This is a case study. I attached the file that is needed.1
Case 6: Preparing Audit Plans
Consider each of the following situations
since they are
independent of each other.
Assume you are responsible for the preparation of an audit plan in each of the
situations discussed below. In each case, describe how the situation posed would affect your
audit plan and risk assessment. Include information regarding the nature and/or extent of audit
evidence to be collected. REMEMBER when you are providing an opinion on how the situation
affects your audit plan, also include information that supports your stated opinion. Please
paraphrase all sources and provide cites of sources used.
Your audit plan for sales places extensive reliance on internal controls and the use of
substantive analytical procedures. Your testing of the internal controls for sales has found a
significant number of instances where clients' credit ratings have not been checked and
abnormally large discounts have been given. The sales manager states that these changes
have been the result of difficulties in maintaining sales levels.
You are planning the annual audit engagement of a tractor retailer. You are aware of
significant problems in the rural industry over the past six months and little improvement is
Since the last audit your client has introduced a new management compensation scheme
with the result that top managers' salaries are closely tied to the company's profitability.
Management informs you that during the year the internal auditors discovered that a
substantial amount of
stock had disappeared from a small branch of your client. A number of
local managers have subsequently resigned although there were no prosecutions. The losses
equaled 1% of the company's profit before income tax expense.
Since your last audit the client has introduced a new IT system for inventory to replace the
old manual system. Management has indicated that the big advantage of the new system over
the old one is that it provides information on inventory levels and gross margins for both
product lines and geographical area.
A new competitor of your client entered the market two months before year end and, since
that time, selling prices have fallen significantly. Your inquiries have revealed that the
industry expects heavy discounting to continue for the whole of next year.
There were no major disposals nor additions to plant and equipment during the period. Plant
and equipment is not a material balance and consists mainly of furniture and fittings.
As indicated in the syllabus, your response should not exceed 2 single spaced pages. Please review
your syllabus for all other formatting and submission guidelines. The due date for this project is also
indicated on your syllabus.