Friday 28 April 2017

Accounting and Auditing (SM22)

Auditing is an important activity associated with the financial accounting department of the business organisations. The organisations have to audit their financial statements by the auditors to proof the integrity and reliability of the financial statements to the stakeholders. Different stakeholders have different interest from the business organisations such as the investors try to calculate their income from the business organizations by using the information of the financial statements. The government tries to calculate the tax from the financial statements of the company (Zadek, Evans & Pruzan, 2013). The financial statements also provide some relevant information about the financial performance of the business organisations. The main focus of the following study is to provide some relevant information about the conduction of auditing program in the business organisations. The study also provides some relevant information about the responsibilities of the auditors and the process of discharging the responsibilities in the business organisations.   
i) In the first situation the outstanding interest expenses of the client is confirmed by the bank but not present in the financial statements. Therefore, the auditor has to present the interest expenses of the clients in the financial statements according to the AUS 502, paragraph 13.
ii) In the second situation the fair value of the land is recorded in the Director’s minute of the Messr contemn & Co. The auditor can use the Valuation management assertion as per the AUS 502, paragraph 13, to evaluate the accuracy of the fair value recorded in the  minute by comparing it with the market value (Brusca et al. 2016).
iii) In the third situation the auditor can use the measurement management assertion to examine the details of the lease agreement by which the senior management get the permission to drive four motor vehicles of the firm. These expenses have to include in the financial statements by the auditor to disclose the actual expenditure of the company.
iv) In the fourth situation the auditors can use the disclosure management assertion as per the  AUS 502, paragraph 13   to disclose the damage of $300000 water damage in the financial statements.
v) In the fifth situation the auditor can use the Existence management assertion as per the AUS 502, paragraph 13 to do the balance date adjustments for the clients in the financial statements.
vi) The auditors can use occurrence management assertion as per the AUS 502, paragraph 13 to include the occurrence of international purchase transactions in the financial statements of the company.
vii) The auditors can use the completeness management assertion as per the AUS 502, paragraph 13 to include the expenses of issuing visa card to the managers to entertain the employees on the behalf of the company because the inclusion of such expenses in the financial statements completes the auditing job of the auditor (Zeff, Radcliffe, & Gunz, 2014).
The annual closing stock of inventory of the company plays a vital role to reveal the status of the asset of the company in the balance sheet. The auditor have to follow some appropriate standards to count the annual stick of the company. Therefore, the auditors can assist in the counting of the closing stock because the company can increase the value of asset by high valuation of the stock acquired by the company. The auditors also do some market research to know the actual value of such stock in the market.     
It is true that the auditor can examine all the financial evidences to provide a clear opinion about the financial statements of the company but this is not possible for the auditor to achieve all the financial evidences of the company associated with the revenue and expenditure of the company. Sometime it is not possible for the auditor to generate the financial evidences to proof the truth of the revenue and expenditure of the company. Again, the auditor cannot meet the relevant people of the company to know the information about the revenue and  expenditure of the company.  In this situation the auditors can their experience to provide an appropriate opinion for the financial statements (Hayne & Salterio, 2014).
Tracing and vouching both are the processes by which the auditors test the truth of the transactions of the business organisations but the procedure of testing is not same in such processes of testing. In the tracing process the auditor first select the transaction documents and then identify the source of journal and ledger associated with such transactions. On the other hand, in the vouching process the auditor try to select the accounting journals and ledgers associated with the transactions and then identify the source of the documents that prove the truth of the transactions.    
There is a huge difference between the receipts of the documents for the third parties and the receipts of documents from the clients. The scope of the receipt of documents from the third party is narrow because the auditor only gets the informations about the transactions. On the other hand, the receipt from the client not only provides information about the transactions but also provide some brief knowledge about the journal and ledgers associated with such transactions. However, the truthness of the receipt of documents from the third parties is higher than the clients because the thirds parties have no interest on the financial performance of the company.       
The main objectives of the auditing program are to prove the truth of the transactions of the company to the stakeholder (Wang, 2017). The business organisations also try to maintain the integrity and reliability of the stakeholders on the financial statements of the company. Business organisations also try to attract mare investors in the company by preparing a audited financial statements in the organisation. Organisations have to follow some steps to conduct the auditing program in the company in an efficient manner. The organisations have to prepare and present all the documents associated with the transactions of the company to the auditor. The organisations also prepare the financial statements for the auditors therefore, the auditor can easily concile the information furnished in the financial statements with the documents of transactions of the company. Organisations also provide a proper freedom to the auditors to take the interview of the important person and analysis the documents of transactions of the company for the investigation purpose. 
It is difficult for the auditors to conduct the auditing program in the recurring engagement because the status of the business is changing continuously in every year. For this reason, the auditors has to investigate the financial transactions of the company of the previous years also to track the changes in the company. On the other hand, It is easy for the auditors to conduct the auditing program in the initial engagement because all the relevant documents of transactions are fresh and there is no need to track the changes of the company by the investigating the previous year's transactions documents.
The chartered accountant has no rights to take the responsibility of the installation of the computer system in the company. The chartered accountant can provide the suggestion of the computer consultan but for this purpose the auditors can not avoid to review the consultant’s work. It is against the ethics of the auditing job. The auditor has to support the consultant at he the time of the installation of the computer and provide suggestions about the all relevant software that can be applied to the production expenses of the company.   In this situation the chartered accountant violate the ethical rules of the auditing by taking the responsibility of the installation of the computer system.    
The following criteria have to fulfill by the auditors while preparing the working papers:
A) The auditor has to provide all relevant information about the transactions of the company such as date, time, and persons involved in the transactions, details of the company etc.
B) The auditors have to provide all relevant evidences associated with the transactions of the company while preparing the working paper. 
C) The auditors have to reveal all relevant journal and ledgers associated with the transactions of the company.
D) The auditor has to sign the working paper and provide the date in which the paper is prepared.

It is a serious breach of contract by the auditor because the auditor has to take the permit from the company to review the financial statements of the company. The auditing ethics also did net permit the auditors to review the financial statement of the company without permission. The auditor can do some insider trading with the information of the company. Therefore, it is highly prohibited to the auditors about the use of the financial statements of a company without permission.    
There are different kinds of risk associated with the auditor’s job. Therefore, the auditors have to maintain the all evidences of transactions of the company to avoid the loss of such documents from the auditing process because the client can ask the evidences based on which the auditor prepare the financial report. As the income of the investors and tax of the government depend on the audited financial statement of the company. Therefore, the auditor has to prepare the financial statements with an unbiased mentality. If the auditors try to conceal the actual financial status of the company therefore, the auditor can face some serious legal problem in the professional life (Hoang, Salterio & Sylph, 2017).   
Hire an auditor without contacting the old employer of the auditor is not a violation of a legal obligations but Morris has to inform her old employer about the joining in a new firm therefore, Morris broke the ethical rules of audit.  Morris has to submit the resignation letter to the old employer to join a new firm.
While the auditors can not generate appropriate evidence to justify a transactions of the company in this situation the auditors can ask some help from the third parties such suppliers, distributors, buyers for some appropriate evidences of such transactions. The third parties also provide some opinions about the transaction process of the company. Such relevant information from the third parties helps the auditors to prepare a proper audited financial statement for the company (Power & Gendron, 2015).
As a chartered accountant set up an insurance company is not illegal or not against the ethical rules of auditing but Bill set up the insurance company as a complement of the audit and tax services which is illegal according to the auditing law. Therefore, the government can cancel licence of chartered accountancy for the breach of contract.

The above study tries to reveal all the relevant information about the responsibilities of the auditors. The study recommends some suggestions for the auditors for conducting the auditing program in the business organisations in an efficient manner. The relevant standards and laws associated with the audit also be mentioned in the study.

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