AUDIT AND REPORT ON FINANCIAL SYSTEMS AND RECORDS (SM23)

WEEK 1

1. Distinction between Australian Accounting standards and Australian Auditing Standards

Australian Accounting Standards have been identified as the accounting standards laid down by the Australian Accounting Standards Board (AASB) in the country in order to maintain the international reporting standards set out by the IFRS and IASB. Further, the accounting standards have been developed for the purpose of recognizing, measuring, presenting and disclosing appropriate transactions in the financial statements of an entity (www.auasb.gov.au, 2017). Moreover, the accounting standards have been identified as ‘technical pronouncements’ which has been prepared to put forward certain accounting disclosures and measurement requirements with respect to certain material events or transactions. In addition, the accounting standards create an impact on the process of preparing and presenting the financial statements on an entity.

On the other hand, Australian auditing standards which is laid out by the ‘Auditing and Assurance Standards Board’ in Australia have been identified as the standards that are required to be adhered by the auditors in providing assurance and auditing services to the clients. In addition, the auditing standards have been prepared for the maintenance of reliability, transparency and timeliness of the financial information provided to the users of the auditing services.

Assignment

A) It is observed that in multiple ways the services offered by the public accounting firms in relation to the assurance services and the services of the Consumers Forum is similar to the large extent as both the services or facilities of the two bodies have been designed or structured with the aim of bringing improvement in the decision making power of the individuals and as well as the management (Brown, 2011). In addition, both the services and facilities ensure and enhance the quality of information provided to the decision makers or users.

B) Through the study it is observed that the concept or idea behind information risk for the people using the financial statements and the purchaser of motor vehicle is quite similar. Both the individuals are threatened with the risk of unreliable information and inappropriate decision making. The purchaser of the motor vehicle is concerned about unreliable information provided with respect to the manufacturer or dealer of the vehicle.

C) Comparison of information risk faced by purchaser of motor vehicle:

• Seclusion of information: The individual purchasing the motor vehicle is expected to face information risk in the form of non-availability of information with respect to the dealer or manufacturer of the product (Christopher, Sarens & Leung, 2009).
• Biases in the attitude of provider: As the motive of the manufacturer is not clear therefore chances of biases exists.
• Large amount of data: Due to the presence of huge amount of data the purchaser of motor vehicle is confronted with information risk.
• Complexity in exchange transaction: Due to the nature of complex transaction the purchaser is confronted with information risk.

D) Ways by which information risk can be reduced:

• Verification of information by user: In order to reduce information risk both the parties that is the user of financial information and the purchaser of motor vehicle is expected or recommended to verify the information personally.
• Sharing the news of information risk with management: Further, the user and the purchaser can reduce the risk of information by sharing the news of information at risk with the respective management of the entities (Xu et al. 2017).
• Evaluation of the information provided in the Consumer reports: Lastly, the users of financial information and the purchaser of the motor vehicle are recommended to reduce the information risk by availing information from the published sources in the form of accounting reports and consumer reports.

WEEK 2

1. Role of Auditing in Corporate Governance:

Through the process of corporate governance the companies undertakes the process of providing direction and control to the entity with respect to institutional systems implemented, ethical and accounting standards followed by the entity. Thus it is observed that with the implementation of auditing techniques the effectiveness and efficiency of an organization towards corporate governance is enhanced (Christopher, Sarens & Leung, 2009). As auditing promotes transparency, reliability and fairness of the financial statements and the operations of the entity therefore it helps in increasing the standards towards corporate governance.

2. The audit firm has the option of informing the client of the issues or problems faced by the firms and provide appropriate solution.

3. A. In this case it is a violation of the Corporation Act 2001

B. In this case it is a violation of the Australian Auditing Standards.

C. This case is a violation of Australian Accounting standards.

D. Through this case a violation of Australian accounting standards is depicted.

4. A. Independence among the auditors is essential as it helps in enhancing the services of the individual. Further, independence of the auditor helps the individual in providing actual opinion or view about the financial performance of the entity without being influenced by the client.

B. The auditors are required to follow the Australian auditing standards whereas the solicitors are required to abide by the laws and regulation provided by the government (Xu et al. 2017).

C. ‘Independence in appearance’ refers to the process of providing independence with respect to not so relevant or important facts whereas ‘independence in fact’ refers to the process of providing independence with respect to highly material events and information.

WEEK 3

1. Importance of acquisition of knowledge on client industry:

With respect to audit it is important for the auditor to gain information on the business of the client because it helps the individual in assessing the status of business of the client and maintain transparency through the audit processes (Deegan, 2012).

2. Relevant information for the auditors with respect to mortgage agreement:

• Information on parties to the agreement
• Effective date of entering or executing the agreement
• Amount involved in the mortgage
• Restrictions with respect to liquidity in the agreement
• Restrictions with respect to purchase consideration
• Specified interest rate
• Restrictions with respect to operations in the agreement
• Assets encumbered through the agreement

3. Audit documentation:

The purpose of undertaking audit documentation is to provide a written record along with the report provided by the auditor in order to support the representations made by the auditor in its report. In the audit documentation record, the procedures undertaken during the audit are specified along with the evidences collected by the auditor for the purpose of the audit (Xu et al. 2017). In addition, the conclusion provided by the auditor is supported by appropriate evidences through audit documentation.

Week 4

3. The difference between Assurance and Attestation Service:

In case of assurance, the practitioner makes a conclusion, expressing his views in respect to the assessment of the subject matter. On the contrary attestation service is the part of assurance. In attestation service evaluation of the main subject-matter is made which have been already conducted by a responsible party (Anderson et al. 2014).

4. Types of Audit:

Normally ‘Audit’ may be classified in five categories. These are briefly explained below.

Financial Audit: It reveals the financial control and reporting regarding performance of a company.

Operational Audit: It focuses on review and assessment of business performance.

Compliance: Compliance audit reveals the internal and external regulatory requirements.

Information System Audit: This audit helps in assisting technical operation, data center operations etc.

Integrated Audit: It includes overall examination procedures like financial, operational, compliance etc.

5. ASA 230: It is the auditing standard, deals with the legislative provisions. As per this standard, under special circumstances, after submitting audit reports additional audit work is essential to do.

6. Vera Crosden & Beryl Sykes, a medium-sized accounting firm: It is a good accounting firm provides audit service to the clients.

7. Basis Principles of Professional Ethics:

Integrity: Required, to be honest, and straightforward in the profession.

Objectivity: Compromisation of business judgement. Biasness, Undue influence must be avoided properly.

Professional Competence: Professional knowledge and skills must be maintained properly.

Confidentiality: Confidentiality is the essential part of ethics. For company purpose confidentiality must be maintained properly.

8. Audit Committee: It is the operating committee of board of directors. The board retains responsibility for outcomes and performance of the audit committee. Audit committee provides assistance to the board but they do not prepare the financial report or conduct any audit (Abernathy et al. 2015).

11. Three main reasons of auditors’ engagement in plan: There are several reasons behind engagement of auditors in plan. These are mentioned below.

·         In order to conduct the audit work accurately, auditors need to be involved in planning.

·         If the plan is not predetermined regarding audit work then they cannot do their work successfully.

·         In order to make the audit job in a systematic manner engagement in planning is essential.

12. Client Entity and Environment: For conducting Audit work client entity must be cooperative in nature. They will show their statements to judge the company performance correctly e.g. If any audit firm conducts audit of a business then the firm will expect that the business enterprise will help them properly.

13. Preliminary Analytical Procedures: It is useful for proper understanding to the auditor regarding business and proper planning for audit procedures. It is primary part of auditing. If it is not done properly then audit cannot be conducted successfully (Ye & Simunic, 2013).

18. Elements affecting Preliminary Materiality Assessment: Elements which are affecting the preliminary materiality assessment are discussed below.

·         Considering the omitted information very carefully.

·         Determining the timing, nature, and extent of the audit procedures.

19. All types of Risks in Audit: There are three types of auditing risk i.e. inherent risk, Control risk, and Detection risk.

·         Inherent risk is the risk of material misstatement creates due to error.

·         Control risk is the risk of failure of operation.

·         Detection risk is associated with auditor’s failure to identify the error.

Week 6

a) Confirmation request to the vendors with ‘Zero balances’

The auditors have to confirm the vendors about the zero balance of the company because the auditors try to provide the relevant information about the transactions of the company for this reason the auditor has to provide some relevant evidence about such transactions of the company with the Zero balance. However, the auditors do not use the Zero balance process while they provide information about the account receivable transactions because account receivable is an income for the company and the third parties have no interest with the income of the company. Therefore, there are no requirements for the auditor to provide the evidences to the vendors with Zero balance process (Saad & Hanif, 2014). 

b) List of several audit procedures

The auditors can use different procedures to do the audit job for a company. The following procedures are very important for the auditors to prepare a financial report for the company. The procedures are as follows:

A) The auditors can collect different documents to prove the transaction of the company provided in the financial statements.

B) The auditors can take the interview of the employees of the company to get some relevant information about the transaction of the company.

C) Auditor can use the journals and ledgers of the company to prove the viability of the transactions.

D) The auditors can also take the interview of the third parties to know the detail information about the transactions of the company (Bradford,  Earp & Grabski, 2014). 

Week 7

Question 1

Requirement a

According to the corporations act 2001 and code of ethics for professional accountants the company have to appropriate independency to the auditors in their job. The company has to provide the authorization to the auditors to access the relevant documents related to the transactions of the company. The auditors must have the authorization to access the previous year financial statement of the company to prepare the financial report of the company (Kordecki & Bullen, 2014).

Requirement b

It is illegal for the ABC company to influence the auditor to prepare the financial report of the company according to their desire. As the income of the stakeholders depend on the financial performance of the company.  The auditor has to reveal the actual financial status of the  company in the financial report to protect the interest of the investors and other stakeholders.

Question 2

The auditors also have to face some risk associated with their auditing job. The auditor can take some effective measures to avoid the risk of the auditing job. The proper maintenance of the documents help the auditors to avoid the risk associated with the  evidences of transactions(Budding, Grossi & Tagesson, 2014).