In this assignment, a case study will be discussed upon two questions that are based on service provided to customers. Different case scenarios of both cases analysis have been done and based on that relevant justifications have been provided. So, it can be said that two questions have different ways to define but it is clear to understand that some are about auditing basis and some of those are IT computer basis (Knechel & Salterio, 2016 p.78). Here for the first question, a computer manufacturing company and its inventory issues related problems that should have been analysed regarding auditing standards and their applications. On the other hand, the second case scenario deals with the analysis of two company’s collaboration to make positive increase their productivity. Both the case scenarios have been analysed based on audit procedures that need to be taken to control any sort of future risks to their projects.
The auditors apply a method to calculate to see that the inventory cost and financial statement is balanced or they are the same. This method calls an inventory audit. It always follows a general way procedure of auditing(Graham, 2015 p.21). It is been followed always by the auditors that the figure mentioned to them as inventory price will get respectively correct to them self. Until they recognise the figure as a correct amount they will not believe in a given figure. Here are four procedures of inventory auditing discussed briefly below -
Cut off - Auditors always follows that how efficiently a warehouse keeper keeps his countings for every item even at the time of physical count of inventory.
In ASA 701 Communicating Key Audit matter, the main aim is to represent Australian equivalent in auditing standards in independent auditing report. Auditing standard ASA 701 communicating key audit matter to every independent auditor had been made by The Auditing and Assurance Standards Board (AUASB). There has been situated in section 227B and section 336 in the Australian Securities and Investments Commission Act 2001 and Corporations act, 2001 respectively(Hall, 2015 p.65). Applications as this act followed by auditors are applicable in such situations -
An audit for any of such half-year or financial full-year report in a financial year according to the Corporations Act, 2001.
Audit of a statement of financial report of a certain or current period is the most significant for those matters that have been taken a type of personal judgement for any of auditing report. This type of auditing reports has been always related to some key audit matters that have occurred during a certain period or the current period(Jabri, 2017 p.68). This key audit matter standard allows reflecting the communication related to the auditing report even with its form to communicate with such content and auditors judgement to an organisation. A performance about the audit to perform better transparency by the auditor's report communicative value has been for the enhancement of the purpose of communicating a key matter of audit (Griffiths, 2016 p.98). One can say the definition of Key Audit Matter is the way of an auditor’s judgement related to that financial report during assessment year's correct or significant records taken from an organisation’s books. Key Audit Matter can relate with communicated matters selected by an auditor from an organisation’s governance. This can indicate the relation of communication between governance reports and auditor's independent judgment report (Lusk & Halperin, 2016). Regarding this, it can also be an important report for that organisation that communicates and gives their all recorded entries from their books of journals or ledgers or anything else.
Key Audit Matter has been more effective when an independent audit report reveals every minimum important point to this report. This effectiveness gets a manner of increase as the auditor's independent report included of all internal or external matters related to the organisation make a result analysing the financial report (Blouch et al, 2016). These types of reports are collaborated with the given information from governance of company and given financial records. Though a company's governance gives wrong information to any auditor then that auditor has to check all given information properly as per instructions are given by the government (Abuaddous et al, 2015). First auditor's independent report that includes all the content about key audit matters has been revealed as per 31st of a march of any year ending. After these reports, a new assessment year has starts to make or arrive a new opportunity to both auditor and governance for communication to give again related reports regarding their financial statement. Though previous report had been better for company then a new report will make more effect on the financial statement of governance. It is also better for an auditor to analyse a well informed financial statement instead of a false report to analyse. The Key Audit Matter defines limited matter to its significance in current or previous year, where the auditor's reference has been an audit opinion in a financial statement as a presentation of comparative numbers.
A process of substantive audit process or procedure is a step that creates evidence of conclusion regarding the five assertions of asset that includes completeness, rights, disclosure, existence, and valuation of assets and financial statement’s accounts. As a substantive process qualifies enough documentation to competent with another auditor who can continue with those documents with the same process and make the same conclusion as per those legal papers(Greitzer et al, 2016). Substantial performance has always been performed by an auditor because he only can detect the faults done by own or from another auditor (Glazer, 2016). Though an auditor makes some misstatements into annual financial report then it can be checked out by an auditor because it is common to him to detect a little significant problem from a huge statement of annual financial report to analyse (Carlstedt & Jacobsson, 2017). An auditor, who is observing all the assertion of validity according to company's fixed assets that can be conducted an observation of physical assets or tangible than a test to evaluate all tangible assets to see that all records are accurate and after investing is there an impairment of assets.
In relation to the risk which has been witnessed pertaining to intellectual property there are several methods that can be incorporated to mitigate these risks. It is quite significant for the legal advisor present in Shimmer Pty Ltd to bring in substantial understanding of the IP aspect to different individuals present in both the organization. The risk which is introduced into the organization needs to be understood and given significance. The incorporation of substantive procedure for managing the risk will relate to valuing the IP as an intangible asset which is set by Australian accounting standard (Glazer, M., 2016). Different organization mentions their tangible assets into their IP but in the case of Shimmer it has been witnessed as a key introduction of their secret formula as an intangible asset which leads to less risk pertaining to business.
Communicating with key audit matters in the auditing report from these accounting standards, it always deals with the responsibility of an auditor. It indicates to the communications done by an auditor and contents of communication in the auditor’s report and it is intended to auditor’s personal judgement report. The communicative value of auditor's report has been tried to enhance the communicative way to key audit matters performing a provision of better delivery of annual audit report and annual financial report. Communicating key audit matters are been intended to the users who provide an annual financial report. It also helps in summarizing additional information for a report to fulfil necessary requirements of various auditors regarding their professional judgement. Financial strength of a business organization can be easily determined that can help in taking necessary decisions regarding investing activities in a business. Profit generation and its application for various associated members of the organization can be easily estimated based on an analysis of audit reports prepared by external and internal auditors.
New International Standard on auditing (ISA) ISA 701, is a big change in standard of Auditor Reporting. The decision of auditor to communicate on key audit matter in report of auditor is applied by ISA and also to financial statements of an entity (Yan, Moffitt, and Vasarhelyi, 2017, p. 320). ISA is also responsible when auditor tries to frame laws and regulation for counting on key audit matters. So it is relevant to different practitioners who also include small and medium sized practitioners (SMPs) (Omolaye. and Jacob, 2017). Auditor’s judgments are taken into account so as what should be communicated to auditor’s report and what should be the content and pattern of such communication (Nwaobia, Luke, and Theophilus, 2016 p. 230). Key audit matters are communicated to increase value of communication of report of auditor by giving transparency on performance of audit. Key audit matters refers to judgment which is professional in nature, were important for getting audit’s financial report of current period (Lusk and Halperin, 2016 p.113).
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