Name: Mahusay, Jeth A.

Date: December, 2020

Year: BSA-3 Instructor:Ms. Anna Mae Magbanua, CPA

Subject: Auditing and Assurance Principle

Major Output 2

Lesson 4

1. The profit for the period has increased from £8,118k to £15,201k which is
an increase of 87% while the turnover has only increased by 12% (£33,876k
to £37,845k). The auditors consider that this is an area they need to
investigate further.

Although revenue has increased by 12%, cost of sales has reduced by 12%.
The auditors consider this to be highly unusual as they would expect an
increase in revenue to be matched by an increase in cost of sales.

The gross profit margin for 2019 stands at 67% compared to 58% in 2018.
The auditors would investigate this further and would focus on the changes
in both revenue and cost of sales to establish the reason for the increase.
The auditors would be concerned that figures have been manipulated to
ensure the bank looks favourably on the results and finalises the refinancing
package.

Administration expenses have fallen by 16% which is unusual given that

revenue has increased. The auditors are concerned that costs have been
understated or incorrectly treated in the financial statements. The auditors
would look to carry out a more detailed review of the administration
expenses including performing a detailed analytical procedure on a line by
line basis to determine where the decreases arise.

Sales and distribution expenses have also fallen which is not in line with the
increase in turnover. More detailed work and investigation would need to be
carried out to ascertain the reasons.

Interest payable remains in line with the prior year and although this does
not indicate any risks, the auditors will complete standard audit work in this
area including reviewing loan statements.
Lesson 5.

1. Sarat Sethi confined himself to only one month of stealing checks so the
consumers would come to know by the next billing date that their credit card
account was not paid and would be charged as an unpaid sum again for the
previous balance. The scam must have come to light when the consumers
began complaining, and Sethi would have been caught. To escape this, after
a month, he quit the firm.

2. To stop this, the controllers set up internal controls in the mail room to
keep this from happening. Setting up work division so that the remittance
recommendations and checks are done by more than one person. Rotating
work assignments and making clients write checks using only the full name
of the organization. Develop a separate, smaller mailroom responsible for
cash collection only. Conduct background checks on all workers and transfer
deposits directly to the bank.