MGAD10 Shaosifa Case Assignment 2
To: Ted Katz, Partner, Kartz & Sargood LLP
From: CA/CGA/CMA (External Auditor)
Re: Bulletproof Greens (GREENS) 2014 Audit planning memo
Audit Planning Memo
Risk of Material Misstatement
The risk of material misstatement is higher because:
The deadline for the audit planning memo is due in a week. Furthermore, all year-end information will be ready by March 15,2015 which means for now we will be auditing without complete information on GREENS.
With three warehouses at separate places, GREEN’s operation complexity is increased.
The business may be suspected to have overstated the Net Income based on the fact that the NI were tripled from last year with a doubled revenue
With huge investment in the contract and the sandal of Tiger as an endorser, there is a bias for GREEN to overstate the financial statement to show success of the project.
There is an increased reliance on financial statement due to the fact that GREENS is required to provide audited FS to the financial institution under the agreement for a loan.
The paralleled usage of old and new systems increases the IT control complexity.
The controller is doubted for his expertise in accounting knowledge. (He recorded deferred revenue as sales)
GREEN’s increased business on Internet and expansion increases our workload.
Approach
Control risk is high as there are a several internal control weaknesses (discussed below).
As a result of high control risk and material misstatement risk, we should increase our substantive procedure during the audit.
Materiality
Due to GREEN’s bias to overstate the financial statement and its increased reliance on it, a lower materiality percentage based on net income is likely appropriate (3%-4%).
Materiality is based on net income as the success of GREEN’s new project will be based on it to see whether it is worth. Furthermore, the financial institution will examine on the NI to see GREEN’s ability to pay back its loan.
Procedures for High Risk Areas
Advance Deposits/Costs
From: CA/CGA/CMA (External Auditor)
Re: Bulletproof Greens (GREENS) 2014 Audit planning memo
Audit Planning Memo
Risk of Material Misstatement
The risk of material misstatement is higher because:
The deadline for the audit planning memo is due in a week. Furthermore, all year-end information will be ready by March 15,2015 which means for now we will be auditing without complete information on GREENS.
With three warehouses at separate places, GREEN’s operation complexity is increased.
The business may be suspected to have overstated the Net Income based on the fact that the NI were tripled from last year with a doubled revenue
With huge investment in the contract and the sandal of Tiger as an endorser, there is a bias for GREEN to overstate the financial statement to show success of the project.
There is an increased reliance on financial statement due to the fact that GREENS is required to provide audited FS to the financial institution under the agreement for a loan.
The paralleled usage of old and new systems increases the IT control complexity.
The controller is doubted for his expertise in accounting knowledge. (He recorded deferred revenue as sales)
GREEN’s increased business on Internet and expansion increases our workload.
Approach
Control risk is high as there are a several internal control weaknesses (discussed below).
As a result of high control risk and material misstatement risk, we should increase our substantive procedure during the audit.
Materiality
Due to GREEN’s bias to overstate the financial statement and its increased reliance on it, a lower materiality percentage based on net income is likely appropriate (3%-4%).
Materiality is based on net income as the success of GREEN’s new project will be based on it to see whether it is worth. Furthermore, the financial institution will examine on the NI to see GREEN’s ability to pay back its loan.
Procedures for High Risk Areas
Advance Deposits/Costs