Situation 1
The Case study deals with the independence of the auditor ,As an audit manager of Clarke and Johnson , CJ has been Erving as an auditor of Travel holidays limited. Geoff who was serving as an audit partner told the manager to contact Travel Holidays so that they can be re-engaged as the examiner for the imminent audit of the 30 June 2015 monetary report. He also thought of taking Michael, a first-year bookkeeper, and Annette, an bookkeeper in CJ’s tax recommended subdivision, to the LTH audit for the leading time. Geoff wanted me to contact with three of them accordingly and talk about all the independence aspects of the company and other details also which needs to be discussed.
He conversed with Chris , Chris stated that the partner should actually say more good stuffs about the company which will actually attract more investors and the individuals will show much interest to buy shares and to invest more in the company. With this regard the partner disagreed . LTH the company also in return offered both the partner and the manager a courtesy 14-day holiday bundle voucher for four persons to the Greek isles for both Geoff’s and the manager’s family.
As an audit manager, the manager communicated with both the staffs
Michael communicated that he is excited to be part of the team as his dad is KTH financial controller . is sad is actually responsible for preparation of reports of the company.
Annette communicated that she is happy to be part of the team as she was working with them last year helping them with the tax and accounts for the period ended 30 June 2015. Annette was very excited to be a part of the team and was showing his gratitude towards the manager.
- The client here is actually giving bribe to the audit team , the client wants that the partner communicates good things about the company so that the company can gain investors. The partner should not accept the bribe as he is not responsible or rather not liable to listen to the client . He is not given the responsibility or liability to conduct any review about the company . Infect he is only liable to give true and reasonable view on the monetary statements of accounts. It’s a big threat to the audit firm if they accept the offer as it’s the auditor will be held liable and he will be punished for imprisonment or penalty. As per ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Agreement with Australian Inspecting Standards his only responsibility is off to report on the monetary report, and interconnect as obligatory by the Australian Auditing Standards, in agreement with the findings of the auditor. The checker or the auditor shall implement proficient judgment in scheduling and performance an assessment of a monetary bang
Therefor auditor should not accept the package from the client
Michael will not be allowed to audit the company .It will be a threat for the auditors part as Michael father is the financial controller of LTH. Any person who is directly related to the company will not audit the company financials. Any son ,daughter, spouse mother ,father of the financial controller cannot be appointed as the auditor of the company. It is a blunder on part of audit team to consider Michael . They would be liable and would be penalized
Annette stated that she was going to be a part of the audit team .It would be a threat to the audit company if she would be a part of the audit as she was the preparer of the LTH financial accounts. It is said that the maker should not be the preparer. She was on a temporary task at LTH’s just a month ago, plateful LTH with its tax controls and preparing secretarial entrances that will be reflected in the 30 June 2015 monetary report . It would be a great independence issue if Annette would be invited as part of audit team.
- The audit team should actually communicate to the persons charged with governance of the company that were auditing .They should communicate whole issue and talk with the management
- They can resign from the audit an issue any opinion as the client tried blackmailing them .They have the right to give any type of opinion such as qualified or adverse.
- Michael should not be appointed as a part of audit team as his dad was related to LTH.
- Annette should not be taken as part of team as maker should not be the preparer.
- The checker or the auditor shall implement proficient judgment in scheduling and performance an assessment of a monetary bang
- The auditor shall strategies and achieve an audit with specialized skepticism recognizing that events may happen that cause the pecuniary report to be materially misstated
- The auditor should comply with all the standards as mentioned and conduct the audit in a good and proper manner.
In the given question we see that Organisation is occupied with the business of making the hardware and the software, that are being manufactured I different foreign countries to the other companies. As an Auditor of the with Crampon and Head and I am preparing the audit of “Mining Supplies LTD (MSL)” for the season concluded “30 June 2015. The important question that is being asked in this case study, are the various types of risks that I as an auditor identify the while auditing the financial statements of the company. In the given case we see that the organisation is entitled with giving two years guaranty for every gear and every other part that has been sold by the company. For this purpose the company has entered into an agreement with the versatile mechanics, who goes all around the globe to support and give befits to the client in this regard. And for the other customers on the basis of the agreement that they enter on part of the company benefit is given on the basis of the obsolete guarantee period. While conducting the enquires two types of business risk is to be identified that will be based on the part of the hardware obtaining plan set in the association. In the given case we see that the organisation is indulging in making import from various nations that exposes it to various risk factors. There are a lot of bundle dangers that are associated with global trade and the organisation must developed policies to manage the trade hazards while managing the overall abnormal business risk that may be associated with this international trade. Incredible practices on part of the suppliers may be practiced that will eventually help in managing the credit ores and developing various trade relations in respect of the same.
Situation 2
a)While conducting the various risks two types of business risks can be identified-
- There is a risk associated with the business in case of money making payments and acknowledgment of the same. The payment may be cheated or there might be mishandling of the same at any phase, this may hamper the overall profitability of the business and expose it to various unprecedented losses and may put the organisation into many money related misfortunes.
- The overall arrangement and the procurement of the stock and the inventory may not be efficient enough to support the long term demand form the potential clients; in this way the overall growth prospects of the money may be hampered, because it won’t be able to support the demand that is created by the customers. So a proper check must be done of the organisation merchant account to a keep a tab on the money related issues
The overall thought that the auditor must give while analysing a business risk in sync with the audit risk. He should check that proper systems are in place to check any kind of impropriations that might be associated with the monetary values of articulation and lot puff resilience should be placed on identification of errors on part of the management while doing their work in assertion of the internal control for the functioning of the company. The auditor should check that proper steps are taken that will help in reduction of the overall business risk along with the various audit risk that rises because of such practices of the company
b) The audit risks that might be associated with each of the business risk-
In the view of the audit practices, audit risks are the risks that the auditor faces while making any judgment on the financial statements of the company. There may be wrong review of the assessment in which the overall monetary explanations physically misquoted, that is the proclamations of the overall part may not be given and some might be skipped while giving relevant financial detailing structure. Since there is a misquote it may lead to audit hazard as the overall assessment might be done by the auditor on the basis of that misquote and that might hamper the overall accounting policy of the company , since the auditor will use wrong standards for making specific segment reporting. This leads to a higher standard of risk for the overall money related articulation verification. The more is the factor error the more are the chances of the increment of risks based on judgements made on that factor errors.
On the respect of the account balances there was a maintenance services that functioned on the basis of one day and one week. MSL employs developed mobile aspects who travel to the customer’s site to hold out all support services. In some cases the technicians had to travel to the rural areas for long hours. Any of the support solution that was given to the customer that was beyond its warranty conditions was billed to the customers. Since the services of the company where so wide spread there was an inherent risk of no detection of any material misstatement in the assortment of the same. In case of the billing it covers the nominal rate of the labour and also the charges of any pieces use and all the travelling expenses that can be reimbursed , if proper care and scrutiny is not done in case of billing , it might lead to increment in the overall audit risk that might be associated with the company amount of the effecamot in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact if the amount of the effect in future per2ods is not disclosed because estimating it is impracticable, an entity shall disclose that fact mount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact
However, to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities However, to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities ever, to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities
Referencecs
ASA 200 (2017).Auditors independence. [online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_27-10-09.pdf [Accessed 9th April. 2017]
ASIC (2017). [online] Auditors independence ,Available at: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/auditors/auditor-independence-and-audit-quality/ [Accessed 9th April. 2017]
Matthew Hall, D. S.?S. (2005). Accountants’ Commitment to Their Profession: Multiple Dimensions of Professional Commitment and Opportunities for Future Research. Behavioral Research in Accounting
Paul M. Healy, K. G. (2012). Business Analysis Valuation: Using Financial Statements. Cengage Learning.
Arrunada, B. (2013). The Economics of Audit Quality: Private Incentives and the Regulation of Audit and Non-Audit Services. Springer Science & Business Media.
Alzeban, A. (2014). The Impact of Culture on the Quality of Internal Audit. Journal of Accounting, Auditing & Finance.
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