The ISAAC Construction Company (ICC) Audit Assurance
Table of Contents
- a) Reasons for auditors assess of the internal control systems. 3
- b) Essential elements at the planning stage of the audit 3
- c) Risks affecting the system for authorizing and payment of subcontractors at ICC.. 5
- d) Substantive procedures to be performed by the auditor on the year‐end non‐ 6
Auditing tend to form a crucial process within the performance of a company. The act of ICC involvement in acquiring an external auditor sounds crucial in helping the company fulfill its objectives and goals. Although internal auditors as well perform crucial activities towards helping the company’s success, external auditors tend to be more crucial in determine and evaluating the company’s financial obligation. External auditors as well form the basis of identifying the company’s risks and proving the company with strategies of mitigating any arising risks. Extremal auditors as well play a major role in providing the company with information on major loopholes that may hinder it from achieving its objectives (Mohd-Sanusi, Khalid & Mahir 2015; Carvalho & Esteban-Navarro 2016).
Auditors assess the internal control systems for the main functions of detecting and preventing fraud, having a test in internal control as well as helping in monitoring compliance with the organization policy and the government regulations. Companies lose many millions each year due to employee theft. The type of fraud that is usually committed by the employees include, check tempering, misuse of company credit cards, skimming payments from customers and improper payroll transactions (Sun 2016).
External auditors play a major role in ensuring that the company is assured of its reliability and continuity of its automated data processing. External auditors guide and help in checking the company’s compliance with the articles of association, the required instructions, requirements of external supervisions, loan covenants and regulations (Jur. 2011). As an auditor, there is need to assess the quality of the internal provision of information, help the company in assessing its threats and risks and the way in which it should be reported in the particulars to be published. The auditor as well helps in pointing out the required improvements, gaps as well as the company’s quality assessments (Mohd-Sanusi, Khalid & Mahir 2015).
Planning process as per the auditors helps in making an effort of understanding the nature of documents that are required, collecting previous documents from audits as well as gathering the preliminary statements from the involved parties
Under the stage, the auditors mostly focus on assessing the company’s:
Risk assessment-this involves developing rather establishing some of the committee responsible for conducting the company’s risks and the necessary measures to be put in place. Different forms of hazards as well need to be established (Mohd-Sanusi, Khalid & Mahir 2015).
Understanding of client”
As well, as per the approved audit survey statement, the external auditors established the examination plan package, which is the key output of this phase. Some of the significant elements within the planning phase for instance the identification of the audit objectives , audit scope , methodology and the audit tests to be conducted , the required approach needed to complete the audit as well as to provide the required structure (Carvalho & Esteban-Navarro 2016).
Quality assurance-quality assurance of the ICC company is at risk through its subcontractors.to avoid any form of liabilities the company should adapt a system in which payments are met once the subcontracted work has met its required standards (Mohd-Sanusi, Khalid & Mahir 2015). Quality assurance department need to assess the quality of work performed then submit the report to the accountants to make payment. This is crucial in that the company may not be involved in any scandal because of poor work or poor work. This need to be managed by establishing a quality assurance department to scrutinize the services provided by the subcontractors before payments is awarded (Jur. 2011)
Poor recording-the process of acquiring different subcontractors need to have a different recording procedures in comparison to those similar recording since the company has rather has its own assets (Durham 2012). Absence of audit trail-the absence of adequate audit trail that helps in mitigating against an efficient and effective audit based customs control exposes a high risk to the company. The company as well lacks control over the system’s security and access. The possible solution involves consultation with the customs authorities prior to the establishment of good customs accounting systems that will help in ensuring that he company (Jur. 2011)
Loss of capital –the Isaac construction company is highly affected by the nature in which it automatically pays the subcontractors once there job authorization form has been entered within the system. In some of the circumstances payments should be received ounce the work is completed rather than paying before the work has been complied by the sub-contractors. Thus, the company need to focus on reducing its risks of capital loss in case the subcontractors fail to submit their required standards as required by then job order form or by the clients. Thus to effectively manage the risk the company need to focus on developing a form of payment and duly signed once the job has been fully fulfilled as per the client demands (Durham 2012).
d) Substantive procedures to be performed by the auditor on the year‐end non‐Current tangible assets of ICC
For every audit assertion, various substantive procedures need to be performed as follows.
The auditor should be responsible for obtaining rather preparing a summary of non-current assets showing all activities on net book value, accumulated depreciation, and gross book value. Then the auditor should be responsible for reconciling summary with opening position, reconciling the Noncurrent assets .In the case in which there is no register, one should obtain schedule with original cost, depreciated value and lastly reconcile schedule with General ledger (Stoel & Muhanna 2011)
Rights and obligations
The editors should verify (the company’s title deeds, leases, land registrations certificate), obtain necessary certificates from banks, (with reason stating for holding title deed); review all of the company’s capital commitment. They also need to review the company’s lease documentation, ensuring fulfillment of covenants there in as well as investigating for any charges against assets (Guo et al. 2016).
The auditors need to inspect documents such as architects certificate, supplies invoices and solicitor’s completion certificate. He as well as examining relevant expenses account with an objective of ensuring a proper capital /revenue distinction and ensure a consistency of capitalization policies. Under additions the auditor as well as reviews the Noncurrent asset ledger to ensure proper allocation and in circumstances of grants, the auditor ensures a proper claims demands, reviewing bank statements and reviewing claims documentation as well as reconciling noncurrent assets general ledger and register (Guo et al. 2016).
The auditor should as well as verify valuation certificate, also consider reasonableness of valuation by reviewing the company’s scope of work, methods and assumptions used, experiences of value and methods in line with accounting policies. He as well re perform the company’s revaluation surplus calculation , ensuring valuations of revalued assets are always up dated by inquiring with fin director m as well as inspecting the past financial statements (Stoel & Muhanna 2011).
The auditor is responsible for physically inspecting assets mentioned in register , confirming items for those that are under use, exist, are in good condition , have the required serial number ,then review the company’s records of income yielding assets as well as reconciling opening closing vehicles by no. and amount (Guo et al. 2016).
This involves reviewing depreciation rates in relation to the company’s assets that are useful in life, disposal value, possible obsolesce, replacement ploy and the consistency with the past accounting policy. It also involves verifying with register, depreciation charged on the company’s assets with limited useful life, repertory depreciation calculation (Guo et al. 2016).
This involves verifying disposal by checking the supporting documents, the transfer of title, sales price and the date of completion of payment.it as well involves re calculating loss/profit on disposal and in the case in which assets are used as security it ensures they are released from security (Guo et al. 2016).
The auditor should as well perform some functions of verifying material labor overhead hosts with invoices and wage records, ensuring expert are well analyzed correctly and accurately capitalized and ensuring exp capitalization only if it enhances economic benefit of cassettes are relates to the genre major inspection or overhaul (Stoel & Muhanna 2011).
Ethical threats associated with building an extension to the audit firm .As per the auditing ethics, there is no need to build an extension of the company to the firm. Once the company tends to build an extension to the firm this may lather develop to an internal auditing system. In most cases internal auditors are as well involved in fraud activates .this external auditors have the ability to access every form of information in determining the nature of activit9es within the company. Thus, the external auditors tend to perform the auditing activity with an objective of having a clear analysis of the company’s transaction (Stoel & Muhanna 2011). Thus, an intimate involvement of the company with the external firm will later create a form of internal auditing nature, which is against the accounting standards, as a company needs only to hire an external company but not have close relations of regularly accessing its financial obligations (Guo et al. 2016).
For an external auditors, there rights and obligations need to be independent. the process should be conducted with minimal or no manipulation by the particular company thus any attempts of extending its body to the firm will automatically affect the independence level of the external audit it or which may as well affect the final results or feedback on the auditing process. However, to effectively mitigate the threats the company and the firm need to establish policies and regulation in terms of interaction in terms of sharing the company’s financial statements and activities (Guo et al. 2016).
External auditors within the company play a crucial role in measuring the effectiveness of the internal control. They access if the company’s control systems are properly designed, they are implemented and hare working effectively as well as making the necessary recommendations on the manner in which it may be improved. Its reviews on the information technology controls is very crucial to ascertain the feasibility and the accuracy of the systems to limit any form of errors and possible frauds that can be created through the job autorotation forme and the job ordre forme performe and signe by the accointant.
On the other hand , the construction company having many clients in terms of sub-contractors and their clients, there is need to have policies and regulations of controlling there accounting systems. Thus, external auditor play crucial role in setting and analyzing the nature of accounting activates and the manner in which they are recorded and controlled, through this the company may be well equipped with the expected risks and necessary measures of control.
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