Auditing300 Essay Example

AUDITING TASK

ASSIGNMENT TWO

There are many risks related to the PLK Pty Ltd, which is a paint manufacturing company. It is very risky to take and make loan agreements with another financial institution due to the fact that the desired financial institution has outstanding balances. This scenario well indicates the fact that the company is not able to meet its financial obligations as well illustrated in the case study. It is also very risky to depend and to have hoped that you will receive a loan from another financial institution even without consulting first with the related parties to this. A failure to receive the loan will mean that the planned expansion is not expected to take place.

The installation of the new software in the company is a risky fact in the business. This is due to the fact that the software would have been put in place ever since the day the experienced employees had not retired. This is in order to check for its efficiency in the management of transactions and in documentation. It is risky in that they are not sure if it will work well in the company or not. A pre usage testing is required before it is put into use.

The Pure Water Designs case is a risky one. This is due to the fact that the chief executive officer of the company is relying on profit increases brought about by differences in the currencies of the countries. The changes in currency are factors which are subject to changes and which should be relied upon as the main reason for debt settlement. They exchange rates are at times favorable and in other times very unfavorable and hence the main reason behind not being relied upon. The political situation in other countries cannot be relied upon also.

In the first case, several accounts are affected by the decisions. First, if the creditors account will increase due to the fact that debts will increase. The capital account will also increase due to the fact that the new factories will be part of the business. Due to the increased sales, the revenues account will increase. This will however not be an assured long term rise due to the many risks involved in its success. This is caused by the reliance on measures which the company is not assured of a long time existence or development like political contractual situations. This will be short term profitability.

When preparing an audit plan for the situation in hand, it is advisable to first consider the many aspects affecting the survival of the ventures and giving a thorough scrutiny at the looming risks. This is due to the fact that risk occurrence can lead to the experiencing of major losses by the ventures. It is therefore advisable to put in place all the necessary measures to avoid the occurrence of the risks and to also reduce the losses which might occur if the risk is to take place. In the first case, the company should first focus on the completion and the servicing of the outstanding financial obligations. This is in order to increase the chances of them getting another loan. It also helps in reducing the outstanding debts of the company.

In the second case, the company should focus on first testing the accounting software that they seek to develop the use of. This is in order to increase the chances of the good performance of the software. It also helps in alerting them of any inconvenient situation which might be caused by the application earlier on and before putting it to use in the company. Software failure once put into use in the business will lead to the business making many losses and system delays. In order to avoid the occurrence of this, it is advisable to first test for its effectiveness. In the third case, the company should not place their full reliance on the currency differences as the main reason for the making of profits. This is due to the instability of currencies in the financial markets. Their reliance should also be removed from the political contractual nature of the Asian and the European countries. This is also due to the fact that the political situation of any country is subject to changes after some time. They should focus on the increase in profitability due to other factors such as customer loyalty and brand differentiation which are more stable as compared to the other listed factors.

EXEMPLAR FORASSIGNMENT 2

Following the appointment as an auditor in the BNZ Pty Ltd, it is my job to investigate the looming risks in the manufacturing company. As a result of the entry of the competitors into the market, a number of challenges are experienced. They are also increased by the fact that the competitors are making the prices of commodities to drop significantly. The competitor company also intends to offer discounting at high rates for the whole of the coming year. This will affect the sales proceeds made by the company. The company therefore needs to put in place mechanisms to counter the losses which are likely to be experienced.

Some of the mechanisms it can use include the offering of incentives to the customers in order to divert their attention from the competitor company. Some of the incentives it can put in place include award of gifts on the purchase of several items. This tends to encourage the customers to buy more. The company can also put in place marketing strategies which are thorough than those of the competitors. They include massive advertisement for the products of the company. The company can also put in place some price cuts in order to reduce and to lower the stock levels in the company. This can help in the maintenance of the sales levels. By the putting in place of these above listed factors the levels of the sales will be maintained. This will assist in also reducing the amounts of losses occurring due to the reduction of the selling prices of the commodities and goods.

There are many effects likely to be experienced due to the reduction in the selling prices of the goods. These accounts include the ales account. The sales levels are hence expected to reduce hence affecting the sales account of the company. Another account likely to be affected by the scenario is the inventory account. This is because all measures will be put in place to reduce the inventory levels. The inventory account is hence expected to decrease in value also due to the fact that the selling prices of the inventory might lower than the earlier expected values. It is also expected to affect the cash flow of the company. This is alteration affects the cash and bank accounts of the company. The other accounts also related to the cash and the bank accounts will also be affected. They include the receivables and the payables accounts.

The audit plan will be highly affected by the looming risks in the business. As a result of this, the plan should involve plans and measures which will help improve the going concern concept of the business which incorporates the future of the business as well as its survival in the competitive market. A strategy should be put in place to check the effectiveness of the strategies which are put in place and which include analysis of the sales revenue and the inventory. This is in order to check the efficiency of the control measures also called the counter competition measures of the business.

REFERENCES

  1. Saxena, R. G., Kastoori Srinivas, Urmila Rai, and S. M. Rai. 2010. Auditing. Mumbai [India]: Himalaya Pub. House.

  2. Millichamp, A. H. 2002. Auditing. London: Continuum.

  3. American Accounting Association. 1981. Auditing. Sarasota, FL: Auditing Section of the American Accounting Association]. http://aaahq.org/ic/browse.htm.