ACC3200 AUDITING AND ASSURANCE ASSIGNMENT
Student’s Name
Ozford Institute of Higher Education
ACC3200: Auditing and Assurence
Professor’s Name
Date
Part A: MCQ Test
| Question | Answer | Question | Answer | Question | Answer | Question | Answer |
| Q1 | B | Q6 | C | Q11 | B | Q16 | D |
| Q2 | B | Q7 | B | Q12 | D | Q17 | C |
| Q3 | D | Q8 | C | Q13 | A | Q18 | B |
| Q4 | A | Q9 | D | Q14 | B | Q19 | A |
| Q5 | C | Q10 | D | Q15 | B | Q20 | C |
Part B, Critical Thinking
Financial Accounting And Financial Report Auditing
Financial accounting entails tracking of the company’s financial transactions while adhering to standardized guidelines in recording, summarizing, and presenting financial records to inform financial reports or statements like income statements or balance sheets.
On the other hand, a financial report audit entails the process of examination of a company’s financial statements and accompanying disclosures by an independent auditor with the key aim of evaluating the right financial position of the company.
2 Responsibilities Of Directors In Preparation And Publication Of Financial Statements
Directors play critical roles in ensuring that the company’s financial statements are accurate at all times ad that they represent the actual state of the company. A among other fundamental functions, the directors of the company play towards preparing and publishing the company’s financial statements involves the following:
Directors play a crucial role in ensuring that proper accounting policies are applied towards recording, summarizing, and presenting company financial transactions
Directors provide the presentation of the entity’s financial information in an appropriate, comparable, and comprehensible manner.
Another critical role in which the director’s play towards preparation and publication of financial reports includes assessing the entity’s ability to continue as a going concern for the best interest of both the company and all key stakeholders.
Responsibilities Of Auditors In Preparation And Publication Of Financial Statements
Auditors are undoubtedly the critical component towards the generation and validation of the entity’s financial reports. Auditors have several responsibilities towards the preparation and publication of financial reports and among them includes the following:
Report various matters regarding the audit to the audit committee. The auditor’s responsibility is to identify and assess the entity’s financial reports’ risk of misstatement, whether due to design or error, and reports them.
Evaluates overall exhibition format and components of the financial reports while ensuring they relay underlying disclosures and transactions, giving an accurate and fair view of the financial statements.
Evaluates all accounting policies, procedures, and reasonability of accounting estimates and related disclosures by the directors.
3 How Information Gap And Communication Gap Contributes To Expectation Gap
The expectation gap refers to the difference between what consumers of financial reports and the public think are the auditors’ roles and what auditors know and understand are their responsibilities.
The information gap is the difference between the information of corporate financial information users understands is needed to make informed investment decisions and what is available to them through audited financial statements. In this context, what users of corporate financial information believe is required to make informed decision forms the basis of their belief regarding auditors’ roles and responsibilities and eventually contribute to the expectation gap.
On the other hand, the communication gap refers to the difference between technical guidance auditors follow in reporting audited financial statements and the perception of the users of financial information regarding the auditing standards. Auditors develop and follow technical guidance when writing financial statements, whereas the financial statements users hold different opinions concentrating most on what they deem useful.
4 Essential Professional Attributes Concerning Auditing
Dependable, the ability to keep to schedule and meet deadlines
Communication, be assertive, and have people skills with the ability to communicate when called upon convincingly
Integrity, being straightforward and honest in all professional and business relationships.
Objectivity, avoid being biased, have a conflict of interest or undue influence in all business and professional environments.
Professional behavior, complying with relevant laws and regulations while avoiding anything that discredits the profession.
5 The Role of AUASB and the Reasons for Being an Independent Body
Auditing and assurance standards board, AUASB is an independent commonwealth non-corporate entity of the Australian government tasked with developing, monitoring, and issuing auditing and assurance standards.
The entity is independent so that it can provide sound public-oriented auditing and assurance standards that are critical in reinforcing the credibility of auditing and assurance processes for those who use financial information.
Role of ASIC And Its Effects To Auditors
Australian Securities and investment commission (ASIC) is tasked with regulating companies, financial services, and enforces laws with the critical objective of protecting Australian consumers, investors, and creditors.
Raising the audit profession, the oversight role helps in maintain and raise the standard of conduct in the auditing profession
Auditor independence through the administration of Corporations act works to instill the independence of auditors
Audit quality is ensured through the issuance of legally enforceable auditing standards
6 Threats To Auditors Independence
Self-review threat this entails when auditing own work or work done by colleagues from the same company. For example, when preparing financial statements for XYZ company and concurrently serving as an auditor.
Familiarity threat is also a threat to auditor’s independence, and it usually happens when the auditor is too close and familiar with the directors, management, or employees of the client company. For instance, XYZ company has been audited by the same auditor for the past seven years. The auditor has a good rapport with the directors, employees, CFO, and CEO and regularly hangs out with them. This may impair the auditor’s objectivity in hisher roles.
Intimidation threat, this entails when an auditor is intimidated by directors or management to the extent of impairing his/her objectivity. For example, XYZ company is unhappy with the audit report and threatens to outsource for a new auditor for the next financial year, XYZ is the biggest client to the auditor, and for fear of losing business, the auditor will most likely issue an audit report that pleases the company hence impairing his/her objectivity.
Self-interest is a threat to an auditor’s independence in the sense that an auditor holds a direct or indirect financial interest in the company. An example of this is when an auditor is preparing to audit XYZ company financial statements for the 2020 financial year and the audit fee for the 2019 financial year is yet to be settled. The auditor will be most vulnerable to temptations to prepare a favorable report that allows the company to secure a loan to pay outstanding fees
Advocacy threat occurs when an auditor is involved in promoting the client until where his/her objectivity is compromised. For example, an auditor plays a critical role in selling XYZ company, and concurrently serves as an auditor for the same company. The auditor may be tempted to issue a favorable report to increase the sale price of the company.
7 The Role And Function Of An Audit Committee
An audit committee is a subcommittee established by the board of directors and powers delegated by the board to oversee all financial reporting and disclosures, internal systems control, and compliance with laws and regulations.
It is the audit committee’s role to appoint, compensate, and play an oversight role over the external auditors’ work.
The audit committee reviews the audit results with the management and external auditors regarding matters needing to be communicated under acceptable auditing standards.
The audit committee reviews significant accounting and reporting issues and professional and regulatory pronouncements to understand the financial reports and statements’ impact.
How Audit Committee Can Be Used To Improve Corporate Governance
Audit committees are essential in overseeing internal systems control and adherence to laws and regulations. Therefore, the committee carries out checks and balances on the company’s control processes and evaluates compliance with professional and regulatory pronouncements.
The audit committee reviews and approves audit plans, staffing, and insights into the organization’s audit plan. The committee regularly meets with internal auditors and management to get in touch for periodic reviews.
8 Sufficient Appropriate Evidence and Factors Influencing Reliability of Audit Evidence
Sufficient appropriate evidence is said to have been achieved when the auditor lowers audit risk through adopting audit guidelines to a level that enables the auditor to make commendable inferences that auditors opinion will be based upon
Sufficiency is the measure of quantity evidence and must be enough to be used and considered by the auditor.
Appropriateness entails measuring the quantity of audit evidence appropriate or relevant and reliable in the given set parameters.
Factors influencing audit reliability
Verifiability entails how well the information can be verified if there are supporting documents such as official receipts with OR numbers, particulars, dates, and company names.
This is evaluated based on the independence, objectivity, and internal control strength of the information provider.
Technical procedures are used to obtain information such as sampling techniques and evaluation of how effective they are.
- Components of Audit Risk Model and Detection Risk
An audit risk model is a model dividing risk that has to be managed in an audit into three essential components.
Control risk entails the risk of material misstatements in the financial statements arising due to the absence of failure in the operation of relevant control systems.
Inherent risk occurs out of an error or omission a financial statement due to factors other than internal control systems failure.
Detection risk refers to when an auditor fails to discover significant problems unintentionally and ends, creating a report that paints a good picture.
Detection risk indiscriminately affects all audit reports, and it is impossible to reduce this risk to zero because it is impossible to guarantee that an audit has discovered all significant problems within the organization. External auditors may often miss red flags since they may never realize or understand the problem’s magnitude or note if something wrong was being done, making it challenging to reduce this risk to zero.
10 Judgment of misstatements
Materiality is a fundamental audit concept both in theory and practice. The idea of relevance states that information is material if its omission or misstating impacts decisions consumers of financial reports make based on a specific entity’s financial report.
The judgment of misstatements is dependent on how it will influence the decisions of users of financial information regarding a specific entity. Therefore, you must document all initial material decisions.
Strive to understand and test all internal controls unique to specific opinion units and accumulate unidentified uncorrected misstatements.
Factors affecting the identification of an appropriate benchmark
Existence of items which the attention of financial statements users of a specific entity tends to focus
Critical elements of the financial reports such as assets, liabilities, revenue, equity etc.
The sector and economic surrounding where the entity operates and the life cycle of the given entity
The structure of ownership of the entity and how it is funded
PART C: Critical Thinking
Breach of Fundamental Principles of APESB Code of Ethics
Confidentiality is a fundamental principle that entails respect for the confidentiality of information acquired due to the professional and business relationship, and therefore, such information is not to be shared with third parties without proper and specific authority. John shared this sensitive information to Sarah, who eventually took personal advantage of the story. John grossly violated the fundamental principle of confidentiality.
Another fundamental principle that John breached is objectivity. This entails not allowing bias, conflict of interest, or undue influence from others override professional or business judgment. Being too close to Sarah may have had a disproportionate impact that led to his disclosing such sensitive information.
Integrity involves being straightforward and honest, all professional and business relationships. John breached this principle as disclosing such sensitive information without express authority is dishonesty and unprofessional.
Professional behavior is a fundamental principle that entails complying with relevant laws and regulations. It was clear that John disclosed to Sarah was confidential, and by failing to treat it as such, John acted in breach of this principle.
Professional scepticism
Professional scepticism refers to the attitude of being inquisitive and keen to conditions that may point to possible misstatements due to error or fraud and critical analysis of evidence
It is essential to consider whether the chief finance officer of Safe & Dry limited acts with integrity and if there exist any matters that affect professional scepticism, such as the ethical threat to objectivity.
It is essential to be sceptical at the audit planning stage when performing risk assessment procedures by declining face value explanations and instead of obtaining corroboratory evidence for each cause.
When obtaining information, challenge the management, particularly on complex and subjective matters and those requiring a degree of judgment. Most importantly, consider the reliability and sufficiency of the evidence, particularly where there is a fraud.
Finally, evaluate evidence critically and check out for contradictory evidence that may undermine the collected evidence’s sufficiency and appropriateness.