(ACCT 3004) Auditing assignmentcreating an audit plan for Crest Outfitters related to foreign currency and lease accounts

Question

Task: As an engagement manager, you need to design an audit plan related to foreign currency and leases accounts presented in Crest Outfitters’ financial statements. Write an auditing assignment including appropriate procedures and sufficient details so that the junior associate auditor can follow your instructions.

Answer

List questions inauditing assignment to make an assessment of Audit risk along with justification

Here in the auditing assignmentis a list of few questions which shall be askedby various departments in order to know the risk associated with financial and non-financial information and audit risk.
I) How the evaluation of top management of the company is carried out and what factors are considered while evaluating the performance of top management specifically when entering into the forex transaction and while take decision related to the acquisition of assets either on lease or on purchase: answer of this question in the auditing assignment is essential to know the participation and involvement of top executive in overall growth and in order to ensure the accountability and transparency within the organization.

II) How the compliance is made and the grievances of various stakeholders are resolved, the stakeholder include both domestic as well as and international market : this question is essential to understand the actual and projected risk associated with the company, and also states about management address the grievances of stakeholder and investors. The auditing assignmentquestion is also good to know leadership skills the management involvement to control and minimize projected risk associated with operation.

III) Does any violation of law in past or any event which result in to breach of duty of company toward corporate compliance and forelaws : this question in the auditing assignment is essential to check company awareness with regard to compliance of all applicable corporate laws. (County, S. (2022).

IV) What process does company follow to identify risks and to assess the risk both for financial as well as non-financial aspects : this question in the auditing assignment is essential to know the risk management culture within the corporation, and to know, whether is there any sperate department which work for risk management and risk controlling.

V) How the transaction related to insider are disclosed and how this information are communicated to the stakeholder : the information relatedto transaction with related parties are essential to know as such transaction has high possibility to manipulated and adversely affect the transaction of corporate as whole, further such transaction are essential to comes in picture before external interested parties. Such transaction in the auditing assignmentmust be at arm length price and such transaction are highly material in nature, hence it can influence the interest of external and internal interested parties of corporation

VI) Compliance risk exist in operating : corporate are subject to meet the regulatory aspect, it is essential in the auditing assignmentto know all statutory aspect as applicable to company, the clear picture about the applicable law make the clear understanding for creation of audit plan.

VII) How the management evaluate the operational policy and foreign policy: this question in the auditing assignmentis essential to know the working practices and steps taken by company to minimise the possibility of variation of actual and projected result

VIII) Has company completed compliance audits ? Please make a description of process and significant audit finding : this question in the auditing assignment is also essential to know the how much company is aware about the importance of audit and what steps does company takes to avoid all possibility to violation of any act, intentional control system to compliance with audit aspects

IX) How management take a decision regarding acquisition or leasing of any capital assets, as well as how the research for product acquisition is carried out, : this question in the auditing assignmentare essential to know the skill and ability of financial department to analysing the multiple sources to financial an assets along with multiple ways to acquire an assets.

X) In addition to above stated question, we can also ask the question like, how transaction are flows, how the various department work are shared, and what is the central data-based system, scope of audit work for internal auditor and coordination with statutory and internal auditor with respect to various financial and non-financial aspects.

Approaches that could be adopted in order to know the materiality

There is aninverse relationship between the materiality and the level of audit risk, the high materiality level indicates the high possibility of audit risk, and vice versa. The materiality and the audit risk are consider by auditor in the auditing assignmentto determine the time, natures and extent of audit procedures. (Seong, Y., Lee, D. and Jung, U., 2022.).In order to know the level of materiality in theauditing assignment, detail audit approached shall be suitable, unless we are well aware about the operational activities and auditor is familiar with corporate culture of company.

To make an assessment of audit risk and level of materiality in the auditing assignment, it is essential to understand certain aspect related to corporation, make a understanding about the business and its environment, secondly understand the level of control for operational activities and various financial and non-financialtransaction.further identify the process adopted by company to identify the risk, perform fraud risk analysis, and finally make an assessment of risk associated with business.

Identification of effect of Opening of Physical store in Sydney on accounts and business

When the business start to introduced themselves, physically along with virtual presentation, the physical presentation required the company to acquired, or purchase or take premises on lease. the major capital investment for infrastructure, human resources and the other required resources is carried out. this fact will result into presenting information related to various assets and liabilities on financial statement. Company considered in the auditing assignment is supposed to make an inventory report. further the extension of business operation physically in various domestic as well as international market will result into developing the financial statement for all associated store individually as well as consolidated financial statements. In nutshell, major changes are in financial statements are related with investment in tangible and intangible assets, change in capital structure, impact of forex transaction if financial are from external sources and lastly requirement to prepare consolidated financial statement in the auditing assignment. Consideration of population or sampling approaches that would be adopted for control and substantive tests of foreign currency and leases.

The large numbers of foreign current transaction required proper allocation of transaction in certain groups, like the transaction beyond certain numbers shall be group in one category then the transaction above the certain numbers. Sampling in the auditing assignmentis possible after identifying the actual character of transaction, any failure or mistake in classification of transaction or grouping of transaction will create a major confusions. Major consideration in sampling include , relationship between the accuracy and precision, reliability of estimates with varying sample size, determination of safe sample sizes for surveys, possible variation in data based. Here in the auditing assignmentforeign currency transaction shall be sample based on the countries, size and frequency, similarly the lease transaction are sample, following the requirement of size and frequency of transaction. (Fountain, L., 2022.)

Audit process perform control tests related to foreign currency and lease.

As part of controlling activities of foreign current and lease transaction, first of all auditor need to make an inquiry of transaction, such as how the whole transaction is executed and list of parties involve in whole transaction.ones the auditor has a sufficient knowledge and understanding about the transaction of auditee, the second step is to make an observation of whole transaction, here in the auditing assignmentexamination shall be carried out in order to ensure that the foreign currency and lease transaction are carried out as per required standard, and if any variation in actual and projected transaction is found, then in such a case it is essential to ask certain question, as part of knowing the reason for such variation. Third examination or inspection of evidence, here in the auditing assignment whole transaction isexaminate and inspection is carried out to gather sufficient evidence. Use the computer system and make a suitable judgement from whole transaction, whether the outcome of financial or nonfinancial transaction is as per the agreed standard and if not then such variation is part of audit query.

Substantial Audit Procedures in order to perform audit of foreign currency and Lease account.

As part of substantial audit Process for foreign currency and lease account, an auditor shall initial his audit process by classifying the foreign current and lease account transaction in one category, simple the transaction, check the whole transaction through audit trail and review the final outcome. The final outcome of the auditing assignmentis compared with the agreed standard and projection is made regarding accuracy, reliability and viability of transaction. here while reviewing the transaction, it is noted any error or mistake in transaction, then such error and mistake shall be analysing in detail, all associate transaction related to error or mistake shall also be check. At the end the conclusive comment and recommendation in the auditing assignmentshall be made, such comment and recommendation shall be supported by documentary evidence.

Conclusion
The above stated audit process for Crest Outfitters in the auditing assignment, is within the reference of performance, outcome and audit process. here discussion is manly made from foreign currency transaction and lease account transaction point of view, here in the auditing assignmentit is view that auditor is a professional who monitors finances for a company. They often exercise substantive procedures to collect evidence of the company's transactions and confirm that its financial status is correct.

Reference
Abdel-Khalik, A.R., Snowball, D. and Wragge, J.H., 1983. The effects of certain internal audit variables on the planning of external audit programs. Accounting review, pp.215-227.
Fountain, L., 2022. THE WORLD HAS CHANGED… HAS INTERNAL AUDIT. EDPACS, 66(1), pp.19-22.
Koutoupis, A. G., &Tsamis, A. (2009). Risk based internal auditing within Greek banks: a case study approach. Journal of Management & Governance, 13(1), 101-130.
Shahverdi, M., Fallah, M.F., Kordlouie, H. and Badiei, H., 2022. Identify barriers and provide a model for implementing a risk-based audit system in Iran. Journal of Management Accounting and Auditing Knowledge, 11(43), pp.127-143.
Sefira, R.D. and Hasyim, M.A.N., 2022. Analysis of planning for the audit of the cooperative's financial statements at the Cooperatives Assisted by the Department of Cooperatives and MSMEs in Bandung City. Keynesia: International Journal of Economy and Business, 1(1), pp.14-23.
Seong, Y., Lee, D. and Jung, U., 2022. Group-wise Keyword Extraction of the External Audit using Text Mining and Association Rules. Journal of Korean Society for Quality Management, 50(1), pp.77-89.