Audit, Assurance, and Compliance
Week 1
Required:
Indicate the type of engagement that will most likely be undertaken for each of the three tasks andthe level of assurance to be provided. Explain your selections. (10 marks, maximum 250 words)
Regarding the audit of management accounts for the period ended on 30th June 2017, will be viewed as audit engagements where the auditor sums up all company details and clarifying their accurate recording. For an example of records are, accounts payables, revenue received fixed assets, capital invested, and others. This allows precise recording of entries and checking their equity corresponds regarding the company’s transactions and any exact amount changes that may be required.
An auditor needs to carry out a “Vendor due diligence,” for all the activities performed from the negotiating day to when the deal was closed. This action gives business assurance and lawful characteristics of Local Pty Ltd. This protects the participants if not all legal requirements adhered to; in case of any direct and indirect tax accusations that may be uncleared and when the company in question has uncleared liabilities. By checking on these issues, the transacting partners can arise on an agreement on how to handle the grievances and, at the same time, have a suitable buying price.
The audit is required to create a purchase price adjustment detail, to get the financial report of company possession as at 30th June 2018. The acquisition detail contains a break of the buying cost and other precise money adjustments necessary in establishing the company’s goodwill and on-physical assets gained on the business worth. Besides, any operating equity changes or possibilities and appropriate review necessary; is determined by the purchase price adjustment report.
Week 2
Required:
Outline a defense for your audit firm to any legal action taken by Better Bank to recover its loss. (10marks, maximum 600 words)
The auditor’s reveal is the evaluation of equal and actual review on a company’s monetary records created. The report presented to the company for the period ended 20th June 2018. It was unedited insinuating the financial records demonstrating the actual and fair review and is accurate in all substantial aspects. Auditors’ role is very significant as it entails safeguarding a company’s interest form fraudsters, identifying any problems in the financial technics used, and identifying possible financial risks. The professional accounting codes demand the auditors perform their duties with diligence.
In this case, the best action in facing the claims is to counter check the audit results were achieved professionally in diligence methods, including expert critics and as required by the Australianauditing standards. Audit firms should have a reliable resolution system; yet, Better Bank may face challenges in establishing their case on duty of care. According to the law of tort, activities for damages are dealt with by the help of a third person. However, in Australia, claims in which liability to third participants will be recognized are very minimal and arise when the auditor is acknowledged to have been negligible.
The auditor’s appropriate attention implies that he must have the required competency to determine accounting transactions. The auditor is obligated to use his knowledge with proper reasoning and honesty. It also shows that the auditor performs his duties accordingly and with good intension, and he is supposed to take responsibility for his mistakes and necessary actions rather than for a few judgemental misconceptions. With these requirements in mind, and are fully met, the auditor should not be held liable for any liabilities occurring to the situation participants.
The auditor of the Data Company Ltd finished and presented his audit results on 30thJune 2018. The company continued operating from that month, and acquired capital in August be known to the auditor during the presentation of the audit details. In the rising case, it is not shown any likelihood of obtaining the funds during the audit process to its conclusion and signing. Hence, in the audit firm’s defense, it can claim that:
- The auditor should take responsibility for ensuring the financial record and information shown clearly are truthfully according to the determining processes. But, it is not the auditor’s responsibility to face repercussions for future conceptions that arise after the audit report is concluded and presented.
- The auditor is not liable for mistakes that arise from unsuitable ventures by their clients.
- The auditor’s work ones completed the conclusion, and the signing of the audit report is done. Therefore, he is not liable for ensuring the company’s viability and its long-term activities.
- There are usual occurrences that counter mistakes in a company’s financial record and are retained even with the auditor’s compliance with all the principles provided by the accounting standards. These risks are referred to as audit risks and cannot be accused of their fault.
If the company had informed the auditor of their intention of taking a loan with the Better Bank before the audit’s conclusion and signing, the auditor would have adjusted the audit information accordingly and review the managers’ procedures on loan spearheading possible risks from occurring. This involvement would have saved the company some challenges and prevented them from liquidation.
Week 3
Required:
- a) Identify and explain three separate critical threats to Hall & Associates’ independence that may ariseunder APES 110. (3 marks, maximum 100 words)
One of the risks to Hall & Associates’ that emerged is unethical and unlawful behavior. When the board requested ignorance of its loan agreement by not disclosing its ratio status, it broke the ethical code and by bullying the audit firm if they included the ratio status in the report.A clear declaration of its financial ratios, making them less honorable. The third threat identified was less regard for the collateral stake bearers. The CGL’s board members were obligated to share the company’s ratio state as agreed in their contract and also information on their capital challenges.
b)For each independence threat identified in a) above, describe the course of action Hall &
Associates need to take to ensure compliance with APES 110. (7 marks, maximum 250 words)
Following APES 110, the Hall &Associates should include all entities in their auditing and present a transparent report. It is demanded of them to act morally and ethically while conducting their activities. The firm should also not quaver to the board members’ inducements as they are doing the right thing, which, if compromised, would lose their audit practicing license.
The audit firm should be more cautious and enhance their professional evaluation, being attentive to emerging details and adjustments in events and data. The Associates should also utilize certain features from various participants in the company. Supporting bodies to a company is vital for they aid in its growth, for instance, by offering capital or innovation ideas, and should be kept on the loop about the company’s performance. Hence, Hall & Associates should present its final reports to all involved parties for decision making.
Hall &Associates should report CGL Company to the Auditing and Assurance Standard Boards of their behavior and inducements. Doing so eases future worries of audit firms dealing with them and knows how to carry themselves while dealing with the company’s board members. The Associates should also present a detailed audit report and experience to the ASX Corporate Governance Principles and Recommendations. The ASX principles demand the CGL Company observe their codes, and for example, the company should practice following the law and responsible for their actions; the principles also demands effective communication of operations and performance to all concerned holders in a transparent manner.
Week 4
Required
Explain how the components of audit risk (inherent, control, ordetection risk) are affected. (10 marks, maximum 250 words)
Through the employment of a treasurer, the financial monitor realized the control risk. Control risk is significant in an auditing process because it safeguards wrongly stated monetary details. Through the treasurer’s activities, the company realized profits from its transactions, which would have otherwise not be discovered.The creation of the network administrator’s position is also another auditing measure of risk controls. Accountants are positioned best in performing accounting and financial roles; thus, misplacements of data would have occurred without their knowledge. With the new position, the system manager is professionally suited for the job leading to fewer mistakes and resulting in risks control in the storage and information improvements.
The introduction of a unique standard general ledger software package is an inherent risk to the company. The network package is new technology advancement in the company, which needs fewer adjustments and may cause the absolution of the company’s checklist faster than in other companies. The expected closing provisions from New South Wales’ non-performing factory, also presents an inherent risk. Sampson is closing the factory due to its poor performance, indicating uncertainty in financial data that may be submitted to meet their expectations.
Detention risk occurs when Sampson implements bonuses for its sales employees. Detention risk is an auditor’s opportunity to miss documents supporting a transaction account in a financial record. If the rewards were to be initiated, they would appear on the deduction of the gross sales of every sales staff target achieved records. Hence, auditors checking the employees’ sales records for the transaction would miss it unless they check on specific records of employees to realize the risk.
Week 5
Required:
Provide four (4) possible explanations for the results for the various ratios for Solar Ltd and outlinetheir implications for the audit. (10 marks, maximum 250 words)
The analysis of a ratio carried out is to determine a business’s finances and the pattern of its performance for a particular time. Rates are essential techniques implemented by the company to establish the monetary fluidity, accumulated arrears, and the business’ lucrativeness and its niche in demand about its competitors.
The inventory turnover ratio indicates that the company has utilized its assets to produce substantial output sales. The gross margin shows the effectiveness of the company’s manufacturing. Net profit shows that the company’s management is efficient as it indicates the company is making profits. The current ratio indicates the company’s potential to offset its debts. In this case, it shows that the company can relatively afford to clear them if demanded. Finally, the company’s quick asset ratio recognizes the business’s capacity to settle its immediate commitments. The ratio is slightly high, meaning the company needs to work on its receivable accounts payments.
Ratio evaluations and comparisons present potent tools that much help the auditors in contemplating the company’s operations over a specified period. Auditors use ratios and their different comparisons to distinguish the correct statements or wrongly-placed accounts statements and identifying the risk areas that might require more attention and resources during their activities. The ratios also aid auditors in establishing the consistency of the monetary records in their accounts knowledge and ensuring that their auditing purpose regarding the financial records achieved.