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Multiproducts Audit Products
An Audit Report for Multiproducts Plc, year ending 31 March 2008. This report relates to the intended audit of the entity stated above. This report is intended for the managers, directors and stakeholders of Multiproducts plc.
Preliminary Engagement Activities
The industry and the nature of the business
The nature of the business and its operating sector within the economy can portray vital information which would allow the auditor to gain an understanding of Multiproducts plc and the its surrounding environment. This would be gathered by looking at its products and making inquiries within the organisation.
Find out how our expert essay writers can help you with your work...The size of the firm, Market Share and its Competitors
A valuable amount of information can be gathered when looking into the size of the entity, its market share and its competitors. This would most likely be obtained by looking at information such as Sales Turnover, Number of employees, Net Profit and comparing that to other firms operating within the same market.
Financial Position
By investigating into the current financial position of the firm we can have a good vision on how the firm is operating financially. This knowledge would most likely be obtained by studying the current financial accounts.
Internal Control Systems
By gaining an understanding of the current control systems in place at Multiproducts you may gain vital knowledge on the day to day processes within the firm. This could be gained by monitoring the procedures that occur every day.
The Infrastructure of the Enterprise
The infrastructure of the enterprise can be obtained by investigating the number of distribution outlets, warehouses, factories and offices the firm operates from. This will give an understanding of the business, its operations and its geographical locations. This would also contribute to helping understanding the size of the entity.
Materiality
Materiality is concerned with whether a misstatement or a number of misstatements in a financial statement (Account balances, or the value of transactions) is likely to result in a material misstatement in the financial statements as a whole.
Materiality is a matter of professional judgment and can be interpreted in different ways. This is because we classify information as material. Therefore information can be judged in different ways with different approaches. Materiality is also a matter of judgment as it depends on the size of the error or misstatement that has occurred.
You can get expert help with your essays right now. Find out more...Materiality aids the identification of significant accounting areas within the financial statements require specific audit attention because misstatements can portray the firm in situation which in reality is non-existent. Accounting areas such as debtors, fixed assets, trade creditors or cash balances can all contribute to misstatements if the information is incorrect. Consequently the financial statements such as the profit and loss account and the balance sheet is incorrect. This can also be judged by the use of the 1% and 5%/10% rules.
Key areas significant to the audit assignment
Day to Day Bookkeeping
Day to day bookkeeping is the recording of every transaction that occurs every day within the organisations. If errors occur during this procedure we definitely will se errors in the values in the financial statements. Therefore this accounting area is highly significant to the audit assignment as misstatements occurring at this process is easy to find evidence for, as information is stored and can be used as audit evidence when matched up with documentation such as invoices.
Asset Valuation and Depreciation
A firms assets and its process of valuation and depreciation is a key accounting area which should be significant within an audit assignment because misstatements within these processes can result in fraud and wrong values within the balance sheet which is vital to the entity’s stakeholders. If assets are valued imperfectly or depreciation is calculated incorrectly then this will value the enterprise wrongly.
Exchange Rates and Currency Conversion
Due to Multiproducts plc operating within different geographical locations, such as Western and Eastern Europe as well as the UK, we will see Multiproducts operate in at least two different currencies. When currencies are exchanged the rates have a bearing on the actual value. We may see a figure that does not portray the correct picture because the exchange rates are dynamic therefore we may see under valuation or over valuation.
Asset Internal Control Procedures
The acquisition of assets is dealt with by the purchasing department and possibly by higher management such as directors. This procedure is in place to allow the entity to be efficient and resourceful with its capital. The control on purchases of assets is vital as the money outset is key to the firms financial operations.
The maintenance of assets is key to the value of the asset and also key to the business and its operations. If Multiproducts were to invest in new machinery then maintenance is key so that downtime is kept to a minimum whilst the machine is being operated at high efficiency. Therefore a maintenance team would be the internal control within a firm with regards to this stage.
Depreciation of assets is another key stage for the assets control procedures. The internal control on the depreciation of assets is to keep a consistent method of depreciation throughout all assets therefore giving a fair value in reality.
Disposing of assets is another key stage for asset control systems. The disposal of assets once their useful life has passed, is key to the firms accounts. The value received for the assets is normally written down to the ledger and the asset account is closed off. This internal control procedure is essential to the balance sheet and other key financial statements.
Find out how our expert essay writers can help you with your work...Inherent Risks
Economic Conditions
In relation to the tough economic market that currently surrounds Multiproducts plc and with the firm closing a factory I can see this being a high risk. A volatile economy will always feature as a risk and with oil prices increasing costs of production are highly likely to rise. With the firm realising that market growth has its limitations with certain products, I can see this having an impact on the enterprise’s profit figures in the near future. Considering the above, the risk involved in audit planning is far greater. This is because the auditor will have to consider what items to examine and using what procedures to use, therefore making the audit process longer and less efficient.
Developing or offering new products
The research and development of new products and the introduction of new products is always a risk in any company, however Multiproducts plc have launched new products with low success due to the market reaction being described as disappointing. Despite diversification reducing the risk in any business when products are unsuccessful they increase the risk. This would affect the audit planning approach, due to a cautious approach because of uncertainties within the operating market.
Distribution
Multiproducts plc have four factories within the UK distributing to the Western and Eastern Europe, exceeding 950 different locations, including the UK. This may increase the risks within the organisation due to unforeseeable circumstances and other problems such as regulation differences in various countries. This also increases costs due to transportation costs increasing with the price of oil. Therefore this shall affect auditor approach due to the risk involved with damage and time in carriage.
Weaknesses in Internal Control
Multiproducts have identified but are yet to produce a strategy to overcome poor product quality and customer satisfaction. This indicates a weakness in internal control, especially within production and sales. A lack of quality control is missing within production that needs to be implemented, and an after sales team needs introducing. Therefore weaknesses in internal control could lead the auditor to believe that management in not as efficient, which would change the audit approach.
You can get expert help with your essays right now. Find out more...Future Acquisitions of Large and Small Scale
The future acquisitions of large and small scale are expected in the near future for the strengthening of its market position. Thus resulting in a large outset of cash which may cause potential problems within the cash flow of the firm, or increase the firms liabilities which currently stands at £304million. This risk will affect the approach of the audit as it may result in the entity’s future financial position being vulnerable.
Key Stages of Audit Planning
Preliminary Engagement Activities
This is a key stage of the audit plan, where the auditor undertakes various activities to determine whether to accept or reject a prospective client or accept or reject an existing client. At this stage the auditor will gain background knowledge on the client to enable a coherent decision of acceptance or rejection.
Nature, Timing and extent of direction
This stage allows the auditor to plan what exactly is going to assessed and audited and in how much detail. Depending on the extent of depth and direction a timescale is planned, such that the audit can be efficient and effective.
Asses the risk of material misstatements
This stage would involve the understanding of the entity’s current accounting system and its internal control systems. Having this knowledge we can asses the risk and materiality of the audit. The primary purpose is to decide upon an appropriate audit approach.
Control & Substantive Testing
This stage allows the auditor to asses the financial statements and its materiality using various techniques. Auditors would use techniques such as inspections, observations, inquiries and confirmations to access audit evidence needed to be assessed.
Documentation & Recording
The final stage for the auditor is to document his findings and opinion on the entity’s financial statements, including the auditor's conclusions concerning the extent of misstatements in individual account balances contributing to the final financial accounts.
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