Delegation Of Operation Over Cloud Storage â€Myassignmenthelp.Com

Question: Discuss About The Delegation Of Operation Over Cloud Storage? Answer: Introduction: GPSA is an organization that is engaged in distributing, supplying the medical equipment to medical practitioners. One of the long-standing client of MYH is GPA that is required to conduct an audit plan for organization. While carrying out task of audit, several areas of accounts are analysed using analytical procedures. Analysing the accounting heads: Accounts Analysis Audit risk Steps to reduce audit risk Accounts receivable- Trade receivable or accounts receivable is the amount of money that is received by organization while making payment or goods and services. Accounts receivable ratio is calculated by measuring the sales made by organization within average receivable time. Therefore, credit sales is the account that is associated with accounts receivable. From the analysis of the given case study, it can be observed that trade receivable clerk perform all the activities of trade receivable account. It can be explained with the help of instance, that medical equipment returned by customers, clerk note down the reason for return after checking the conditions and quality of product and trade receivable clerk raises the credit note in customer favour (Gaynor et al., 2015). Moreover, trade receivable clerk also prepares the bank slip. Trade receivable clerk does receipts from customers and posting in ledger and therefore, it involves high level of risks. There is a high chance that recording of data in trade receivable accounts might involve errors, and therefore high level of audit risks. It is certainly possible that trade receivable clerk might record the data inappropriately and there might be error in recording or posting of debtor account in general ledger (Abernathy et al., 2014). Audit risks can be reduced by segregating all the accounts related to trade receivable among different employees. Intangible assets Some of accounts that is associated with business of GPSA are goodwill, copyright and patent right. Recognition of value of goodwill needs to be analysed by accountants. They are required to determine whether the life of intangible assets are definite or indefinite. Determining the fair value of assets is quote difficult, as it does not have any physical existence. Therefore, high level of risks is associated with Experts and authority level are required to determine intangible assets fair value. Determination of fair value of assets should have full control of management. Research and development capitalisation Expenses related to research and developmental activities will be debited to profit and loss account. Since the development was successful, expenses related to them will be capitalized. Improperly recognizing the activities related to research and development activities needs to be properly recognized as it involves high amount of costs There needs to be proper scrutinization of all the expenses posted in ledger account. Market research is required to be conducted before launching any equipment in market. Property assets Property assets account of GPSA involves depreciation account and fixed asset account. Financial statement of organization will be greatly impacted if there is improper recording of depreciation amount and carrying value of assets. Improper recording of assets wold enable the auditors to differentiate the duration of existence of assets whether they are less than 180 days or for more than 180 days. Sales and purchase of property assets needs to be scrutinized properly and it is also essential to check several impairments related to assets. Current investments Current investments is related to accounts that is converted into cash within short time period that is within a period of 3 to 12 months. Current assets such as cash and cash equivalent is recorded under current investments (Beasley, 2015). Under different accounting system treatment of investment account is different and it can be said that medium level risks is associated with current investments. Audit risk involved with current investment is making investments without evaluation of risks. There needs to be regularly checking of return generated from investments. It is also essential to evaluate the past trend of investment growth performance. Ratio 2017 (Unaudited) 2016 (Audited) 2015 (Audited) Return on equity % 7.19 18.61 22.17 Return on total assets % 4.86 13.7 15.52 Gross margin % 31.76 30.00 24.94 Net profit margin% 10.38 20.27 17.85 Times interest earned 1.90 3.51 4.10 Days in inventory 166.53 127.89 115.85 Days in accounts receivable 83.07 60.65 53.24 Current ratio : 1 1.80 1.54 1.66 Quick asset ratio : 1 0.89 0.78 0.82 Debt to equity ratio : 1 1.11 1.02 1.04 Ratio Ratio analysis Audit impact Steps of audit Return on equity % There is a decreasing trend for return on equity and it declined to 7.19% in year 2017 as against 22.17% in year 2016. Declining trend has a high impact on audit, as auditors are concerned about net worth of organization. Organization should efficiently utilize its assets for generating return. Return on total assets % Significant decline on assets has been experienced from 13.7% in year 2016 as against 4.86% in year 2017. Risk is incurred on level of profitability. Auditors should assess the returns generated from assets. Gross margin % Gross margin has increased in current year 2017 to 31.76 as compared to 30 in year 2016. This depicts that gross margin has increased. Auditors needs to analyse the reason for increasing trend for which they are required to evaluate the accounts. Assessment of factors generating increased profit margin should be done. Net profit margin% Net profit margin has decline significantly to 10.38% in year 2017 from 20.27 in year 2016. Fall in net profit margin has been ascertained that has significant impact on conducting audit. Organizations profitability involves high risk level. Days in inventory Days in inventory has increased to 166.53 in year 2017 from 127.89 in year 2016. Increase in days of inventory needs to be assessed by auditors. Auditors need to make the assessment about the sales account and inventories account. Days in accounts receivable Days in account receivable has increased significantly from 127.89 in year 2016 to 166.53 in year 2017. Increase in days receivable indicates that organization is collecting its receivables frequently. For this purpose, credit policies of GPSA should be examined. Current ratio Current ratio has witnessed an increasing trend from 1.54 in year 2016 to 1.8 in year 2017 respectively. Increase in current ratio indicates that liquidity position of organization has improved. Auditors are required to review the current assets and its utilization. Quick asset ratio Quick asset ratio has increased to 0.89 in year 2017 compared to 0.78 in year 2016. Changes in level of inventories has impact on audit plan of organisation. Auditors are required to make the examination of inventories account Debt to equity ratio Debt to equity ratio has increased to 1.11 in year 2017 to 1.02 in year 2016. This indicates that leverage of organization has increased. Audit will be impacted significantly due to increase in leverage ratio. Risk involve with payment of creditors needs to be assessed by auditors. Internal control system: Effective control- Protection of password- Management, Sales director and finance controlled were actively involves in generation of success of new Information technology system. In order to have access to programs the system has access and they were strictly protected with passwords. Bonus payment- Shareholders of organization are involved in reviewing of bonuses that are paid to management of staffs. Concerned employees are asked to explain the reasons for any variance existing in the budgeting and overheads of employees. Aging analysis- At the end of each month, recording of receivables and that are entered in the computer system. Financial controller is further responsible for analysing the trade receivables and trade receivable clerk should explain any delay made in payment to debtors (Cannon Bedard, 2016). Trade receivable- At the end of each month, the debtor account is reconciled into general ledger account by trade receivable clerk. Doubtful debts- In event when balance of doubtful debtors goes above prescribed limit while preparing the plan of following up of doubtful debtors. This requires withholding the shipment of goods to costumers when they are not able to provide organization with prescribed limit (Hayes et al., 2016). Risk alleviated- Delivering notes manually- System of recording of data is exposed to some sort of risks and for delivery, manual notes are prepared. It is certainly possible that there might be errors while noting or preparing manual and this might lead to act of fraud. Database access- In relation to information technology function, it has been observed from the given case study that the access to over program is controlled by the application of strict password (Doxey et al., 2016). If there, is any unauthorized access to the system and if they are not password protected, then there arises chances of misappropriation and ultimately fraud. Lack of segregation of duties- Trade receivable clerk is responsible for performing all the aspects of trade receivable account and engaged in manual recording of data into computer system. He is responsible for raising the credit note in favour of customers, preparation of documentation and properly recording the reason for returning the goods from customers. Moreover, he does bank deposit slip and posting of journal and this involves some errors whether they are done intentionally or unintentionally. There exist possibility of conducting fraud or errors while recording the entries (Glover e al., 2016). Test of Control- Test of control is used by auditors for analysing and evaluating the efficiency of internal control system of organization. Level of reliance on internal control system of organization is based on result and outcome of test conducted by auditors. The categorization of test of control are discussed below: Observation- Auditors under this category makes the analysis of efficiency of internal control of organization and evaluating the business procedures that are in action. Inspection- Under this, documents are examined with respect to internal control authorization, stamps and signatures. Performance- Internal control system of organization is checked in relation to any new transactions involved in business. In order to generate effective control in internal control system, some of test of control are as follows- Protection by passwords- in relation to protecting password, auditor will perform inspection approach on control test. Aging analysis- Auditor will perform inspection and observation approach. Bonus payment- For this control test, auditor will perform observation approach control test. Trade receivable- Auditors will perform re performance approach control test Doubtful debts- Auditors will perform re performance approach control test (Jia, 2016). Weakness in the internal control system of GPSA: Internal control weakness Impact on audit Steps taken to reduce weakness The recording of invoices are done solely by trade receivable clerk and he is responsible for positing the journal and reconciliation of accounts. Risk might evolve while maximization of sales revenue and minimization of risks (Knechel Salterio, 2016). Only trade receivable clerk should not do the management of all aspects of trade receivable account and other should be two or more person involved in handling the accounts. Management staff are receiving bonuses based on targeted volume of monthly sales, departmental budget and variation of sales overhead. This type of weakness might led to evolving of risks relating to bonus payment to employees in event when there is any non-completed transactions. Bonus amount should be calculated irrespective of sales made by sales department for internal control check facilitation. Inefficiency in internal control due to inappropriate recording of data and journal entries by trade receivable clerk Several aspects of internal control will significantly affect audit, as there can be misappropriation of data and ultimately fraud. System of internal control should be made efficient by segregating duties relating to all aspects of trade receivable account and sales system (DeFond Zhang, 2014). Conclusion: From the above analysis, it is depicted that the internal control system of GPSA would be facilitated by creation of new internal control manual. This has made trade receivable entitled to handling all data relating to such accounts. However, such system is regarded as inappropriate as it carries several amount of risks of misappropriation and risks while dealing with accounts. Furthermore, some weaknesses in the internal control of GPSA have also been identified that has several impact on audit procedures of organization. In light of this, auditors are required to take steps for minimization of audit risks faced. References: Abernathy, J. L., Hackenbrack, K., Joe, J. R., Pevzner, M., Wu, Y. J. (2014). Comments of the Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Staff Consultation Paper Auditing Accounting Estimates and Fair Value Measurements. Arens, A. A., Elder, R. J., Beasley, M. S., Hogan, C. E. (2016). Auditing and assurance services. Pearson. Beasley, M. S. (2015). Auditing cases: An interactive learning approach. Prentice Hall. Cannon, N. H., Bedard, J. C. (2016). Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92(4), 81-114. DeFond, M., Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2), 275-326. Doxey, M. 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