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audit plan for aero inventory plc

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Introduction

Audit Plan for Aero Inventory Plc Background Information Industry The Aero Inventory Plc is a part of aerospace & defence sector of UK, which is performing well over the last five years as compared to the FTSE All Share Index and FTSE AIM All Share Index. Tremendous growth of nearly 450% is observed in this sector, even in the same period the growth of FTSE All share index was only 75%. The reasons of that massive difference in growth are as under: Reasons * Population growth is augmenting air travel day by day. * Privatisation of air travel industry in many countries is inviting new companies to participate. * Increasing trends in Intercontinental trade * High demand of products due to Iraq & Afghanistan conflict. * Large & strong buyers like UK MOD, US DOD, NATO & NASA of their products and services. * US Defence budget increased due to overseas operations. * Growth in global defence markets especially in the Asian markets. The United Kingdom aerospace & defence market generated total revenues of $39.5 billion in 2007, this representing a compound annual growth rate (CAGR) of 2.5% for the period spanning 2003-2007. In comparison, the German and French markets grew with CAGR of 0.7% and 2% over the same period, to reach respective values of $27.4 billion and $39.4 billion in 2007.The defence segment was the leading segment in 2007, generating total revenues of$25.1 billion, equivalent to 63.6% of the market's overall value. The civil aerospace segment contributed the remaining revenues of $14.4 billion in 2007, equating to36.4% of the market's aggregate revenues. The market growth forecast for the next five years is 1.6% (CAGR). (Source: Datamonitor) Aero Inventory Plc Business Description Aero Inventory plc is engaged in the provision of customized e-based procurement and inventory management solutions to the aerospace industry. The Company has long-term sole supplier contracts in place with aircraft maintenance and repair businesses, in Australia, the United Kingdom, Continental Europe and Asia Pacific. ...read more.

Middle

We would need to check the documents of long-term contracts. * Aero Inventory relies heavily on the use of IT based systems for its business activities. It poses a control risk and in case of their failure data could be lost, e.g. stock control. We would need to test the systems to make sure they are working correctly; this could include stock control and security checks. We would also need to see that the level of back up and recovery process. Detection Risk * At 30 June 2007 there were annual commitments under non-cancellable operating leases, including property leases. * The comparative figures for the year ended 30 June 2006 have been restated as a result of a change in accounting policy for FRS 20 share-based payments as described in note 11. The restatement has reduced the profit for the year ended 30 June 2006 by �609,000.Net assets were unchanged as at 30 June 2006. Audit Approach There are three primary types of audit: financial audit, operational audit and complains audit. Financial Audit We are being engaged to give opinion on the financial statement; therefore we shall adopt financial statement audit approach. It is conducted to determine whether the overall financial statement are stated in accordance with specified criteria usually the criteria are generally accepted accounting principals. The financial statements most often included are the balance sheet, income statement and statement of cash flows, including accompanying footnotes. The following approaches are not relevant in this case. Operational Audit It is normally carried out to measure the operational efficiency and effectiveness of any department such as customer satisfaction or inventory management of a company. Here we have to examine financial statement and express our opinion. In operational audit the scope of audit is not limited to accounting; they can include wide range of area from evaluation of organisational structure to marketing issues and any other area in which the auditor is qualified. ...read more.

Conclusion

(c) We will also perform cash receipts/payments cutoff tests and we will review documentation such as daily cash summaries, duplicate deposit slips & bank statements to determine proper cutoff. Tests of balances We will obtain evidence directly about an account balances and the individual items that form the account balances. (a) We will select and execute the samples and investigate exceptions. (b) We will summaries the results of confirmation and alternative follow procedures. Tests of presentation and disclosure We will evaluate the fair presentation of disclosure required by GAAP to determine that various items are properly identify and classified and to determine appropriateness of disclosures like related party transaction, subsequent events & prior year's adjustments. Evaluation of Need for Outside Specialists We need IT specialist due to fully computerised systems in vogue in the company. The company deals in hi-tech aircraft parts therefore we will also require specialist to evaluate and check the obsoleteness of the inventory. We will also consult a lawyer on the legal interpretation of contracts and titles. Risk Additional procedure Section 2.2 Material Risk Materiality levels for planning the audit should be set low. Relatively smaller misstatements are likely to be important because of their potential effect on important accounting ratios and trends. Section 2.1.5 Market Monitoring the marketplace for product reports of the clients and its competitors. Section 2.2.1 Financial Concentrating on direct test of the account balances. Section 2.1.3 Competition Section 2.1.4 Suppliers Section 2.1.6 Third Party Suppliers Further detailed analytical review should be performed to search for any unusual trends. Section 2.2.6 IT Systems A computer audit specialist should perform an in-depth analysis of data processing controls. Section 2.2.3 Acquisitions Section 2.2.4 Post Balance Sheet Events Performing with heightened awareness of the necessity to review complex contract and potential related-party transactions. 3.8 Documentation We document the overall audit strategy and the audit plan, including the events, conditions, or results of audit procedures that resulted in any changes. The manner in which these matters are documented is for us to determine based on professional judgment. ...read more.

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