The initial step of the audit process will entail defining the objective of the exercise. The principal aim of auditing the cash and revenue transactions is to establish their accuracy, correctness, and freedom from any material misrepresentation or misstatements. In this regard, this in-depth analysis will seek to ensure that Walmart’s accounting personnel follow proper accounting standards and procedures in recording and reporting transactions relating to cash and revenues. This involves determining whether the classification of the transactions, amounts, and disclosures made in the financial statements adhere to the international financial reporting standards and the generally accepted accounting principles (GAAPs) (Hellman et al., 2018). Once the objective has been defined and the audit plan formulated, substantive and control tests on the transactions and process will be conducted on the relevant activities for the periods under review.
Steps Taken to Review Walmart’s Business Transactions
Since the audit of Walmart’s cash and revenue will be seeking to obtain comprehensive insights about the transactions, it is imperative to follow a methodical and systematic procedure. The critical steps to be followed include planning, assessing the risk, developing the audit strategy, gathering evidence, and preparing the report. According to Rashid (2017), this structured approach ensures that no relevant detail or aspect of the process is overlooked, contributing to the overall credibility of the rendered opinion. The initial step will be to notify Walmart’s management and the relevant departments about the audit and formally request the documents to be used in the process. These will include previous years’ audit reports, ledgers, financial records, and bank statements to ensure all the relevant information is acquired and compliance is achieved.
Plan to Utilize the Procedures
The plan for utilizing these procedures will be to ascertain the quality, correctness, and accuracy of the financial information provided by Walmart. Additionally, this strategy will be used for purposes of testing the installed controls to determine their effectiveness in detecting, preventing, and mitigating the occurrence of risks, such as material misstatement. This will be succeeded by substantive tests, which encompasses the physical inspection of records, obtain confirmations, and examine the calculations. Moreover, other aspects of existence, cutoff, classification, completeness, and accuracy will be extensively explored for correctness and adherence to the specified standards.
Determining the High-Risk Business Transactions
The nature of Walmart’s business contributes to the complexity of the financial transactions and the considerable increase in risk. This implies that an appropriate risk assessment procedure is critical to establish the extent to which the company and its environment inherently engender misreporting in revenue and cash transactions. In this regard, the audit process will extensively explore Walmart’s internal control systems, mainly to obtain deeper insights on their ability to detect and prevent the occurrence of any material misstatements. For instance, revenue recognition and recording of cash earned would be audited for existence, correctness, accuracy, completeness, and the subsequent reflection of the earnings in bank statements.
Procedures to Review High-Risk Business Transactions for Cash and Revenue
The appropriate procedures for reviewing high-risk business transactions include the utilization of relevant control and substantive tests. Since the cash and revenue involve enormous risks, the auditor should commence by obtaining in-depth understanding of the company’s processes, appropriate audit evidence, test the firm’s controls over the accounts, and evaluate potential misstatements. These considerations provide insights on the applicable business estimates, the recording of the transactions in the correct period, and analyzing the financial statement disclosures. The auditors will then determine the effectiveness of the internal controls and develop appropriate assessments to reduce the associated risks (Arens et al., 2017). According to Decker and Kizirian (2017), discrepancies in bank statements and the company’s financial records are among the reports from which an auditor can identify potential fraud or violate accounting standards. Notably, these procedures shift from focusing on the balance sheet figures but attempt to analytically explain the registered changes from the previous financial statements.
The process will establish that there were changes in the revenue and cash accounts from the previous audit periods and will illuminate on the reasons for the fluctuations. Therefore, reviewing high-risk business transactions will entail obtaining in-depth understanding of the firm’s business processes, evaluating the appropriate audit evidence, and testing the firm’s controls over the accounts. Moreover, the potential misstatements on fictitious revenues, manipulations, adjustments, and premature recognition of the earnings should be analyzed due to the high volume of transactions.
Requirements for the Investigation
To comprehensively investigate high-risk business transactions, various documentations and company policies are integral. For instance, auditors should access the cash receipts, bank statements, accounts receivable ledgers, trial balance, third-party confirmations, and the firm’s practices on issues such as discounts and markups. According to Sonnerfeldt and Pontoppidan (2020), third-party verifications provide fresh and independent insights into the audit process. Additionally, the authorization of credit sales, documentation regarding the collection and deposit of cash, recording of cash transactions, and the approval of uncollectable debts earmarked for writing off is critical in determining high-risk activities.
Presentation of Information in a Chart
Test for Assessing the Appropriate Assertions for Designated High-risk Business Transactions
In assessing the appropriate assertions for a designated high-risk business transaction, a determination will be made regarding whether Walmart’s operating environment has changed significantly since the previous audit. Additionally, such aspects as existence, classification, occurrence, accuracy, correctness, completeness, and cutoff should be verified. For instance, it is critical to establish whether a transaction actually occurred in the period under review and if it was properly and accurately recorded. The auditor should also conduct tests to identify the completeness of the activities and their appropriate classification. Notably, these assessments seek to determine Walmart’s compliance with the fundamental accounting practices and form the basis on which the audit opinion will be issued.
References
Arens, A., Elder, R., & Beasley, M. (2017). Auditing and assurance services: An integrated approach (16th ed.). Pearson/Prentice Hall.
Decker, J., & Kizirian, T. (2017). Potential indicators of balance sheet and income statement fraud. Journal of Business Case Studies, 13(4), 109−114.
Hellman, N., Carenys, J., & Gutierrez, S. M. (2018). Introducing more IFRS principles on disclosures – will the poor disclosers improve?Accounting in Europe, 15(2), 243−321. Web.
Rashid, C. A. (2017). The importance of audit procedure in collecting audit evidence/case of Kurdistan Region/Iraq. International Journal of Social Sciences and Educational Studies, 4(2), 15−22. Web.
Sonnerfeldt, A., & Pontoppidan, C. (2020). The challenges of assurance on non-financial reporting. Accounting, Economics, and Law: A Convivium, 10(2), 1−23. Web.