Tuesday, July 10, 2007

Audit of small entities/company

The main area of this topic discuss on the audit of small entities which concern on:
  • Day-to-day of Owner-managers
  • Few sources of income and uncomplete activities
  • Simple record keeping(fewer ledgers,daybooks)
  • Limited Internal control
Common ownership and management:
  1. Existence of owner-manager actively involved in the day-to-day running of the business.
  2. Audit risk increases as both easily override any internal control.
  3. However; audit risk might be decrease as presence day-to-day substitute to formal internal control.
  4. Risk assessment based on auditors knowledge of integrity and competencies of owner-manger.
  5. Small entities have more going concern problem as they often vulnerable to cash flow problem, in addition bad debts.
  6. Related parties:Owner-manager confuse business affair with own affair.