Material Misstatement of Revenue System Free Samples to Students

Question: Discuss about the Material Misstatement of Revenue. Answer: Introduction: SWOT analysis helps in analyzing the aspects which are strength of the company; factors which could be weak points of the company; prospects which can be helpful for the company to make further development or to realize growth in business; factors which can cause threat for the company can also be identified through this analysis(Fine, 2011). Through the analysis Woolworths can analyze the external and internal factors of business environment which could help in developing its business projects and the threats and the weakness can be identified and planning could be made to manage those weak aspects. SWOT analysis for Woolworths is summarized below- Strength Strong product Portfolio Strategic Acquisitions Strong connections with suppliers Strong foundation in Australia Higher return on investment facilitate leverage growth Brand strength Geographical situation related with shopping centers aids access to the market. Weakness v Lack of global presence v Low risk acceptance v Steady operational scale can create issue in managing change. v Highly unplanned work pool Opportunities Increase in population Increase in online opportunities New prospects of sourcing in South-East Asia Prospects of diversification in new market Prospect for acquisitive growth Threat Highly competitive Industry Increase in labor rates Low consumer confidence Fully discuss the potential impact of your analysis on the Woolworths audit Strength- Woolworths has strong foundation in Australia which is one of the strength for the company(Porter, 2011). Another strength of the company is that the relationship with the suppliers is well established. Strong relationship with the suppliers facilitate company to carry out its business activities and the supplies are made by suppliers within timeframe and at best price. Leverage growth is enjoy by company as the return on investment is also higher. The stores of the company are located at accessible locations. This factor is one of the strength for the company as the customers like to purchase from the stores which are easily accessible (Bird, 2015). Woolworths product portfolio is also strong which facilitates in generating profit and getting more business. Presence of Woolworths in private label market is well established and the consumers use to prefer shopping of private level brands in comparison to national brands and reason for this is, private label brands are more cheaper comparatively to national brands(Sarsby, 2016). For that reason, Woolworths has strong portfolio and well positioned in terms of private level brands and this tends to increase in profits and revenue. Weakness- The factors which are weakness of the company can affect the business process of company. Woolworths lacks in the global presence as more stores are not established worldwide. Another weak factor is that company`s risk accepting aspects are also low and without taking risk company cannot achieve higher profits(Bird, 2015).Steady operational scale of Woolworths is also a weak factor as it can create issue in managing change. Business activities are not well planned which is the most weak aspect of the company. As the roles and responsibilities of the employees are not well defined which give rise to the confusions. Opportunities-There is opportunity of growth in online business. Now a days, people wants to make their purchasing in less consuming time. Online business would help the company to increase its business in addition to realize higher profit (Mangum and Kerr, 2012). Population is increasing day by day which is also an opportunity for growth of business as the increase in population will tend to increase in sale(Sarsby, 2016). There is new prospect for Woolworths to establish its store in South-East Asia as its market is emerging. This opportunity can help the company to create its global presence. Threat- It is being analyzed from the SWOT analysis that Woolworths has threat from its competitors. There is enormous competition in the business of supermarket. One of the main competitor of Woolworths is Coles, which is Wesframer`s subsidiary. Little differentiation is there in between Coles and Woolworths which makes difficult for the company to endure a competitive advantage(Fine, 2011). More Savings Every Day is the marketing campaign of Woolworths and tough competition is faced by the company by the marketing campaign of Coles i.e. Down Down. Intense competition can affect the market share of Woolworths. Due to heavy taxes, confidence of consumers for buying has been decreased by 6.8% to 92.9. Therefore, consumers tends to save more money and this could affect the retail business of company. Increase in the rates of labor can also be threat for the company as the company`s cost will increase. At last, this can be concluded from the SWOT analysis of Woolworths that opportunities can be grasped by the company to overcome from the issues which are weak points and the threats can also be managed by developing some plan and holding the prospects for overall growth. In order to assess inherent risk involve in the financial statements or business operations of Woolworth limited, it is required to understand what inherent risk is. Inherent risk can be defined as the risk which is not under the control of business organization but are present in operational market or activities undertaken by the business organization. Inherent risk in auditing terms can be defined as the risk of material misstatement in the financial statements of the business organization. In other words, it can be defined as the material omission or error that is present in financial statements of the business organization. Explain why the account balance is at significant risk of material misstatement Substantive audit procedure can be defined as the process of identifying and collecting conclusive audit evidences that support correctness or prove material misstatement of financial statements. Internal control system is the internal process of business organization used in day to day or operational activities of the entity. These are adapted to control and detect fraud and error during operational activities. Following are internal control that to mitigate risk of identified assertion: SPECIFIC ACCOUNT BALANCE Inventory Account Interest or financial cost Sales Account (a) Explain why the account balance is at significant risk of material misstatement. Since Woolworth is engaged in many businesses and these businesses are of different nature. In some businesses, treatment and presentation of inventories are different from other. Therefore it is very much important for management to record and account inventory at correct value. Since many purchase rebates, discount allowed and other cost related to inventory are required to be considered (Mohammed, 2017). Inventory in retail business is huge in no and therefore this leads to inherent risk in Woolworths financial statements. Therefore in this case, there is inherent risk inventory account or in inventory management. On the basis of analysis of financial statements, it can be analyzed that Woolworth limited is engaged in many business operations and for the same they had taken huge funds internationally. Therefore inherent risk related to internal financial market like swapping risk, foreign currency fluctuating risk, difference in economic conditions of two different countries and many other consideration are kept in mind. Woolworth limited has obtained financial assistance from international market and this has posed to be inherent risk in auditing process (Wright, 2016). There is possibility of material misstatement in the interest cost or financial cost balance and it is not under the control of business organization. From the analysis of financial statements, it can be analyzed that sales revenues account shown in the income statement is at significant risk of material misstatement. Sales account of Woolworth limited represents sales revenues from different source or from different business operations. Woolworth limited is engaged in many business operations or in many businesses that posses different types and different levels of risk. Significant material risk in sales account or balance can be because of many reasons like diversified business operations, different types of products and services, different revenue recognized methods used in recording and presenting sales revenue and many other factors. (b) Explain the key assertion at risk of not being valid. Inventory Account: In this case, key assertions that are at risk in case of inventory balance is not being valid are as follows: Existence- According to this assertion, inventory balance shall exist and shall match with the inventory balance disclosed in the financial statements during the reporting period. Completeness- According to this assertion, assets and liabilities present or exist during the previous year shall exist during the reporting period and shall be recognized in the financial statements. Valuation- Most important assertion that can be present or at risk of not being valid in the financial statements is valuation of inventory. Since inventory of the Woolworth limited is complex in term of diversity and of huge volume, therefore there is possibility of not valuing each inventory reliably. Interest or financial cost Accuracy- Assertion that poses risk of being not valid is of accuracy in terms of calculation and recording or presentation of interest cost or finance cost of Woolworth limited. Since Woolworth has been involved in taking finance assistance internationally therefore there is high risk of not measuring finance cost accurately. Sales Account: Occurrence: According to this assertion, account balance is at risk of material misstatement in terms of transactions are occurred during the reporting period and are related to business organization only. In case of sales revenue account, occurrence assertion can be at risk of material misstatement as there is risk of revenue earned and recognized during the reporting period. Sales revenue shall be related to reporting period and shall be received during the reporting period of Woolworth limited. (c) Detail one (1) relevant substantive audit procedure to address the assertion at risk as identified in b) above. Inspection (Valuation): In this type of substantive audit procedure, inspection of level of inventories will be done. Physical verification shall be undertaken for assessing risk of material misstatement in inventories account (Glover, Prawitt Drake, 2015). Physical inventory shall be matched with the inventory level in system. Analytical procedures (Accuracy): In order to assess interest or finance cost of Woolworth limited, analytical procedure shall be used to analyses risk of material misstatement in financial statements. In this process, financial data of past few years will be taken into account and then analysis shall be done for analyzing the trend (Popescu Dascalu, 2012). Enquiry and external confirmation (Occurrence): Occurrence assertion of sales account shall be analyzed using substantive audit procedure of enquiry and external confirmation from the debtors and other parties. (d) Detail one (1) relevant practical internal control that would mitigate the risk in relation to the assertion at risk as identified in b) above. Valuation- Store manager along with other supervisor shall have the authority of inventory management. There shall be three step material intake, issue and balance matching process (Dan, 2011). Accuracy- Interest shall be calculated by undertaking risk involve in currency fluctuation and shall be authorized by financial manager. Interest calculation and overall interest shall be verified by internal auditor in concurrent audit (Lee et al., 2014). Occurrence- Sales shall be recorded when complete consideration has been received by Woolworth. Sales receipt shall be authorized by sales assistant, discounts shall be authorized by sales supervisor and all these shall be verified by sales manager. References Bird, G. (2015). Competitive Advantage: How To Gain Competitive Advantage, Stay One Step Ahead and Win! Kindle Edition. Bohm, A., Hm , A. B. (2013). The Swot Analysis. Grin Verlag . Dan Eugen Cosmin. (2011). Enhancing Assets' Protection Through An Adequate Monitoring Of Internal Control System By Internal Audit. Annals of the University of Oradea : Economic Science, 1(2), 491-497. Fine, L. (2011). The SWOT Analysis. Kindle Edition. Fox, D. (2016). Thinking about SWOT analysis. 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