Hernandez Case
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1. Review board of directors minutes to verify approval of equipment purchases
Audit area: Property, equipment, plant
Audit object: Verify purchases and sales during year
Financial statement assertion: existence, rights and obligation, valuation and allocation and accuracy
Evidence gathering: Inspection and reviewing purchases.
Its important that the auditor determine the objective in the company. When an auditor to make audit opinion, he need to localize the area that he/ she want planning. To inspect the auditor have to examining records or document to receiving sales orders to see if the transaction is properly well done. Thats for se if the items are classified in the right way in the financial statement.
2. Discuss with the cash disbursements clerk his or her and duties and observe whether he or she has responsibility for handling cash or preparing the bank reconciliation.
Audit area: Cash
Audit objectives: reconcile to book balance and confirm bank balances
Financial statement assertions: existence, rights and obligations, valuations and allocation and accuracy and occurrence
Evidence gathering: inquiry is the most used technique to obtaining information from the client. The information may give the auditor benefit to find new evidence, thats can make that financial statement becomes more reliable. When Auditor gather evidence off the company its important that information is correct. To ensure the information, the auditor has different way to go. One way is that talk with management but the information that management provides doesnt need not be credible. The information that they give incorrectly for make the financial statement to look better than s is. The auditor cannot inspect all data of the company so the auditor have to find a way to make process additional efficient and effective way to gather the information. Another way to gather information is to computerized the account balance and make a sampling a test of the company. The provide evidence will can make the secure data to be more analytical review. With this existing information the management can balances the approval equipment. Audit procedures that gives a high quality to a low coastline, gives the auditor more opportunities to make sample test, since the its more cheaper to make a several more test into to the company.,
3 .Examine the accounting clerks initials on monthly bank reconciliations as an indication of whether they have been reviewed.
Audit area: Cash
Audit objectives: Reconcile to book balance
Financial statement assertions: occurrence, completeness, classification, cutoff, accuracy
Evidence gathering: conformation- used to confirm the existence of accounts and inspection reviewing sales orders.
The objectives of the control of the cash are to properly ensure that the currency is used in a business purposes. It also important to guarantee that payment is properly recorder in to the company. Since most off the transaction is made by different person its difficult to compile transaction is correctly right performed. The few components to make that happen is to have a Risk assessment, Control activities and Communication with employee. Since the company have different components is easier to have larger view of the company assets it also can be insurance that all data is correct. The company would increase efficiency and ensuring compliance regulations of the cash flow. The result when a company has poor components is that the employee can make swindle , another way why employee make fraud is when the company have a financial pressure and rationalization. One way to reduce this is to have different control in different time and hire someone to oversee the company financial situation. Management to attest that the companys internal controls are reliable and effective. In order to achieve and maintain the required level of control, all employees must be educated with follow up with routines to ensure the cash.
Before an auditor make start making an audit opinion, they need to localize in which area they are planning to manage. In this particular example the auditor is asked to check the protocol in which the board of directors have used when deciding and approving equipment purchases. The auditor has to determine what the purpose what and that the transaction has been done correctly. If we continue to the auditors objective we can state that an auditor needs to test controls in the company.
4. Review sales, cash receipts and sales returns cutoffs.
Audit area: accounts receivable
Audit objectives : review cutoff
Financial statement assertions:, completeness, cutoff, completeness , classified, Occurred
Evidence gathering: Inspection is when a auditor reviewing documents like sales order. Confirmation to see the existence of accounts and see if they are payable.