sepe and Nelson, 2011). Haphazard sampling technique Haphazard sampling technique is the non statistical technique that is used by the auditor to stimulate the sampling while testing the status of errors of the accounting population. The findings shows that the properties of the haphazard samples substantially differ from those of the random sampling (Stittle and Wearing, 2008). The haphazard sampling technique can be used for substantive testing. It is an procedure to examine the financial report of the company and evaluating the errors in the document. Benefits of selected sampling technique Befnefits of Hapazrd approach The auditor should adopt random sampling technique while selecting the items. The benefits of haphazard sampling technique are that it needs minimum knowledge for the study and selection of the item. It is free from errors and suitable for the data analysis that includes use of the inferential statistics (Tripathi, 2008). The method is easy to use and simple as well as easy to assess the errors in the sample. It helps the auditor to select the data and analyze it appropriately to get the results. It will help the auditor to get better result from the sampling. It also allows the auditor to prevent the bias work and making the work easy. The random sampling technique provides a simple way to the auditor to select the data and make observations as well as depends on the limitation of the research and type of data (Wolf, 2008). Therefore, it allows the auditor to select items in a random in order to get appropriate results. The sales account has been determine and evaluated with the hel p of Haphazard approach. Drawbacks of random sampling technique The simple random samplings has some limitation as because it is expensive to use, time consuming and also difficult to organize. It requires complete list of data and depends on the study. The auditor may get confuse while using the random sampling. Therefore, it shows biased results that is not appropriate (Keown, Martin and Petty, 2008). Drawbacks of systematic sampling technique The systematic sampling technique assumes that the population size is available reasonably approximated. The auditors have to research to study the size of the data in the given area. The population needs to show the natural degree of the randomness along with the chosen metric (Holton, 2012). There is high risk of manipulation of data with the systematic sampling as because the auditor might be able to construct the system in order to increase the likelihood to achieve the targeted outcome. Part C: Considerations in substantive testing and collecting audit evidence300 In substantive audit approach auditor focus to verify each and every bit of information of the transaction on his own without depending on the information provided by the management. To provide non manipulative financial information to the investor and other key users of the financial statement is considered to be the primary reason for adopting a predominantly substantive approach in part b (Moles, 2011). Occurrence as it is signifies the first selecting an item for testing from the financial journal or ledgers and then analyzing the underlying primary source document. Tracing and vouching both are considered to be important as both are referred as the occurrence and completeness. Tracing signifies the selection of accounting transaction and then it leads to the journal or ledger. The direction of testing in this scenario is from the primary source document to the journal or ledgers and thus tests whether the overall transaction which occurred is recorded in the accounting records (Saxena et al., 2010). On the other hand vouching starts with the selection of the item for the testing purpose from the accounting journal or ledgers which further carry with analyzing the underlying source document. Therefore it is considered that vouching is providing more evidence that the item consist in the accounting journal or ledges have occurred. Business risk approach which is also known as the risk based approach Business risk approach is considered to be one the most prevalent approach based nowadays by the audit firm to complete the audit assignments. For example International auditing standards focus on understanding the entity and its marketing and financial environment including internal control system to understand the risk of material misstatement at the financial statement and assertion levels (Shapiro, 2006). No, as it will reflect negative value in financial ratios. Yes, as substantive report is zero reliance on the internal control. External auditor information is required before projecting outcome to the entire account balance. To decrease the detection risk which eventually helps to accomplish the expected level of audit risk which provide the assurance of the validity and propriety of the transaction to identify the monetary misstatement (Spiceland, Sepe and Nelson, 2011). Monetary misstatement is considered to be the primary reason to carry out part year trail balance. References Berk, J. and DeMarzo, P. (2007).Corporate finance. Boston: Pearson Addison Wesley. Elliott, B. and Elliott, J. 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