Case Study Swot Analysis of Chic Fashion Limited

Question 1: Using a SWOT analysis identify any weaknesses and threats that will assist in evaluating Fashion Adornments Pty Ltd's business risk and indicate how these may affect the audit of the financial report. Answer 1: The SWOT Analysis (Weakness and Threats) is enumerated below:- Weaknesses: Inactive Participation from recogn them strengthens the companys administration. ized concerns. Pay of laborers is expensive. Threats: Competitors, suppliers who are ready to supply almost homogeneous products in lesser price. Non up gradation of the quality of products. Any political, social or economic contingencies which may be the reason for fall of the industry. Effect on Audit of Financial Report: Based on the risk associated with a project or proposal, the auditor may give an opinion on how weaknesses associated with such project can be curbed. If the control and compliance department is not working properly; the auditor may give recommendations to the management regarding those issues. Question 2: a) Explain the effect on inherent risk of CFL's relationship wih the department stores, b) Indicate two financial report items that would be affected and the assertions most at risk? Answer 2: a) Inherent risk in a business organization would take place even if there is strong internal control, such as uncertainty relating to changes in economical, political, social scenarios, non availability of sufficient funds. There should be enough tools or mechanisms to mitigate such risks. CFL with its department store would be vulnerable if in the department store such fraudulent activities are taking place which the company has no idea about. If the products in the departments are not adequate to meet customers requirement, for example in a situation of more demand and less supply, an inherent risk is associated with that as the customer are left with the option of buying the same product from the competitor companies. Regular up gradation of systems and a control in the inventory management has to be put in force. b) Two financial reporting items that would be affected are inventory (pilferage), fixed assets (due to depreciation). Question 3: Identify six application controls present within the payroll system that one may be able to place some reliance on and explain why each is a control. Answer 3:- The application control system and their importance: The batch processing system ensures input authorization, tackling huge volume of data. Comparing the manually computed data with the data produced by system ensures the reasonableness of the resulted outcome. The employee details whether valid is checked by the computer indicates that the data is integrated. Application process control is being done when the documents, reports are authorized by the competent authority. By checking the validation, reasonableness, logicalness, limit and sequence of the data validation and edit control is taken care of. Output control is performed by taking authorization from employees as they put their signatures in payroll masters listing. Each of the above are controls as the presence of each of them strengthens the companys administration. Question 4: Explain the implications of the errors noted in the tests of controls Answer 4: Test of controls are taken in the auditing process when a large number of transactions are involved in the audit and it is not possible to verify each and every transactions or data within the audit period. In this problem, 80% cases are such that all control activity has been followed. Payment to an unapproved supplier in which no explanations were provided and some of the payments did not bear evidence amount to 6% of the sample size, requires follow up procedures or it can form a qualified opinion. 2 of the payments were not supported by approved purchase order; management needs to give reasons for that, as it is one of the important documents for generation of purchase. 2 instances were found in which no supporting documents were found except the original lease agreement. The errors which occur during the conduct of sample audit can be mitigated if the samples are selected in a proper way, the material error are to be reported by the auditor in the report. Proper explanations from the management will be needed in cases where documentation like order copy, bills, invoices were not found, as they are the indication of poor internal control. Question 5: Provide two examples of CAATs that could be undertaken using generalised audit software to assist with the audit of the valuation and allocation assertion for inventory of fashion adornments.Provide two examples of Caats that could be undertaken using generalised audit software to assist with the audit of the existence for inventor of fasion adornments. Give two reasons why one might not use generalised audit software to audit the inventory of Fashion Adornments. Answer 5: Computer Assisted Audit Techniques (ACL, ESKORT) are protocols of audit using the computer system as a device. One of the processes for valuation and allocation is fraud detection techniques by the use of data mining. The inventories must be coded; a check digit method may be adopted for the same.Another example of CAAT that could be undertaken using generalized audit software is of checking validating the period on which the inventory are recorded, whether they are correctly classified or not, the position of level of inventory in a particular point of time. Question 6:- Provide the opinion on the appropriateness of the audit assistant's conclusions in each of the two situations above. Answer 6:- Two examples of CAATs, for the audit of existence of inventory are IDEA (Interactive Data Extraction and Analysis) and Audit Command Language (ACL), they are suitable for performing continuous audit and data analysis. Two reasons for not implementing generalized software would be- The users might be unable (or difficult) to understand the system. They are expensive. In the background of the case, the error was related to 3% of accounts payable tested, the errors were termed as immaterial. It could be observed if such errors have impact on internal control system. The nature of such error and follow up with the management could be necessary. The Audit Assistant conducted a test where 6% errors were found, and the tolerable misstatement rate was 4%. The mistakes were not material in character. Material misstatements are reflected in audit reports to give a qualified opinion. In this case, the errors are to be dealt by informing the management of such flaws. The management is required to give explanations as they are above the rate of tolerable misstatement rate. References: Aidi Ahmi, S. K. (2013). The utilisation of generalized audit software (GAS) by external auditors. Managerial Auditing Journal , 88-113. Arndt, E. (2009). The SWOT vs. the Risk Analysis. Business Star tup Advice , 1. AU Section 312, S. o. (2006, December). Audit Risk and Materiality in Conducting. Audit Risk and Materiality in Conducting an Audit . USA: AICPA. Augustine, O. E. (2013). 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