Name: Institution: Professor: Date: Auditing- Stage Coach Group Stage Couch Group is an international transport company which operates trains, buses, trams, ferries and express coaches. The company was founded in 1980 in Perth; Scotland. Stage Coach Group provides smarter, greener and better value transport to over 3 million customers across the United Kingdom and North America…
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This report will touch on the key areas of audit risk that have heightened in the audit report for the year ending 30th April 2012. The main sources of information will be the annual report, respective audit procedures and any other relevant sources. Areas of increased risk a) Revenue Stage Couch Group’s revenues are generated from the three main divisions (continuing operations) which include Rail, UK Bus and North America as a number of joint ventures. Revenue is a key area of concern as it is used in assessing the group’s overall growth and performance (Stage Couch Group Annual report 2012). As pointed out in the company’s annual report for the year ending 30th April 2012, the overall performance was as a result of increased sales in all the three divisions. The revenue increased by 7.76 per cent in 2012 from the 2011 financial team. There are times when the management of a company may misstate the revenue with the aim of impressing investors, the top level managers or the board of directors. The group recognizes revenue share amounts payable or receivable in its income statement at the same period in which related revenue is recognized. The revenue obtained from maintenance income and advertising incomes is treated as miscellaneous revenue by the company. The management of the company says that the company had performed well. However, the low percentage increase in revenue from 2011 to 2012 may be an issue of concern. A 7.76 % increase in the total revenue may be an indication of misappropriation and misstatements. This is a reason why the increase in revenue is an area of increased risk. Investor’s motive is to invest in a company that performs well and indicates growth. They get information of a company through the financial statements so as to make investment decisions (Stage Couch Group Annual report 2012). Therefore, if the revenue for instant does not indicate any growth, they will not invest in that particular company. Other times human error might occur when recording revenues or revenue may be recorded at the wrong time. This is another reason of concern on revenues. The audit procedure here is for the auditor to have an understanding of the company and the industry in which the entity operates so as to have a better assessment of the auditing procedures outcome. Audit procedures would also include vouching and verification procedures and analytical review of the financial statements. b) Cash When the company has enough cash, it means that its liquidity position is secure. Cash balances and receipts usually affect the profits of a business. Stage Couch Group cash balances decreased to ? 241 in 2012 from ? 358.3 thus this is a key area of concern that calls for scrutiny of internal controls to detect any error or fraud (Stage Couch Group Annual report 2012). The auditor uses analytical procedures as the audit procedure in detecting any fraud. He compares the cash balances with the projected cash and if the balances exceed or fall below the years expectations, tests of detail are performed. Cash is an area of concern because the management might overstate it to cover up on its liquidity position. c) Accrued receivables According to the 2012 financial statement, accrued receivables decreased to ?16.4 million in 2012 from ? 19.4 ...
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