The earning of profit is a necessary element in the operation of a free enterprise economy. It enhances the efficiency of a free market system in the following ways: • Normal profit is a cost of production; it is the cost of the entrepreneurship factor of production. It is the minimum amount that the entrepreneur
How and why both systems should run parallel prior to the change over to the new system. How The client should continue to process the information using the old system while at the same time implement the new system. The output from the new system should be compared with the output from the new system.
b) Ways to control the audit 1. Scoping of the work and delegation First I would determine the scope of the work to be carried out and our client‘s expectation. Basing on this I will identify the staff that I will require to carry out the work. In doing this I will need to consider,
Matters to consider when planning the audit In planning the audit the auditor will need to consider the following: 1. Understanding the accounting and internal control systems The auditor‘s cumulative knowledge of the accounting and in ternal control systems and the relative emphasis expected to be placed on tests of control and substantive procedures. 2.
You are required to List and briefly explain the substantive tests the auditor would carry out to verify the values attributed to: i) Trade debtors in a company’s financial statements. Substantive tests are the tests that the auditor carries out to obtain evidence as to the completeness and validity of the balances reported in the
You are required to discuss the importance of segregation of duties as a control procedure. Segregation of duties refers to the separation of the various duties and responsibilities such that one person cannot process and record complete transactions from beginning to the end without being checked by another person. E.g. in the purchase of a
Importance of system documentation. i. Provides a basis for management to review the system prior to authorisation ii. Staff training on the use of system. iii. Implements smooth personnel changes and avoiding the problem that key employees may take with them all knowledge about the way the system works. iv. Revising existing systems and programs
Application controls These are control procedures over the accounting system designed to provide reasonable assurance that all transactions are authorised, recorded and processed completely, accurately on timely basis. Application controls may be manual or programmed and are include • Controls over input • Controls over processing • Controls over output • Controls over master files
The work I will perform in checking supplier‘s statements to the balances on the purchase ledger will include: I will assess the system of control in the purchases system and its credibility. This will be based on the results of my tests of control, other investigations an my experience in previous years. Where the purchases
Since ACB Computers Limited has failed within a year and the auditor had given an unqualified report, certain parties may be able to successfully sue him for negligence. The decision in the Caparo case is that only the company and the shareholders as a body can bring a claim for negligence against the auditor. It