Ethical Decision-Making In Organizations

Running head: AUDITING 1

Auditing

Student’s Name

Institutional Affiliation

AUDITING 2

Question one

The auditors usually follow the guidelines provided by audit planning in the process of

conducting the external audit. However, the foreign public accounting requires the external

review to ensure that the outside stakeholders together with the firm's financial statements are

prepared by the GAAP or IFRS (Backer, 2016). Accordingly, the critical steps inherent in

planning an audit in conjunction with designing an effective audit program to audit Delliotte

Company, the following has to be put into consideration.

The first aspect is that, the auditor as to familiarize with the Wal-Mart stores business

and industry as a whole (Nabar, Kenthapadi, Mishra, & Motwani, 2017). The second aspect is to

consider the responsibilities and duties defined regarding engagement between the audit and the

Wal-Mart Stores. The third element is to obtain the preliminary understanding that the Wal-Mart

stores accounting system has together with the internal control procedures. The auditor should

also record and determine the audit strategy which is to be adopted during the audit engagement

(Backer, 2016). However, in cases where there is need to carry out the detailed evaluation of

specific internal controls in Wal-Mart, with the view of placing some reliance on such

restrictions, then analytical procedures together with substantive tests should be carried out.

The entity, environment together with the internal control system has to be

understood correctly to carry out audit planning (Backer, 2016). Under those circumstances,

audit planning is involved in the assessing risk of material misstatement within the financial

statement. Therefore, it consists of designing audit procedures corresponding to the assessed

level of risks.

AUDITING 3

Question two

I would prefer using risk and profitability ratios. In that case, the profitability ratios

would give me the gross percentage, the net profit percentage, operating portion, return on

capital and asset turnover and hence all the information will inform the client how much the

business makes from all angles (Nabar, Kenthapadi, Mishra, & Motwani, 2017). On the other

hand, the risk ratio will give me the gearing interest ratio in conjunction with the interest cover.

Under those circumstances, this information would inform the client of the likelihood of the firm

being able to pay back the borrowed loans plus interest.

The analytical procedures are used in the evaluation of the financial data. In that case,

Wal-Mart Inc. has several accounts to test. I would verify the assets and him receivable accounts,

and thus the analytical procedures that I would use are risk analysis, model-based processes

together with trend analysis. As an illustration, these methods would permit me to get the

necessary information to inform the client on the company internal controls (Backer, 2016). The

risk analysis gives the auditor chance to make opinions on firm material misstatements if any.

This step is therefore very crucial since the whole point of a financial statement audit is to find

out if the financial statements are materially correct.

The model-based procedures involve the use of client operating data like industry and

general economic information to develop an expectation for the account balances. Last but not

least, the trend analysis is the comparing of current account balance with the trend in more than

one prior period's balance. However, all the three analytical procedures would be beneficial for

the auditor in making a decision.

AUDITING 4

Question three

Concerning the financial statements of Wal-Mart, the auditors are most likely to require

further explanation evidence basing on the changes in the bad debt. Expenses, office

maintenance and repairs and advertising. Since the costs of advertising increased, this shows that

there is the development of new advertising campaign. Accordingly, the dollar amount of the bad

debt expenses has not changed much but has reduced according to the cent of sales. Therefore,

the auditors need to determine if there is the understatement of allowance for doubtful accounts

together with the bad debt. Expense.

The fluctuations within this account are not healthy if the firm incurred unexpected

repairs. For this reason, their high changes in repairs and maintenance expense. The auditors

would, therefore, be required to investigate significant costs within this account to determine

whether the amount has to be capitalized. The sufficiency of audit evidence is defined as the

amount or quantity of audit evidence and is found by the amount of audit evidence you need by

considering the risk of material misstatement together with the overall quality of the evidence

received. As per the figures in the year 2016, the total receivables is six thousand, seven hundred

and seventy-eight million dollars which is an increase from 2015 which was six thousand, six

hundred and seventy-seven million dollars (Walker, Shenkir, & Barton, 2013). Therefore, this

implies that the year of 2016 needs more figure on the account for doubtful debts. The total

assets were 204751 million dollars in 2015 and 203706 million dollars in the year 2016.

Question four

The audit risk model entails of the audit risk inherent risk (risk that errors will occur) the

control risk (risk that client’s internal control system will fail to prevent, detect and correct

AUDITING 5

errors), the detection risk (risk that auditors procedures will fail to recognize the mistakes)

(Walker, Shenkir, & Barton, 2013). Conversely, this could render an unqualified decision when

unknown to the auditor, and financial statements are materially misstated. Accordingly, I would

utilize sampling techniques in establishing a preliminary judgment concerning materiality.

However, I would also apply random sampling to perform the test. Under those circumstances,

Random sampling allows every item a chance to be selected, which can give out information

regarding sample with it being biased information (Walker, Shenkir, & Barton, 2013). As an

illustration, when performing this test, it would let the auditor know if the risk assessing control

risk is too low or too high. Therefore, all data will inform the client of the risk of a company and

whether investment or loans are risky concerning repayment and return.

Question five

The significant responsibility of the audit firm is to add to the report the graphic language

which indicates a division of responsibility with another CPA firm (Walker, Shenkir, & Barton,

2013). Accordingly, to point an inconsistency within the application of accounting principles in

conjunction to emphasize a matter. Last but not least, to justify a departure from the officially

recognized accounting principles and hence referring to an uncertainty which could have a material

impact on the financial statements.

AUDITING 6

References

Backer, L. C. (2016). Economic globalization and the rise of efficient systems of global private

lawmaking: Wal-Mart as a worldwide legislator. Conn. L. Rev., 39, 1739.

Walker, P. L., Shenkir, W. G., & Barton, T. L. (2013). ERM in practice: examples of auditing's

role in enterprise risk management efforts at five leading companies shed light on how

this new paradigm is impacting audit practitioners. Internal Auditor, 60(4), 51-55.

Nabar, S. U., Kenthapadi, K., Mishra, N., & Motwani, R. (2017). A survey of query auditing

techniques for data privacy. In Privacy-Preserving Data Mining (pp. 415-431). Springer

US.

AUDITING 7

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