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Preparing for sudden shifts in the economy or from competitors.
Substantive Tests
The substantive test is when we are determining if the current strategy will be effective in addressing the risks facing the firm. This is accomplished through examining the accounts receivables.
The substantive tests for KCN revealed that there are a number of risks to the balance sheet to include:
High inventories.
The use of allowances for bad debts.
The combination of these factors can cause the firm to face more risks. The best way that this can be addressed is through the test of balances. This is when the transaction must be posted in the ledger and balance sheet simultaneously. (Srivastava, 2008, pp. 577 -- 618)
The Final Reporting Steps
The final reporting is when there will be a report released to upper management, the board of directors, the accounting firm and regulators. Inside is where there will be a discussion of the numbers and what they mean.
In the case of KCN, the required steps include:
Verifying the accuracy of all facts and figures presented.
Addressing different weaknesses that could have an impact on KCN.
Propose solutions for dealing with these challenges.
Present the findings to the board, upper management and regulators.
Conclusion
Clearly,...
The above plan is illustrating how their main job is to identify potential risks to the firm, the accounting procedures they are using and how to deal with any kind of issues. These different elements are important, because they are showing how examiners must always ensure accuracy and transparency. The basic audit plan is designed to provide everyone with a tool for understanding what is happening and the possible consequences of certain actions on the firm. This helps to avoid any kind of conflict by identify the problems early and creating a strategy to address these challenges. Once this happens is when the most accurate information can be reported. As a result, accountants serve a role of public servant and independent bookkeeper during the process. This helps to ensure that there are no conflicts of interest and that all potential areas of concerns are brought to the forefront.
References
Kumar, R. (2005). Auditing Principles and Practice. New Delhi, Prentice Hall.
Palmon, D. (2011). The Accounting Standards. Group Decision and Negotiation, 20 (2), 165 -- 183.
Srivastava, R. (2008). Belief Function Formulas. Studies in Fuzziness and Soft Computing, 199, 577 -- 618.
Whttington, R. (2005). The Principles of Auditing and Accounting. New York, NY: McGraw Hill.
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