Laramie Wire Manufacturing: Using Analytical Procedures in Audit Planning Essay
1. Perform analytical procedures to help you identify relatively risky areas that indicate the need for further attention during the audit, if any. 2. Focus specifically on each of the five management assertions (existence or occurrence, completeness, valuation or allocation, rights and obligations, and presentation and disclosure) for the inventory account. Link any risks you identified for this account in question 1 to the related management assertion. Briefly explain identified risks or issues for the inventory account that require further attention, if any. Background About Laramie Wire MFG.
1.The use of analytical procedures is one method of increasing auditor efficiency. Simple analytical procedures comparisons, ratio analysis, trend analysis, and common size financial statements are effective as attention directing tools in the planning and final review stages of the audit. Those procedures are also effective when used in conjunction with a minimum level of tests of details as a substantive test. There is a lot of information that must be discussed. Firstly, why is the set up time taking six hours from start to finish? Determining this factor, we know that Laramie is inefficient in their preparation.
Laramie company should have a quality control and have customers rate the service and the product to help improve the product. The auditor’s should analyze the data and compare the past to the present. As we’ve analyzed, we see the turnover margin increase from the prior year. Not a good sign for approval margin. Since there is a good growth rate in sales, we need to understand why sales income didn’t increase while the receivables of their product did. As the industry changes, the company should continue reevaluating the cost of goods and labor and compare to recent percentages of sales.
This should generally be done on an annual basis and the Board of Directors should be constantly notified. Lastly, since the company is in a transition period, putting the company on the market, proper financial documentation and strength should be closely monitored. This will ensure that policy holders will have proper knowledge and have the information before one buys stock since Laramie is becoming an IPO. By doing so the Balance Sheets and revenue recognition will be properly stated and revenues won’t be inflated. Neo
2.As we use the management assertions to account for inventory there are a lot of scenarios that must be addressed.
1.Existence or occurrence, There should be a bar code system applied to all the inventory to ensure that all the items can be easily accounted for. By doing so, the inventory will not be misplaced, and will be a lot cheaper in the long run because then the inventory won’t need to be physically accounted for. On an annual basis, certain items should be manually counted to ensure accuracy.
2.Completeness, making sure that balance sheets and proper documentation is posted and in right order. These may include, revenue recognition and inventory identification.
3.Valuation or allocation, make sure proper write-offs are accounted for and properly recorded in the balance sheet. Ensure that Laramie uses the same valuation method during its recording phase. If there needs to be items that are no longer being used, they need to be allocated to its proper place.
4.Rights and obligations, the auditor and the company have the obligation to disclose findings and proper information to the public, especially if the company is going to become an IPO. Ledgers need to be accurately stated and income statements need to be processed in a timely efficient manner.
5.Presentation and disclosure, the auditors ensure that everything is consistent with the findings and have been properly reviewed and all processes are securely stated.
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