ASX Corporate Governance
The present study emphasizes the role of the incorporation of the auditor and a statutory cap on the liability of the audit have on the limitation of the liability of the auditor. Also, it will focus on the audit responsibility in regards with client governance according to the standard audits.
It is important to consider following terms for explaining issues and recommendations in the cited case
ASX Corporate Governance- ASX Corporate Governance counsel, prescribes the rules, regulations, the principle for the entities listed on the ASX and along with this it establishes the various controls on the entities. It assists the company to satisfy the reasonable expectation of the shareholders. Although, it is not compulsory for the listed company to follow all the norms which are prescribed by the council. It is the matter of the board of director to follow the regulations as per the size, nature, complexity of their organization (Werner, 2016). Moreover, ASX corporate governance Counsel provides the flexibility to the listed company with regards to their governance disclosure.
Principle 4- this principle states that company should establish the proper and strict process for maintaining the integrity in the corporate reporting along with this corporate reporting should also be verified by the independent authority so that reliability of the corporate reporting cannot be violated (Tricker, & Tricker, 2015).
Principle 7- this principle defines that a listed entity should create the comprehensive structure for identifying and managing the risk and should periodically check this risk management framework so that the effectiveness of the structure can be examined.
ASA 315
This standard described the auditor’s responsibility regarding the identifying the risk of material misstatement by understanding the entity and its environment along with the internal control system established in the entity. The auditor should recognize and evaluate the risk of material misstatement at the assertion level as well as the financial reporting level and examined whether this risk is due to fraud or error, and accordingly, the auditor should design and implement the audit procedure to the assessed risk (Ma, 2016). If the auditor identifies the material risk, then the auditor should give special consideration for finding out the reason for the risk. With this regards, the auditor should also evaluate the honesty, integrity, accountability of the board of directors and review the governance system established in the organization. For assessing the risk of material misstatement auditor should obtain the understanding of the nature, size, norms, standard, and other external regulatory models which are applicable to the financial reporting framework of the enterprises along with this auditor should also evaluate the accounting policies which are followed by the company as per the prescribed accounting standard (Townsend, 2014). In an organization, an internal control system plays a significant role in identifying the risk. Therefore, the auditor should also obtain an understanding regarding the effectiveness of the internal control function in the enterprise which is related to the financial reporting framework. If the auditor identifies any misstatement which manager are not able to identify, then the auditor should revise its risk assessment procedures (Sanderson, 2014).
Principle 4
Governance issues raised by the ASIC
For examining the structure and practices with respect to the authority, environment and responsibility in the Commonwealth Bank of India (CBA) group, APRA declared the prudential inquiry dated 28 August 2017. This report contains so many issues and recommendations for the CBA group supported by the reason for the spoiled reputation in the world. Further CBA set up the Enforceable Undertaking (EU) through which the corrective action in response to the issues contained in the report can be taken (Wang & Fargher, 2017). Following are the issues; audit risk, recommendation and reduction of the audit risk due to recommendations are described-
|
issues |
Impact on raising audit risk |
recommendation |
Falling dawn of audit risk due to the recommendation |
|
Poor decision and experiment by the board and its committees |
Control risk |
Appoint the More rigorous and knowledgeable board |
Skills member of the board can take the effective decision |
|
Uncertain responsibilities at the executive committee level |
Inherent risk |
Define the proper accountability in the company |
By setting up the accountability system in the company, any committee member would be responsible for their particular work |
|
Fault in the system for identifying the issues, events and risk and response to the above issues are slow |
Detection risk |
Change in the governance system of the organization related to the internal control procedure. |
By proper internal control, procedure risk can be identified at the early stage and also give response quickly |
|
Complex and inflexible decision-making process not within time and failure to identify the risk |
Detection risk |
The decision taken by the board should be flexible according to the prevailing circumstances |
By the flexible and easy decision company can change the decision within the time. |
|
Operational risk due to working on the paper in spite in practice maintained by the lack of resources |
Control risk |
Provide required resources at the operational level for working practices and make the rules for complying the norms of the enterprise |
By following the rules, control risk will be reduced |
|
Remuneration framework which provides the slight rise for senior manager and above if the outcome of the customer appeared |
Control risk |
A systematic framework for providing remuneration |
By following the guidelines for remuneration control risk will be minimized |
The facts of the case are that in a team which is consisting of the three members are working on the material loan application on the client in the company MYH. David and John are the two members of the team. Strong incentives are provided to the team member for executing the task in an efficient and effective manner. One of the team members John did not go to work, and the remaining team member works tougher and complete the task. David thinks that it will not be fair if the John receives the same amount of remuneration as he did not contribute to the task.
The ethical dilemma is that whether David should support his friend John or to whether to remain loyal towards the company.
All the rules, norms which are prescribed under the code of ethics should be followed by the auditor for giving the assurance regarding the governance, risk management and control. There are three main principles which are described as below-
According to section 110 integrity 110.1 describes that it is the responsibility of all the members to maintain the honesty and reliability in the entire profession as well as the business relationship. Moreover, the term integrity also included the unbiased dealing and faithfulness.
As per section 130 Professional Competence and Due Care 130.1 defines that auditor should have responsibility to carry out the Professional Competence and Due Care at the level to certify that clients and the employer receive expert professional service and while providing the professional services auditor should act carefully as per the applicable technical and professional standard (Bagshaw & Selwood, 2014). Moreover, the auditor should also ensure the client that professional services are provided on the basis of recent development, rules and techniques.
Objectivity- A member in public practice should identify the situation by which conflict of interest can be raised and also circumstances that would make the pressure to noncompliance with the fundamental principles. The auditor should be free from the unnecessary influence of other persons, conflict of interest and make the decision independently.
There are two alternatives with the David. The first alternative is that David can maintain the professionalism and tell the manager about the John that the John did not work with the team in completion of the task. And the alternative is that David can hide this thing from the manager and support his friend and assure that John will not repeat this mistake again (Knechel, & Salterio, 2016).
Principle 7
If the David will not tell the manager about the John, then David violated the principle of the code of ethics that is he is not reliable and honest in his professional work along with this he is also not following the professional competence in his task. And if the David supports his friend John, then the question of Objectivity will be raised on the David as he is influenced by his friend at the time of making a decision (Soh & Martinov-Bennie, 2015).
If the John works with his team, then he applies his skills and knowledge this will lead to the completion of the task in an efficient and effective manner. Moreover, for the other team members, this task will not be burdensome.
By considering the above-described provision, the decision is that every member should follow the principle laid down in the code of ethics so that David should tell the manager about the John so that David can maintain the loyalty with the Company. And due to this other members can also learn the lesson that the work for which they assigned should be completed by within time (Maroun, 2017).
The auditor is the person appointed for expressing the opinion on the financial statement of the organization which are finalised by the board (Wang, & Fargher, 2017). The auditor has the responsibility to plan and conduct the audit accurately to retain reasonable promise regarding if or if not the financial statement does not include fraud and material misstatement, or are free from errors as the main objective of the auditor is to express an opinion on the financial statement whether they show the true and fair picture of the organization in addition with this auditor is also responsible for report on the failure of maintenance of the books of accounts by the enterprise (Samsonova-Taddei, & Humphrey,2015). The auditor has the role to their profession, the obligation to follow the standards presented user the Australian Auditing standards agreed by their practitioners as well moreover auditor also state in the audit report that audit is conducted in accordance with the generally accepted accounting principle. The opinion deals of the auditor with the financial report as a large and thus, the auditor is not liable for the misstatements which are not material towards the financial report as a large (Bigus, 2015).Under ASA 200, the auditor must consider expertise uncertainty all through the audit procedure with the identification of possibility due to fraud it will lead to material misstatement, regardless of the auditor experience, managerial liability and honesty and the aspects relied on governance (Honigsberg, Rajgopal & Srinivasan,2018).
The incorporation on an audit can leave the audit of the company completely liable for any judgment amount that surpasses the amount of the professional insurance; it can leave the corporate audit member who conducted a company and a negligent audit liable. Regardless of the proportionate liability, incorporation is not able to offset the problem of the audit’s possible liability of an audit company from the negligence resulted by the third parties wherein the firm practices only make partial contributions to the engaged damages (Khan & Wald,2015).
ASA 315
It is a message that the authorities convey to the audit report users who are highly critical, and at the same time auditors send the message that they are not set to stand with the published opinion of the audit, thereby the audit credibility will be decreased. Auditors have now exposure to unlimited liability for the default based on professional (Kumar & Sharma, 2015). The problem of the auditor’s professional liability has been taken into consideration by the professions. Further, auditors have made a complaint against that they have been found liable in the claims of negligence for the damages highly out of the percentage to the scale of their responsibility (Turley & Zaman, 2014). The liability has evidenced as expensive for the insurance and either of the responses of auditing professional responses that have been to neglect that the duty of care is owned in a highly restricted situation.
The present study shows the roles and responsibilities of the auditor on the basis of the Australian auditing standards, by considering the above-described provisions auditors are required to act with due diligence, honesty, integrity and professional care. However, they are not having unlimited liability as the government has imposed the incorporation of auditors and a statutory cap by considering the concern of auditor as well.
References
Accounting Professional & Ethical Standard Board. (2010). APES 110 Code of Ethics for Professional Accountants (Online). Retrieved from <https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf> on 18 August 2018).
Bagshaw, K., & Selwood, J. (2014). Core auditing standards for practitioners. John Wiley & Sons.
Bigus, J. (2015). Auditor Reputation Under Different Negligence Regimes. Abacus, 51(3), 356-378.
Honigsberg, C., Rajgopal, S., & Srinivasan, S. (2018). The Changing Landscape of Auditor Liability.
Khan, S., & Wald, J. K. (2015). Director Liability Protection, Earnings Management, and Audit Pricing. Journal of Empirical Legal Studies, 12(4), 781-814.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
Kumar, R., & Sharma, V. (2015). Auditing: Principles and practice. PHI Learning Pvt. Ltd..
Ma, N. (2016). Regulation of auditor change in Australia: audit pricing, reporting lag and equity valuation implications(Doctoral dissertation).
Maroun, W. (2017). Assuring the integrated report: Insights and recommendations from auditors and preparers. The British Accounting Review, 49(3), 329-346.
Samsonova-Taddei, A., & Humphrey, C. (2015). Risk and the construction of a European audit policy agenda: The case of auditor liability. Accounting, Organizations and Society, 41, 55-72.
Sanderson, J. (2014). Audit issues. SMSF Guide: Current Issues and Strategies for the Self-Managed Superannuation Funds Adviser, 377.
Soh, D. S., & Martinov-Bennie, N. (2015). Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal, 30(1), 80-111.
Townsend, S. R. (2014). The regulation of auditor ethical behaviour in Australia: the problem of conflicts of interest and proposal for structural reform.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Turley, S., & Zaman, M. (2014). The Corporate Governance Effects of Audit Committee. In Accounting and Regulation (pp. 133-159). Springer, New York, NY.
Wang, I. Z., & Fargher, N. (2017). The effects of tone at the top and coordination with external auditors on internal auditors’ fraud risk assessments. Accounting & Finance, 57(4), 1177-1202.
Wang, I. Z., & Fargher, N. (2017). The effects of tone at the top and coordination with external auditors on internal auditors’ fraud risk assessments. Accounting & Finance, 57(4), 1177-1202.
Werner, M. (2016, January). Process Model Representation Layers for Financial Audits. In System Sciences (HICSS), 2016 49th Hawaii International Conference on (pp. 5338-5347). IEEE.
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