Factors to consider when developing Audit plan for RCA Ltd

The RCA Ltd internal auditors are to take into consideration different various in producing an effective company’s audit plan. Some aspects that have be learned by their auditing committee in order to develop the blueprint to performethe inspection including: Internal Control System. Their team should comprihand the company’s role in the internal control. This kind of an understanding would involve the knowledge of the available accounting policies and if their management team could force any treatments for different items in their financial statements. The internal control understanding is necessary to develop an audit plan as it gives auditors an opportunity to uncover factors that could lead to misstatements and those that could influence the risk of material misstatements. In the case of RCA Ltd, the audit team would seek to understand the reason behind the changes in the calculation of the depreciation and the parties involved in the stated recalculation.

Reviews of the Previous Audit

The team should also carry out an examine the issues raised from previous audits that may affect the current financial statements or may have continued importance in the process. They would have to look at the working papers of the former auditor. For example, in this case, the team should consider why there was disagreement between the foregoing auditors on the RCA management on the accounting for the operating leases of the air crafts that have been sources for the airline. Besides, they would consider aspects such as refusal of the company directors to grant them access to audit reports and how such actions are likely to affect their review of the current financial reports. It is also important to consider whether allowing directors to get a bonus from profits could have an impact on financial reporting. Through such reviews on the previous audit working papers, the auditors would likely identify areas of weak internal control or particular problems in accounting present in the company.

Nature and timing of the Report

It is prudent for the audit team to look at the timeline of the report do that they can schedule the inspection process to meet the set deadline by the management. They could look at the dates when management report would be available and the annual general meetings. In the RCA Ltd case, the audit report requires only a week preparation. The short deadline call for the internal auditors to properly schedule their work. It would also call for a review on the number of accounts in the audit team. With the short deadline such as the one presented in the case, the size of the audit team should be adequate to cover each of the set procedures.

Matters of Exceptional Attention to the Audit

The audit team should also review any case that may compromise the audit process. These factors may include the existence of a close relationship between the company and the audit and the interest the auditors has on the firm. In this case study, the head of the managing partner of the Nationwide firm chosen to carry out the auditing is married to chief executive officer (CEO) of RCA Ltd, and it is through this relationship that the company won the bid to conduct an audit on the firm. This relation is very close and is likely to affect the independence of the report rendering the audit report unfair and not accurate representation of the financial statements.

2. Risk Indicators

a).Risk indicators at the overall financial statement level

b).Description of the risk on the overall financial statement level

Relationship between Auditing firm and RCA CEO

The managing partner of the Nationwide audit firm Mr. Nyambane is married to the CEO of RCA Ltd. The close relationship between the two parties may compromise the professional independence and result into audit report that does not depict the financial statement of the firm as is honest and fair

Directors obtaining bonuses from profits

The fact that directors of the company get bonus from profits is a risk because this affect the shareholders’ value and is assign of weak accounting system

Overly centralized financial reporting control

The management has control of the items in the financial statement. They change the calculation of depreciation.

Lack of cooperation from management

The management of RCA Ltd refused to cooperate with the auditors. They declined to allow Nationwide to contact the former auditors. The lack of support could be assign of concealment of relevant information affecting financial statement

Increased competition from in the industry

Increased competition from Firefly, JetFast, and WiseSky could make the company violate accounting policies such as reporting of operating and financial leases.

The rising focus on new business than the existing ones

The company is opening new airlines, yet it has been making losses for years. The misstatement could be an indication of attempt by management to hide the business failures to shareholders

Accounting policies rely heavily on the judgment of the management

The company management decides change adjust the calculation of depression on acquired assets. The recalculation could be a scheme to conceal the firm makes.

The motives or rationalization of the audit is wrong

The company intend to carry out an inspection to generate favorable report on the company’s performance so that it can obtain license from the ministry of transport

3. Risk of Material Misstatement

The company is also likely to misstate its financial statement to a material degree through it the treatment of operating and finance leases used to acquire the aircraft

a).Description of the risk of material misstatement at the assertion level relating to the plane balance

b).Assertions

Failure to record liability to the lessor on acquisition of the aircraft

The company may have failed to credit financial obligation using the lower of the fair value. The misstatement of the obligation to the lessor could result to the company recording less financial obligation

The acquired aircraft appear at cost in the financial books

The aircraft should be recorded using the present value of the minimum lease payments failure of which result in understatement of the financial outflow of obtaining the plane

The RCA Ltd may have failed to record operating lease payments on aircraft as rent expense

The failure to record expenditures on operating lease result to understatement of cost and eventually overstatement of profits

The use of accumulated depreciation and impaired losses to affect the aircraft value

The depreciation of the plane should occur on the shorter of the lease term or the aircraft useful economic life. Failure to use the policy could lead to misrepresenting the expenses and therefore affect the firm’s profitability

Absence of clarification on which aircraft is acquired through operating leases and those obtained through financial leases

The lack of description of the types of lease agreements result to misstatement of liabilities, expenses, and assets and eventually misstated financial statement