CASE STUDY

Case Study- Stanley Limited

Case Study - Stanley Limited

Introduction

An audit of financial statements or financial audit is the financial statements verification of the legal entity in order to express an audit opinion. An audit risk is that which exists at all times which creates the possibility that an auditor issues wrong information because of failure to detect significant errors or mistakes that could completely change the opinion given in a report.

In this essay we will see the possible audit risk might appear along with detailed audit procedures.

Discussion

Overview of the company

Stanley Limited was formed eleven years ago. It started trading as a family owned and managed business manufacturing small electrical components for the motor industry. This company is faced certain problem in 2010 due to the loss of two key contracts with overseas automobile manufacturers with a combined annual value of £2.6 million. Hamilton Makepeace an audit firm will be conducting an audit for Stanley Limited.

Success factors for Stanley Limited

Business expertise of operators: Good management within the company allows participants to focus on their strengths and, therefore, benefits the company's bottom line.

Access to the latest available and most efficient technology and techniques: Access and adoption of technological developments keeps participants up-to-date with product trends.

Access to high quality inputs:  Save on costs with access to high-quality raw materials at competitive prices.

Effective quality control: Customers purchase goods solely based on product performance and quality, thus, it is important that production of electrical equipment meets required quality standards.

Having links with suppliers: Established relations with distributors and suppliers are a key success factor for Stanley.

Economies of scale: Large-scale operations are generally more cost effective and profitable as they achieve economies of scale.

PART A)

Three Aspects of Audit of the Financial Statements

Three aspects of this year's audit of the Financial Statements which might be regarded as high risk are as followed:

The possibility of existence of errors can occur at various levels, this should therefore analyze in most appropriate way. They are different situations or events that lead to work in different ways and for determining the risk level for each particular situation. Thus, they have identified three types of risks which can be regarded as high risks. These are inherent risk, control risk and detection risk (www.isaca.org/).

Inherent Risk Will Be High In This Year Financial Statement

This risk is only concerned with economic activity or business of the company, regardless of the internal control systems are being applied there. The case of financial audit which is susceptibility of the financial statements on the existence of significant errors, this type of risk is beyond the control of an auditor so that it is difficult to determine or make decisions for risk disappearing because it is something innate activity by the company (Gray I., Manson S., 2011pp. 212).

Among the factors that lead to the existence of these risks is the nature of economic activities, and the nature of both transaction volume and product and / or services, also has the managerial relevance and quality of human resources available to the ...