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This study deals with company named as Nirvana Produce Pty Limited. This particular company is a large wholesale fruit as well as vegetable supplier. Nirvana Produce Pty Limited operates from the warehouses as well as office near the fruit and vegetable markets for sourced organic production (Zadek et al., 2013). In this assignment, emphasis has been given as considering audit senior for Nirvana Produce Pty Limited for identification of risk and suggesting the change at the same time. In the first question, it asked regarding the ratio conjugation from the figures of case study. This means the key ratios of Nirvana Produce Pty Limited such as current ratio, receivable turnover ratio in days as well as inventory turnover ratio and debt to equity ratio. George Bowles and Thomas Hays started Nirvana Produce Pty Limited more than 30 years ago. They converted into partnership for proprietary limited company owning more than 50% shares. The second question discusses on the identified strengths and weakness for the internal control system for Nirvana Produce Pty Limited (Yang & Jia, 2013). The study identified the weakness gathered from the internal control system exerted from financial statements of Nirvana Produce Pty Limited. It requires identifying the audit steps so that audit risk is reduced in the upcoming financial years. The last question discuses on the audit approach by using networked personal computer based upon accounting software in the audit engagement. It requires rendering in-depth analysis on the audit approach for developing two CAATs for audit purpose in the near future (Yang & Jia, 2012).
From the case study of Nirvana Produce Pty Limited, it is necessary to analyze the ratio conjunction from the information presented. It requires bringing down the additional information from implications of audit and steps identified in minimizing the audit risk as far as possible (William et al., 2016). Audit Planning mainly involves developing proper strategy in order to perform the audit program of Nirvana Produce Pty Limited. At the planning stage, auditors are required to understand the needs of the potential client based upon the nature of services for each given party. It is accomplished by usage of engagement letter for the overall audit program as well as plan at the same time (Wang et al., 2013). Planning takes place in the entire audit function as the auditor need to accumulate appropriate audit evidence for supporting the audit opinion.
In the next step, it requires understanding of the client and its environmental actions for minimizing the audit risk for the company, Nirvana Produce Pty Limited. It involves internal control, as auditors require necessary information on the background for risk assessment of material misstatement especially of the financial statements (Wang et al., 2015). It designs the nature as well as audit procedures and timing of the audit program conducted for Nirvana Produce Pty Limited. On the contrary, risk assessment is the process involving inquiries of management in and within the business entity as well as analytical procedures and inspection for future analysis purpose. Addition to that, it requires obtaining of proper understanding of internal control nature for identifying areas of material misstatement for designing of procedures based upon existing system for Nirvana Produce Pty Limited (Wang et al., 2012).
In the next step of audit process, it need risk assessment for material misstatement as well as designing of further audit procedures for Nirvana Produce Pty Limited. Senior auditor uses authentic information for understanding the requirement of client as well as its environmental actions for class identification, disclosures and account balances (Sookhak et al., 2015). Risk misstatement performs the financial statement as well as assertion level for Nirvana Produce Pty Limited.
From the case study, it has been noticed that Nirvana Produce Pty Limited ratio analysis figures needs improvement in the upcoming financial year. Some of the analysis is as follows:
Current ratio for the year 2015 and 2016 arrives at 1.89 and 1 and industry benchmark comes at 1.8. It is known that ideal current ratio is 2:1. Therefore, audit plan is required for Nirvana Produce Pty Limited for keep a check on the current ratio. Nirvana Produce Pty Limited should attempt in acquiring more current assets like twice of current liabilities. In this way, Nirvana Produce Pty Limited can easily manage with the short-term obligations in desired form. Current assets like cash, accounts receivable and short-term investments will help in meeting the day-to-day running of Nirvana Produce Pty Limited (Sharbatoghlie & Sepehri, 2015).
Accounts receivable (in days) for Nirvana Produce Pty Limited arrives at 12 days in 2016 and 8 days in 2015, that comes as industry benchmark of 7 days. This means that Nirvana Produce Pty Limited has less number of days in paying off its creditors on timely manner. It is required to extend the time-period for making the final arrangement for cash in the business (Porter et al., 2014).
In case of inventory turnover ratio, there was constant 3 days viewed in the given years, 2015 and 2016. This means inventory management is essential for the company in order to manage the stocks on time (Messier Jr, 2016).
Debt to equity at 0.50 is ideal because it is the combination of debt with equity. This means that Nirvana Produce Pty Limited can manage with debt obligations in the future financial years (Louwers et al., 2013).
Control risk is the risk involving material misstatement for related assertion as well as detected on timely manner by external business entity internal control for Nirvana Produce Pty Limited (Gök & Akar, 2014). It requires analysis of designing of internal control implementation whereby auditors requires in deciding upon adequate for prevention or detection of correct material misstatement. In this case, auditors feel that the internal control is weak for assessing material misstated risk for performance of control test in the near future. In this particular case study, auditors performed procedures at the end of audit plan. It requires final decisions as stated in financial analysis in corporate disclosure in accordance with appropriate audit report for Nirvana Produce Pty Limited (Hayes et al., 2014).
Audit as well as assurance services involves in statutory financial audit for the company Nirvana Produce Pty Limited. It uses internal audit as well as risk auditing and social auditing for increased investor confidence for other stakeholder demand from the given case study. From the financial audit and assurance, it lacks adequate mandatory standards for audit valuation for gaining knowledge as well as information for the Nirvana Produce Pty Limited. The company various risk that is mentioned above with proper justification for making the final judgment by the Senior Auditors (Furnham & Gunter, 2015).
In this particular question, it is required to identifying the strengths and weakness of internal control for Nirvana Produce Pty Limited. It should be identified from the financial report assertions as well as suggesting deficiencies of audit steps for reducing the audit risk at the same time. Internal audit control system is one of the common safeguard used in the business in the recent world (Eilifsen et al., 2013). There are two types of internal audit control system named as internal audits as well as internal controls.
Broad Application- From the case study, it is identified that Nirvana Produce Pty Limited faces various issues with smooth functioning of business organization. Internal audit controls systems involve broader application as well as creation of weaker internal audit control system (DeFond & Zhang, 2014). Business owner of Nirvana Produce Pty Limited should attempt in developing system for focusing on specified business issues. On the contrary, control systems covers business departments or any other functions for producing maximum benefits for Nirvana Produce Pty Limited. It consists of well-defined policies for each unique department. It helps in allowing the operational managers for developing managers and employees for maintaining proper application of control system policies n the upcoming financial years.
Time Consuming- From the given case study, it has been suggested that creation of internal control safeguards and time consuming at the same time. Business owner of Nirvana Produce Pty Limited faces vital issues with the learning regarding the internal control systems for attainment of future goals and objectives (Cronin & Sugimoto, 2015). Time-consuming issues are one of the issues that cause managers as well as employees for control system process. Some of the potential weakness caused because of the difficult management situations faced by Nirvana Produce Pty Limited in accordance with control system. Business owner of Nirvana Produce Pty Limited finds it difficult in dedicating the adequate time for reviewing the internal audit control systems.
Lack of Knowledge- From the above case study, business owner of Nirvana Produce Pty Limited may be unaware regarding the best internal control audit systems for implementation in the business organization. It is advisable to the business owners in creation best internal audit control systems for Nirvana Produce Pty Limited. In order to avoid the weakness, business owners are recommended in consulting with public accounting firm or any management consultant for professional advice for Nirvana Produce Pty Limited (Chaudhari & Bakal, 2015). Professional consultants will provide inside of best control systems for various types of business operations.
Difficult to understand- This particular weakness means that technical internal audit control systems poses difficulty for understanding purpose. Business owner of Nirvana Produce Pty Limited mainly relies upon managers as well as employees for completing the business functions in accordance with safeguards. In other words, business owner of Nirvana Produce Pty Limited explains the internal control audit systems for professional accounts (Bell & Griffin, 2012). Professional accountants mainly conduct external audits based upon the company operations for future analysis purpose. External audit enables including in-depth analysis of the Nirvana Produce Pty Limited external audits especially on business operations. There causes inability in educating other individuals for understanding the importance of policies for creation of inefficient business operations
The professional auditors identify the above weakness from the company Nirvana Produce Pty Limited that requires immediate attention. Nirvana Produce Pty Limited uses basic accounting software for making the bank statement because of file generation of creditor payments as uploaded into the bank account (Barton & Bruder, 2014). Various risk control measures involves inherent risk, control risk and detection risk.
Internal controls help employees in carrying out the work more diligently in accordance with policies as well as procedures of Nirvana Produce Pty Limited. Control strengths of Nirvana Produce Pty Limited involve simplicity as well as wide acceptance and effectiveness in making the company attain its future goal as well as objectives. On the contrary, weakness upholds the inconsistent application as well as lack of acceptance and frequent discrepancies especially by the employees of Nirvana Produce Pty Limited (Arens et al., 2012). Internal control assessment for Nirvana Produce Pty Limited involves evaluation on the required separation of duties for the employees.
Suggestions to the above listed weakness for Nirvana Produce Pty Limited involve strong management team receiving the reports from areas of activity as well as comparison of variables. It requires receiving the employee expense reports charging from the credit card of Nirvana Produce Pty Limited and reported company payments at the same time. Consistent structure of authorizations is one of the elements of strong controls for Nirvana Produce Pty Limited. Accessing internal control is important for data centers as well as warehouses in accordance with restricted physical access for Nirvana Produce Pty Limited. Accounts payable ratio (in days) arrives at 7 days for invoicing through online payment system entered from the accounting software. This case study briefly considers the audit risk faced by Nirvana Produce Pty Limited for future analysis purpose (Anderson et al., 2014).
From the case study on Nirvana Produce Pty Limited, it requires outlining the audit approach taking with networked personal computer based upon accounting software on the audit engagement. Accounting systems for Nirvana Produce Pty Limited is the usage of accounting software depending upon the situation. In this particular case, auditing with the networked computer means approach used by Nirvana Produce Pty Limited in the upcoming financial year (Abernathy et al., 2015). It involves usage of CAATs for audit completion for using it in an effective way. Auditors need to use data extraction analysis. CAATs include:
It is advisable to Nirvana Produce Pty Limited for using computer-based auditing for carrying out its business in desired form. It has the following advantages:
Usage of computer system will help in reducing the physical documentation as far as possible for the professional auditor (Louwers et al., 2013). It involves additional controls for achieving objectives of validity as well as completeness and authorization at the same time. Data input relies upon leaving the audit as multiple trails of transactions as far as possible. Unauthorized access is one of the possibilities enabling in the computer-operating environment.
It is important to understand the fact that audit ensures in using of internal controls for unauthorized access towards restricted security using computerized systems. Accounting systems for Nirvana Produce Pty Limited requires in understanding the concepts on controls in a computer-based environment (Anderson et al., 2014). It helps in gaining information regarding the impact of auditor assessment of risk as well as subsequent audit procedures in the near future. These procedures involve usage of computer-assisted audit techniques (CAATs).
This particular case establishes understanding on giving practical implications on the computer-based controls for Nirvana Produce Pty Limited as well as computer-assisted techniques featuring for the same company.
Some of the relevant auditing standards are as follows:
There are two major categories used for application controls as well as general controls.
Application Controls- In this type of internal control, it is the manual or automated procedures used for operating the business process in processing with applied transactions. Individuals serving as preventative use it or detective in nature as well as designing integrity attributes in maintaining accounting records (Louwers et al., 2013). Application controls mainly relates with procedures used for initiation as well as reporting transactions from the financial data analysis. Application controls applies with the data processing tasks like sales, purchases as well as wages procedures for future analysis purpose.
General Controls- It is the policies as well as procedures relating with application and supporting with effective functioning of applied controls at the same time (Furnham & Gunter, 2015). It is applied mainframe of strategies use for end-user environments. Controls maintaining integrity of information as well as data information security used the IT on behalf of internal controls. This involves data centre as well as network operations for system software acquisition like change as well as maintenance like security access as well as change in programs (Louwers et al., 2013).
Computer - Assisted audit techniques (CAATs) are the featured application of auditing procedures used by the network computer as a tool. There are three main categories of CAATs.
Audit Software- Computer programs are majorly used by the auditors for interoperating client computer files especially used for substantive testing. It involves package programs, enquiry programs as well as purpose-written programs (Zadek et al., 2013). It is generalized audit software for pre-prepared programs whereby auditors specifies the detailed requirements used for computer systems types in the most appropriate way
Test Data- This particular category consists of data that needs to be submitted by the auditor in case of processing by the client computer system. The major objective of operating application controls is the scenario whereby auditor arranges for dummy data for processing purpose (Furnham & Gunter, 2015). This involves many error conditions as well as ensuring clients applications for problem identification process. Some of the identified errors involves supplier account codes, employees earning excess than the certain limit as well as sales invoices errors as well as submitting data with incorrect batch controls.
Other Techniques- Some of the other identified techniques involve integrated test facility, embedded audit facilities (Zadek et al., 2013).
From the above study, it is concluded that Nirvana Produce Pty Limited faces various audit risk and appoints Senior Auditor for solving it in the upcoming financial years. The above analysis has been conducted by identifying the weakness of Nirvana Produce Pty Limited to bring authenticity of information. Addition to that, it is recommended to Nirvana Produce Pty Limited in managing its inventory at warehouse so there is no shortage or excess of stocks in the near future. Shortage or excess of inventory proves dangerous and should be managed with utmost attention by the management of Nirvana Produce Pty Limited. It also requires making ways in acquisition of fixed assets in the business in order to avoid future fluctuations or price changes in the business operations. Assessment of current assets in business will help in meeting the short-term obligations as well as working capital requirements for Nirvana Produce Pty Limited. Nirvana Produce Pty Limited should manage with current debt and try in reduces it as far as possible. There are several issues faced by Nirvana Produce Pty Limited but has the potential ability in attainment of future goals as well as objectives.
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