Lemoco Co is a new client to Diet & Co, and the chances that the team is not familiar with transactions, accounting policies of the company are an increased detection risk on the audit. Assessing incomplete activities is very subjective.If they are incorrectly calculated, the inventory valuation may be under or overstated.Lemoco Co has increased its inventory which may lead to detection risk. Therefore, there is need for enough evidence over the inventory count controls. The risk of manipulation of profit is high as they need to report a high net asset to ensure the agreementsare met. The risk of a new credit controller, which is also not familiar with Lemoco Co. account balances, is a detection audit risk.For instance, the finance director has provided suggestions such as not maintaining an allowance for receivables. The risk of double valuation for the previously contested different tastes in flavors of cola products is also high since no adjustment have been made due to damaged inventory.
The auditor has the responsibility to review the breakthrough of all the cost so that the auditor can ascertain the split revenue and capital expenditure and also further expenditures needs to be ascertain so that the classification of all the financial statement is correc t and upto date. The new credit controller should be audited and be familiarized with the company's books of account. The auditor should consider not to double evaluating the previously evaluated damaged inventories.
The listed audit risks above require the Diet & Co. to have an experienced audit team, and allocate them enough time to understand the company's books of accounts well. The Auditor should seek clarification from the company's management on the percentage of the process that will be considered incomplete. Detailed cost and a net realizable value (NRV) test should be done to assess whether inventory needs to be listed. The auditing team should maintain professionalism and be alert to the risk that profit or net loss hasbeen overstated.
Main Areas That Should Be Included Within the Audit Strategy Document
The following are the main aspects of the audit strategy other than the audit risk. The scope of the audit and the features of the engagement, such as the organization's financial statement in regards to the GAAS and the IAS (Zupan, 2020). The reporting objectives of the audit process shouldbe published online as part of the disclosure. Available resources for the audit process should also ne included in the document.Lastly, the kind of audit evidence to be obtained, and the restrictions of access and use such as critical database information.
Zupan, Luka (2020). 20 Key Risks to Consider by Internal Audit Before 2020. https://assets.kpmg/content/dam/kpmg/ch/pdf/key-risks-internal-audit-2018.pdf.
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