Audit of Distributor's Stock: Substantive Procedure Needed - Essay Sample

Introduction

An audit refers to an examination of accounting records of an entity. That is in addition to the inspection of assets owned to ascertain their actual value. In this case, it is about the audit of the financial statements of a distributor with multiple items. The purpose of the inspection is to ensure the completeness, right valuation, and the existence of inventory. In this case, the review is of the stock held by the organization. A substantive audit procedure is hence the best option, as it verifies the transactions and details of account balances (Rezaee & Sharbatoghlie, 2001). The first step is the presentation and disclosure of records, whereby financial statements are analyzed carefully to check the various disclosures reported. Valuation is the next step, where there is confirmation with the bank about account balances, letters of credit, liabilities, assets, and other accounts held. Moreover, there is the counting of cash to make sure the reported figures are accurate. Reconciliation of vouchers with the petty cash fund is another activity at this step.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

The next undertaking is ascertaining the existence of items of inventory in the entity, whereby a checklist is used to determine the actual figures of available commodities. That makes sure that the stock reported as available is indeed under the ownership of the entity (Johnson & Neter, 1981). That can be done through a stock-taking undertaking to make sure the available inventory is reconciled with the records. The establishment of rights and obligations is the next step, where verification of account names and via confirmation requests are undertaken. The determination of levies and complementing balances is also done to verify the exact balance of accounts. Lastly, is the review and verification of discounts, bad debt computation, and evaluation of profit recognition. Cygna is an example of an audit software package that organizations can use to perform their audit as it has tightened security features and the ability to optimize the usage of the available information and services.

When performing an audit, the goal is the establishment of the true value of an entity. That is done through the verification of the records available. That calls for the implementation of the procedure mentioned above in conjunction with some best practices that are recommended (Konrath & Konrath, 2002). First, there should be the documentation of all significant processes, policies and practices that might affect the accuracy or interpretation of information during an audit to enhance reliability. Making the policies and procedures available to all the personnel in the organization is another step, which will enhance systematic record-keeping and financial reporting. Making sure that the records kept by the entity are complete and accurate at all times is another practice that should be improved. That will have an effect of increasing the reliability and quality of information that the organization is working with at a given time.

Training and development of the staff in an entity is another way through which an organization can make use of the audit procedure in the best way. When staff is equipped with the best skills, which are developed over time, there will be a high level of accuracy which will be reflected in the results of the audit reports. For example, when the employees are trained on proper income recognition or better book-keeping practices, there will be a high level of uniformity, which will translate into the accuracy of records and better audit reports in the long run. When an organization's operations are based on sound principles and procedures, the results of an audit will always be favourable as it will reflect the quality of services. Thus, in addition to an excellent audit procedure, the practices mentioned above should be cultivated in the organization.

References

Rezaee, Z., Elam, R., & Sharbatoghlie, A. (2001). Continuous auditing: the audit of the future. Managerial Auditing Journal. Retrieved from: https://www.emerald.com/insight/content/doi/10.1108/02686900110385605/full/html

Johnson, J. R., Leitch, R. A., & Neter, J. (1981). Characteristics of errors in accounts receivable and inventory audits. Accounting Review, 270-293.Retrieved from: https://www.jstor.org/stable/245813?seq=1

Konrath, L. F., & Konrath, L. F. (2002). Auditing: a risk analysis approach. South-Western.