Audit plan of Bullseye
You are an auditor at a prestigious CPA firm. After several years of hard work, your boss informs you that you will be in charge of this year’s audit of the firm’s most important client, Bullseye, a general merchandise retailer with hundreds of stores throughout the United States. Bullseye is a publicly traded company with its corporate headquarters in Minneapolis, MN. It does not have any foreign operations. Local managers take care of all hiring/personnel issues but payroll is administered through corporate headquarters. Similarly, store managers order store supplies and inventory on account through approved suppliers who send the bill to corporate headquarters where it is paid and allocated to the appropriate store. Cash from sales is deposited on a daily basis into local branches of a national bank chain that handles all banking needs for Bullseye. and store managers have authority to withdraw cash to meet the daily business needs of their store. Each store has a bookkeeper on staff who records all transactions. Naturally, Bullseye relies heavily on technology to manage inventory, payroll, record keeping, and other financial issues at the store and corporate levels. They have an integrated system where information recorded at the store level is transmitted to corporate headquarters and entered into the appropriate accounts. Bullseye has been in generally good financial health for several years and there are no concerns about its ability to remain a going concern. All previous audits have only found minor problems that were the result of human error, such as transposing numbers or entering amounts into the wrong account, and these errors were easily corrected.
Audit plan of Bullseye
Table of Contents
2- Understanding business issues. 3
Testing controls to detect and prevent fraud. 4
Audit plan of Bullseye
Introduction
Purpose of audit plan
The audit plan is being prepared with the intention to provide the audit committee of Bullseye incorporation with the information with respect to the responsibilities being the external auditor of company and the way which we will use to discharge ourselves from the assigned duties in the financial year ending on 31 July, 2017.
Framework of audit plan
The audit plan is required to prepare under the auditing standards of the company and or duties are set under the codes of audit practices which are being issued by audit united states. The auditing codes explain that how to conduct external audit.
We are confirming that we will conduct the external auditor by complying with the auditing standards and codes of conduct. The followings are details regarding the method which will be used to discharge the audit duties.
Audit approach
We are ensuring that the quality and the efficiency of the audit would be maintained and the approach of audit consider the right people. A well-defined audit approach as well as efficient utilization of technology.
People
We are engaging the right people for conducting the audit of the company who are trained by making the substantial investment as per industry standards and programmes. The key members of the audit team includes the four accountants to assist in the audit as well as IT professionals who are engaged in conducting audit for many years. This is beneficial for the audit team as well as for your company as the retained knowledge will remain within the team. Our audit team work with the centre of excellence which ensures that the best quality is maintained in conducting the audit and selection of audit approach.
We have special delivery centres which are designed to conduct the different tasks of the audit when can be performed by the specialized staff who can execute the assigned tasks.
Approach
We are using the audit techniques using the technology based data auditing approach which will ensure the efficiency, quality as well as insight. For the audit of 2017, the testing of journals will be performed in which complete population of the journals would be tested and the detailed testing will be implemented on the items which has the inherent risks in it.
Technology
We have automated processes which are designed specifically to simplify and automate the audit of the financial statements. Moreover the special software is installed which oversees all the activities of audit. The risk based approach and technological implementation is being used which build up the standard in the audit work.
Core elements of audit
1- Client acceptance
Before starting the external audit it is required to test the independence of the external auditor therefore we will also assess the independence. By considering all the factors in relation to independence and by consulting all the team of the audits we are confirming that we are independent auditor and complying with the criteria of independence. The regulatory as well as professional requirements with respect to the external auditor are also confirmed by the professional judgment and under the United States regulatory requirements.
2- Understanding business issues
As we have managed out team with the great care and we are striving to get the better understanding of your business to ensure that improved services are provided on timely basis. With this intention we have developed the understanding with respect to the current year audit that;
- We will critically access the audit process and processes with the management
- We will discuss the issues and the risk which are reviling in the company with respect to IT and internal corporate issues.
3- Relevant risk
In our audit we will use the risk based approach which means that ewe will focus on the areas which are open to the risk. Under the auditing standard we will first assess eth areas which are open to risk through our risk assessment process and later on the impact of control will be tested. In the risk assessment we consider that whether the risk is significant, elevated or normal and after this it is determined that whether we are required to be concerned with the frauds, errors, misstatements or judgements. On the basis of the processes the testing procedures will be designed. The followings are the details with respect to risk which would be tested primarily for the audit of the year 2017.
- Risk of cash management
- Risk of recognition of revenue
- Risk of inventory management and record keeping
- Risk of failure of IT and integrated IT system
Testing controls to detect and prevent fraud
For the identified risks there would be compete testing which will be implemented and the detailed testing will be performed with respect to the cash management and the inventory.
- To test the risks relevant to the cash the authority to issue and deposit cash would be determined and the daily reconciliation of the cash with the cash receipts will be done
- The complete analysis of the cash process from the beginning to end would be determined which will start from the receipt of cash to the deposits to the bank. T would be determined that whether the cash management process is manual or automated. To test the automated cash management process, the controls over the automated process will be tested.(ACFE, 2017)
- The verification with respect to the cash process including the segregation of the duties, authorized access and independent access to cash would be verified.
- The revenue is mainly based on cash therefore the process of the revenue recognition would be tested
- The inventory management and the purchasing of inventory is conducted throughout a process. For attesting the inventory management process, the authorization, the stock taking and method of verification of placing orders will be checked.(Basu, 2016)
- The IT based automated processes will be tested to know the accuracy of the functions and to determine whether there is material misstatement happening due to error in the IT function.
Scoping
We have set the overall materiality level depending on the values of the finical statements as per the overall strategy of the audit and to access whether there is any impact which is being identified as adjusted. For the sake of the evaluation of the materiality there are two types of the materiality which are being determined. First one is called overall materiality which is determined to know the overall impact on the financial statements. The 2nd level of the materiality is determined with respect to the performance materiality which is used to know the amount of work which is required to do for example the calculation of the sample size.
The materiality level below the minimum point will show that error or misstatement is trivial and can be ignored whereas the error more than this minimal level will be reported in the audit to know the overall impact.
Risk of fraud
Under the international standards of the reporting we are required to perform and independent audit and give the report that whether the financial statements are free from material misstatements and errors or not and company is complying with all the accounting standards for the preparation of the financial statements.
Overall the above mentioned work will be done be the independent auditor with the help of team and a report would be provided which will give the opinion regarding the financial statement of the company.
References
ACFE, 2017. USING CASH CONTROL TO PREVENT AND DETECT FRAUD. [Online]
Available at: http://www.acfe.com/fraud-examiner.aspx?id=4294973010
[Accessed 28 July 2017].
Basu, C., 2016. How to Detect Inventory Fraud. [Online]
Available at: http://smallbusiness.chron.com/detect-inventory-fraud-34321.html
[Accessed 28 July 2017].
