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Lakeside Company: The Audit Procedure Essay

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Case #6 in Lakeside Company

During the audit, assistants should be properly supervised to avoid errors and inaccuracies in the report. The auditor should check the information and analysis provided by the assistant to ensure that the data in the report is consistent with reality. In addition, the supervision of the assistant is necessary to ensure that the conclusions presented in the document are consistent with the audit objectives. In Exhibit 6-1, supervision helped identify discrepancies in product prices. In addition, supervision may require additional validation of the data presented in the report (Kleijn & Van Leeuwen, 2018). It was revealed in Exhibit 6-1 that not all requisitions were approved properly.

An audit document must include elements such as objectives, conclusions, and scope of testing. Before conducting an audit, it is necessary to determine what this procedure is for and what information the report should demonstrate. Scope determines the depth of the audit, including objects for analysis and period. Objectives and scope help define the scope and limitations of the procedure. Understanding the purpose of the audit and the scope of the analysis helps save time on its implementation. Moreover, a report with clearly defined goals and scope is more likely to meet the requirements of the company’s management and help identify violations or frauds, if any, in the analyzed area. The Conclusion at the end of the report is necessary to determine whether the audit performed satisfies the objectives. Identifying problems and developing a plan to solve them is also needed.

The choice of audit procedure should be approached to the client’s needs. There are standardized audit procedures that companies can use in cases where general data analysis is needed. On the other hand, if a client asks for an audit of specific data specific to his company, designing client-specific procedures is necessary. In this type of audit procedure, the general standards for conducting an audit are preserved, but the goals and scope of the information analyzed are developed specifically for each case. In addition, the auditor’s tasks may also differ in the context of client-specific procedures. For the firm’s quality controls, it is better to use client-specific audit procedures to identify all problems in a particular case. This approach will be more efficient, allowing the collection of the maximum amount of information needed for quality control. Carefully conducted firm quality controls assist in identifying problems and finding solutions at an early stage. In addition, Oussii and Taktak (2018) note a significant relationship between internal audit functioning and internal control quality. Conducting an audit for quality control is just as important as conducting one for financial reporting, as it helps to identify and correct weaknesses in the company’s performance.

The ultimate goal of the auditor in identifying errors is to assess their impact on the reliability of reporting. If Art Heyman reveals inconsistencies during his work, he must determine the extent of the inconsistencies and conclude the impact of the violations found on the financial statements. In addition, he must note the presence of errors in his working documents and notify managers, accountants and other officials about this. Art Heyman must inform Rogers and Thomas about the violations found.

Case #5 in Lakeside Company

The company’s management, including the restaurant, should require its employees to provide receipts to customers. It is necessary in order to avoid fraud by employees. If the customer does not receive a receipt for the transaction, there is a possibility that the employee may charge more for the purchased goods than is provided in the price list. In addition, transactions without a receipt are not considered in the company’s financial system. Therefore, the company suffers a loss because the product was sold payment for it has not been credited to the account. Such fraud by company employees can be difficult to trace. Therefore, it is more profitable for the restaurant to offer the customer a free meal, perhaps even at the expense of the employee who did not issue the receipt, to prevent further fraud.

During the audit, one of the auditor’s tasks is to identify fraud on the part of its employees. Umar et al. (2019) define fraud detection as “an attempt to obtain sufficient initial indications of fraud” (p.1451). In fraud detection, the auditor must identify at what level of the company’s activities it occurs and notify the company’s management about the identified data. In addition, it is the auditor’s responsibility to assess what actions can be taken to prevent the recurrence of fraudulent activities in the company. If fraudulent financial reporting is detected, the auditor must assess how much material damage was caused to the company and notify the relevant managers about it. Another type of fraud is the misappropriation of assets, characterized by significant financial damage to the company. Often this may be related to some of the company’s management, so the auditor may need to conduct an additional investigation in this case.

An experienced auditor may notice some fraud indicators even before the audit procedure. Narayana and Ariyanto (2020) characterize these indicators as “a strange condition or different from normal conditions or indications of fraud in financial statements” (p.207). Fraud indicators may include missing materials or inventory, lacking documents, split payments, and many accounting adjustments. In addition, the behaviour of employees and the atmosphere in the team. may be an indicator of fraud.

References

Kleijn, R., & Van Leeuwen, A. (2018). . International Journal of Qualitative Methods, 17(1), 1-8. Web.

Narayana, A. A. S., & Ariyanto, D. (2020). . International Research Journal of Management, IT and Social Sciences, 7(1), 205-216. Web.

Oussii, A. A., & Taktak, N. B. (2018). . Managerial Auditing Journal, 33(5), 450-469. Web.

Umar, H., Erlina, E., Fauziah, A., & Purba, R. B. (2019). Audit quality determinants and the relation of fraud detection. International Journal of Civil Engineering and Technology, 10(3), 1447-1460. Web.

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