Fuchsia Enterprises Trial Balance Samples †MyAssignmenthelp.com

Question: Discuss about the Fuchsia Enterprises Trial Balance. Answer: Audit Planning An Audit plan is considered to be specific guidelines to be followed when performing an audit. It helps the auditor in obtaining sufficient appropriate evidence for the situations, helps keep the cost of auditing at a reasonable level and also helps the auditor in avoiding misunderstandings with the client[1]. Audit planning is usually an important area in auditing that is basically performed at the beginning of the audit in order to ensure that sustainable attention is devoted to particular areas and potential issues are quickly identified. Before audit testing, the auditor usually plans to carry out an audit an effective and timely manner through designing detailed procedures in order to obtain sufficient appropriate audit evidence. This particular assignment entails planning of an audit for Fuchsia Enterprises after checking its preliminary Trial Balance[2]. This assignment also extracts information from the enterprises trial balance and identifies the accounts that are likely to require substantial attention, provide analytical procedures for each of the item and the possible recommendation for the audit procedure to be used in the auditing. According to Fuchsia Enterprises trial balance, the selected seven accounts for audit that require attention are; Items accounts 2016 2017 2015 2016 % Change 1 Interest income 48 50 4% 2 Bank Loan 181,525 187,450 3.16% 3 Miscellaneous 1,440 0 1,440% 4 Accumulated depreciation machinery 36,475 24,000 52% 5 Accounts receivables 131,820 103,585 27.26% 6 Depreciation 35,545 15,738 125.9% 7 Wages 62,570 53,000 23.72% Analytical review Generally, use of analytical reviews is considered to be one of the procedures for increasing the auditors efficiency[3]. Analytical procedures usually consist of an assessment of financial data prepared by the auditors of and the expected relationship between nonfinancial and financial data. Interest income Interest income is one of the areas in the enterprise trial balance that basically requires significant attention. The company revenues may be at risks. Interest income area requires great attention because it is more at risks by the misappropriation by the company management[4]. The interest income is usually am accessible funds by the management and thus making it more vulnerable to misuse. According to Fuchsia Enterprise's trial balance, the amount of interest income as at FY2015-2016 was A$50,000 and A$48,000 at FY2016-2017. According to the trial balance analysis, there is an indication that there is a 20% decrease in the amount recorded as interest income[5]. The decrease in the amount received should be scrutinized thoroughly to determine if there is any possibility of the fund's misuse by the management. The difference in the two amounts should be recalculated so as to check if proper evaluations were conducted so as to enhance its materiality. Basing on the riskiness of this item, I recommend that the auditors must recalculate interest income on note receivables to determine if proper formulas were used. Sales Sales is another item that basically requires special attention when planning for the audit. This is because the item is vulnerable to greater risks when the company is carrying out its business. According to the company, the business usually sells its products either in cash or credit terms thus making the item to be at risk. The riskiness of this particular item requires the auditors to carry out proper analytical procedures to determine its physical existence in the sales records. The company will also be required to provide a movement schedule that can be used to compare the amount of sales in the two accounting periods[6]. Fuchsia Enterprises trial balance indicates that during the FY2015-2016, the business had AU$187,450 and AU$181,525 as at FY2016-2017. This aspect demonstrates a 3.16% material decrease, the audit check should ascertain if its cash or credit sales and as well look on the amounts of accounts receivables and sales are accurate by verifying each of them and find possible misstatements. The variations between the two values should be determined to check the reasonableness of the variations. The auditors should check for existence in the stock records and ascertain the movement from store to client. Basing n the riskiness of this item, I recommend the auditor to test for controls of the enterprise set up for sale cycle in order to ascertain their reliability and existence in the movement schedule[7]. The auditor ought also to ascertain if the accounting records for accounts receivables and sales are accurate by basically verifying individual transactions for the probable misstatement. Accumulated depreciation on machinery This is another area that needs great attention that should be done to ascertain compliance and integrity of the financial statements. This particular item is selected because of its riskiness that may affect materiality of the financial statements. Audit procedures for accumulated depreciation on machinery are material so as to ensure that the recorded depreciation is free of material accounting errors[8]. The auditor should match the accounts balances to find out for potential accounting errors or even frauds from demonstrating in the financial records. The 52% increase from AU$24,000 in FY2015-2016 to AU$36,475 in FY2016-2017 should be determined, and that proper recalculation should be done to determine accuracy. Basing on the riskiness of the item, I recommend that the auditor must verify the historical value of the machinery, analyze the related accumulated depreciation accounts for completeness. The auditor should also recalculate the depreciation expenses and gains or losses on disposal of fixed assets to ascertain accuracy and completeness of the entire transaction[9]. The auditor should also attempt to compare depreciation expenses so as to determine any possible misstatements. Accounts receivables Accounts receivables is another risky item that basically requires significant attention when planning for the audit. This is because most of the firms management may collude with some of the debtors and record wrong entries into their names so as to gain funds. Some firms may also post some amounts of trade receivables that actually do not exist and thus may lead the company losing significant amount of revenues. Enterprise trade receivables should be examined for existence and accuracy assertions. This aspect is vital since some trade receivables may be understated or overstated and thus affecting the company revenues. When planning to audit trade receivables, debtors circularization should be carried out, so s to ascertain the existence of debtors and also to confirm the amount owed to the business. According to Fuchsia Enterprises trial balance, the 26.27% increase in the accounts receivables from AU$103,585 in FY2015-2016 to AU$131,820 in FY2016-2017 need to be ascertained so as to make sure that proper controls and strategies were employed by the company in order to check the reasons for the increase[10]. When planning for the audit, I recommend tracing the trade receivables in the company general ledgers. The auditor must request for a period end trade receivables with details from which they will assist in outlining the totals in the trial balance and those in the ledgers. I also recommend the auditors to confirm the accounts receivables existence by basically calling the debtors and asking them for personal details and the amount each owes the company. This will also be done by contacting the business debtors and requesting them to confirm their amounts of unpaid accounts receivables as of the end of the reporting period being audited for the possible misstatement. Depreciation Another item that needs significant attention is depreciation. This is a risky item that needs to be majorly examined because managers may employ wrong calculation methods to misappropriate some of the company funds[11]. The basis used to evaluate the amount of depreciation should be checked to ensure that it is basically free from any manipulation. Planning for the audit should also ensure that depreciation amount has been recalculated again in order to ascertain the accuracy of the amount posted in the trial balance. The 125.9% increase in the amount of depreciation should be re-evaluated and that the company should provide reasonable support to the assets depreciated. The increase of depreciation amount from AU$15,738 in FY2015-2016 to AU$35,545 in FY2016-2017 has a bigger margin. Recalculation should be emphasized so as to ascertain the accurateness and correctness of the stated amount[12]. Due to the riskiness of this item, I recommend that the auditor must check the method used for depreciation and the actual cost of the assets being depreciated so as to determine any possible misstatement in the trial balance. Wages Another item that needs significant attention is wages. This item is considered to seek greater attention because of its materiality in the financial statements. Wages can be misstated by firm managers who may seek to misappropriate the funds. When planning for an audit in wages, the auditor should verify the payroll and compare the amount of wages paid to the trial balance and the payroll systems. The number of employees on the payroll should tally with the amount being paid by the company. The auditor should find the appointment letters to verify the amount of salary that each employee is being paid by the company for the services rendered. The amount should be calculated manually to ascertain if there is any case of misappropriation[13]. The 23.72% increase in the amount of depreciation should be re-evaluated and that the company should provide reasonable support to the assets depreciated. The increase of depreciation amount from AU$53,000 in FY2015-2016 to AU$62,570 in FY2016-201 7 should be audited to substantiate the increase. The auditor should also confirm the number of new employees employed in the latest financial period and compare with the payroll and the appointment letters. Due to the nature of the item, I recommend that the auditor should use verification analytical procedure to ascertain the materiality in the difference of the amount of the company trial balance[14]. Miscellaneous Miscellaneous is another item that needs much attention because as compared with the previous financial period, Fuchsia Enterprises did not have any miscellaneous expenses. The AU$1,440 in the company trial balance should be accurately examined so as to determine if the mount was used for business purposes or personal purposes. If this particular amount were used by managers for personal business, then the amount should not be included in the company trial balance. This item needs substantive examination to ascertain the reasonableness of the expense[15]. The auditor should check the company records to check to ascertain if they are in line with what is considered ordinary by the company. The auditor should ascertain existence by reviewing the receipts documents that will basically show the purpose of the spent amount[16]. I recommend that the auditor randomly chose invoices and ask to see all the original paperwork that includes the contracts if it exists, invoices and signatures in order to find mistakes. Bibliography Arens, Alvin A., Randal J. Elder, and Beasley Mark.Auditing and assurance services: an integrated approach. Boston: Prentice Hall, 2012. Arens, Alvin A., Randal J. Elder, Mark S. Beasley, and Chris E. Hogan.Auditing and assurance services. Pearson, 2016. Balaniuk, Remis, Pierre Bessiere, Emmanuel Mazer, and Paulo Cobbe. "Risk based government audit planning using nave bayes classifiers." InAdvances in Knowledge-Based and Intelligent Information and Engineering Systems. 2012. Bergquist, Sophia, and Sandra Elofsson. "The collaboration between auditors and IT-auditors: The effects on the audit profession." (2016). Cohen, Jeffrey R., Lori L. 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"Two decades of behavioral research on analytical procedures: What have we learned?."Auditing: A Journal of Practice Theory32, no. 1 (2012): 139-181. Titera, William R. "Updating audit standardEnabling audit data analysis."Journal of Information Systems27, no. 1 (2013): 325-331. Vona, Leonard W.Fraud risk assessment: building a fraud audit program. John Wiley Sons, 2012. [15] Balaniuk, Remis, Pierre Bessiere, Emmanuel Mazer, and Paulo Cobbe. "Risk based government audit planning using nave bayes classifiers." InAdvances in Knowledge-Based and Intelligent Information and Engineering Systems. 2012. [16] Knechel, W. Robert, and Steven E. Salterio.Auditing: Assurance and risk. Taylor Francis, 2016.