Audit Risk, Analysis and Control in Organisations Report Writing - Management Assignment Help

Assignment Task:

Task:

Topic: Audit Risk, Analysis and Control in organisations 
Question 1 
J Audrey Pearce is an audit partner of Pearce Green, a firm of accountants. She is considering audit risk at the overall financial statement level in planning the audit for the finance company Homes South Ltd (HS) for the year ending 30 June 2020. This risk is influenced by a combination of factors related to management, the industry and the entity. Audrey has gathered the following information concerning HS, environrnent: 
1. HS has been consistently rnore profitable than the industry average by marketing mortgages on properties in a prosperous rural area which has experienced considerable growth in recent years. HS packages and sells rnortgages to large investment trusts. Despite recent volatility of interest rates. HS has been able to continue selling its mortgages as a source of new lendable funds. 
2. HS's board of directors is controlled by George Watson, the majority shareholder, who also acts as the chief executive officer. Management at the company's branch offices has authority for directing and controlling HS's operations, and is compensated according to branch profitability. The internal auditor reports directly to Henry Stevenson, a minority shareholder, who is chairrnan of the audit committee. 
3. The accounting department has experienced little turnover in personnel during the five years for which Audrey has audited HS. HS's formula constantly underestimates the allowance for loan losses, but its financial controller has always been receptive to Audrey's suggestions to increase the allowance. 
4. During 2019, HS opened a branch office in a metropolitan area 30 kilometres frorn its principal place of business. Although this branch is not yet profitable (as a result of competition from several well-established banks), management believes it will be profitable by 2021. 
5. During 2019, the company increased the efficiency of its operations by installing a new cornputer system. 
Required: Based only on the information provided, indicate the factors that would affect the risk of material misstatement and explain why. 

Question 2 

Draft financial information for Darfield Electronics for the year to 30 June 2021 is as follows. 
2021 Draft $000s 2020 Actual $000s Revenue 5267 4122 Cost of Sales (2519) (2290) Gross Profit 2748 1832 Operating Expenses (1718) (958) Profit before interest and tax 1030 874 Cash 527 Trade Receivables 931 587 Inventory 481 366 Bank Overdraft 206 Trade Payables 366 275 
Required: Analyse the information above, identify audit risks and outline how the auditor should respond to these risks. 
Marking Guide: 
Research — extent and application 20, Analysis of the organisation 30% Recommendations/conclusions 40% Report presentation/referencing 10% This mark will be scaled to a mark out of 20 subject marks. 
 

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