The business risk associated with Myer Holding Ltd is the increasing company’s overreliance on the use of technology. In the recent past, the company has adopted various technologies to enhance the company’s rapid development in its digital environment (“Myer Holding Ltd,” 2019). However, the trend poses malfunction risks to the company’s information and technology systems. Technology malfunctions might arise due to the obsolescence of information technology infrastructure, cyber-security breaches or data theft of the client’s personal information. The impact of such actions is detrimental to the company’s net sales as witnessed in the reduction of the company’s net sales by 3.5% in the financial year 2019. Thus, the business is likely to operate in an inefficient environment that disrepute the company’s brand(“Myer Holding Ltd, “2019). For the company to overcome such risks, Myer should heavily invest in the development of its in-house technology capacity that enhances the company’s ability to engage with reputable third-party information technology vendors. The strategy will provide the company with a reliable information technology system that responds to pertinent issues regarding management.
Account payable of Myer Holding Ltd has indicated a reduction of $19.9 million in the financial year 2019. The account payable, therefore, poses different audit risks to the auditor. For instance, the reduction in the value of account payable could have been due to external fraud (Kathrine& Phedra, 2016). For example, the auditor is likely to encounter collision which was initially practised on the account payable thus, reporting wrong amounts regarding the account. Payable account managers are usually involved in illicit payment once they collude with suppliers. The impact of such actions is a duplication of payments that are exploited and then replicated on the final values of the account payable, thus, fabricating the entire payments regarding the account. For example, once payments are made to the company’s suppliers, such amounts are ostensibly split to twist the net profit of the company. In such a situation, the invoices are likely to be overpaid due to conspiracy between the two for a personal gain(Kathrine &Phedra, 2016). The company’s reduction on the net sales can as well be attributed to such practices; thus, an intensive audit investigation should be conducted to establish the materiality and disclosure on such accounts.
Based on the risk that account payable is exposed to, it is worth considering both completeness and occurrence assertion are important for the investigation of such risks. The two assertions will help in the identification of payables and expenses that are related to such transactions within the period-ending (Kathrine &Phedra, 2016). The two assertions will ensure that such an occurrence is accounted for and completed within the right period. Likewise, the assertion of completeness and occurrence will ensure that the amounts recorded on such accounts are legitimate, thus, preventing external fraud.
The account payable is a highly sensitive account and poses higher risks of assessment while performing various substantive tests on the account which include the search for unrecorded expenses and intensive analysis of expenses attached to account payable, it, therefore, requires preliminary planning analytics. Analysis of unrecorded expenses will involve the following tests.
Preliminary tests will involve obtaining completeness of various records, including check registers for the period preceding the audit period.
Setting a threshold for the examination of the account’s materiality of the subsequent payments.
Detailed examination on document of regarding subsequent payments as had been set against a threshold. The examination targets invoices that will facilitate the detection of materiality attached to account payable.
Examination of the unrecorded invoice of the period under investigation.
The above substantive tests are aligned to AS section 313 of Substantive Tests Prior to the Balance Sheet Date. Subsection 6 of the AS Section 313 stipulates procedures that auditor should undertake to analyze the environment in which the business operated (“PCOAB, “2010). The procedure will help the auditor engaged in establishing material misstatement for the account under investigation. The section also helps the auditor in deciding on which substantive test that can be applied for further examination of such misstatement to a make either reasonable or unreasonable conclusion. Incremental risks regarding the account payable can as well be established based AS Section 313(“PCOAB, “2010). The major part of this section is on the examination of the balance sheet balance based on the reporting dates; thus, infuses accountability on the affected accounts.
Collecting and gathering audit evidence is a cumbersome task that involves a mix of various techniques. The techniques are used interchangeably to examine accounting records, observe doubtful accounts as well as conducting interviews to examine legibility of the accounts. It is one moment that is quite involving; thus, the auditor should be part of the team but should outsource other experts to assist in looking around the working area under analysis. The procedures and techniques involved in substantive tests are fabric; thus, needs a skilful and woven understanding of the firm’s environment; thus, the auditor should form the part of the team outsourced. Hence, the data collected will be reliable and more in-depth.
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Kathrine. B. &Phedra. D. (2016). Data analytics for external auditors. Journal of Supporting International Standards. Retrieved from https://www.ifac.org/knowledge-gateway/supporting-international-standards/discussion/data-analytics-external-auditors
Myer Holding Ltd. (2019). Annual Report, 2019.
PCOAB. (2010). AU section 13: Substantive tests prior to the balance sheet date. Retrieved from https://pcaobus.org/Standards/Archived/Pages/AU313.aspx