Auditing Of King and Oracle International Corp †MyAssignmenthelp.com

Question: Discuss about the Auditing Of King and Oracle International Corp. Answer: Audit planning Audit plan is the major area for primarily conducting the tax procedure for ensuring that the appropriate attention is given in the material areas to identify the potential issues and find out the solutions for those (King and Oracle International Corp 2014). The audit plan assists the auditor to obtain appropriate and sufficient evidences as per the requirement of the circumstances, helps to maintain the cost of audit at minimum level and avoiding misunderstanding with client. Properly planned procedure for audit helps in establishing the overall strategies so that the audit risk can be kept at low level. Analytical review This is the auditing process on the basis of financial ratios and it seeks to recognize the considerable changes. Primary purpose of analytical review is obtaining assurance in association with the other testing procedures for financial statement assertions in one or more segments (Legoria, Melendrez Reynolds, 2013). This is performed as the overall review of financial statement at closing of the audit to analyse whether the findings are consistent with auditors understanding and to identify the potential risk areas. Preliminary material judgement To complete the audit, the auditor must estimate the likely misstatement and compare it with the total of preliminary judgement for materiality. On the other hand, while the potential misstatements are more as compared to the planned judgement for materiality, the auditor shall request the client to adjust their financial statement (Chou, 2015). Various factors like consistency, materiality, nature of the item, industry to which the company belongs have impact on the judgement on the materiality. First account selected Gross profit Rational for selection Gross profit of the company is associated with two factors that is the sales and the cost of goods sold. Looking into the income statement of Mattjon Corp it is observed that the expected sales of the company for 12 months period have been increased by 44.48% as compared with the previous years. However, the cost of goods sold just increased by 14.20%. Therefore, the gross profit of the company significantly increased by 60.03% Assertion and explanation 2 major items associated with the gross profit that is the revenue and the cost associated with the sales are increased through not in the same proportion (Hayes, Wallage Gortemaker, 2014). The chances are there that the company underestimated or under-recorded the costs to record more profit. Further, the cost of the same period may have been deferred for next period to record lower cost. Recommended audit procedure All the invoices related to checked properly to check that the sales that have been taken place in the current financial period are only taken into consideration and previous years sales have been included in the current period. Further, the vouchers related to the costs incurred must be checked serial with their respective serial number to ensure that no vouchers have been missed and all the costs have been taken into consideration. First account selected Net profit Rational for selection Net profit is the amount left with the company after meeting all the expenses. The net profit of the company has been increased from 122,145 to 157,997 over the years from 2015 to 2016. Te percentage increase of net profit was 29.35%. Assertion and explanation Though the gross profit of the company increased by around 60%, the net profit of the company has increased by only around 29%. The main reason behind this is that expenses of the company have been increased by around 44%. Therefore, chances are there that the expenses of the company have been shown at higher amount or the expenses for other period have been included in the current period (Ruhnke, Pronobis Michel, 2014). Recommended audit procedure The auditor shall check all the expenses related vouchers and match the voucher amount with the payment register. Further, the authorization for all the payments related to the expenses must be checked. If the mismatch found for large amount then the auditor can investigate the matter with the 3rd part to which the payment is made. Third account selected Depreciation for machinery Rational for selection Through the amount of machinery has not been increased that means no new machinery has been purchased, the depreciation amount has been increased by 21,766 that is by huge 89.30%. Assertion and explanation Generally the depreciation amount is reduced with the years if no new item has been added to that block of asset. However, in case of Mattjon Corp instead of no addition in the machinery the depreciation amount has been increased by 89.30%. Therefore, chances are there that the company changed the method of charging the depreciation or the depreciation is overcharged for showing less amount of profit (Hayes, Wallage Gortemaker, 2014). Recommended audit procedure The purchase date of machinery, method of depreciation shall be checked with the asset register. If the company changed the depreciation method then the auditor must check that whether the proper disclosure is provided through notes to the financial statements or not. Fourth account selected Inventory Rational for selection Looking into the balance sheet of Mattjon Corp the inventory of the company has been increased from 175,000 to 189,000 for 9 months period. The amount of inventory is further expected to reach 189,000 in another 3 months period (Gurran, Norman Hamin, 2013). Assertion and explanation Inventory is an important item in every business as there are large scopes to misstate the inventories. Further, different companies use different methods for calculating the inventories. Recommended audit procedure The auditor shall physically check the inventories and match it with the inventory register. Further, the method of calculating inventory shall be checked and the auditor shall also check that the method is consistently applied all over the year (Kerr, 2013). Fifth account selected Other income Rational for selection Expected other income of the company has been significantly reduced by 94.67% over the years from 2015 to 2016. Assertion and explanation Chances are there that the company has suppressed its income from other sources to record lower amount of profit. Further, the income for current year may have been deferred for next year to be accounted for (Arens et al., 2016). Recommended procedure The income related all the records shall be checked properly to assure that all the income has been taken into consideration. Further, the sources from where the income reduced shall be analysed properly to find out the reason behind reduction. Further, the 3rd party can be contacted to confirm the reason of reduction as explained by the management. References Arens, A.A., Elder, R.J., Beasley, M.S. Hogan, C.E., (2016).Auditing and assurance services. Pearson. Chou, D.C., (2015). Cloud computing risk and audit issues.Computer Standards Interfaces,42, pp.137-142. Christensen, B.E., Glover, S.M. Wood, D.A., (2013). Extreme estimation uncertainty and audit assurance.Current Issues in Auditing,7(1), pp.P36-P42. Gurran, N., Norman, B. Hamin, E., (2013). Climate change adaptation in coastal Australia: an audit of planning practice.Ocean Coastal Management,86, pp.100-109. Hayes, R., Wallage, P. Gortemaker, H., (2014).Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed. Kerr, D.S., (2013). Fraud-risk factors and audit planning: The effects of auditor rank.Journal of Forensic Investigative Accounting,5(2), pp.48-76. King, N., Oracle International Corp, (2014).Audit planning. U.S. Patent 8,712,813. Legoria, J., Melendrez, K.D. Reynolds, J.K., (2013). Qualitative audit materiality and earnings management.Review of Accounting Studies,18(2), pp.414-442. Ruhnke, K., Pronobis, P. Michel, M., (2014). Audit materiality disclosures and credit lending decisions.