Assurance engagement is a subject matter that is related to a person who possess relevant knowledge as well as qualifications and who can provide assurance on a particular subject matter all the other users other than the people who are related with the subject matter. There are two type of assurance provided by a professional and that includes limited assurance and reasonable assurance. The party which is related to the subject matter is called as responsible party because it has the responsibility to provide all the information to provide assurance to the professional. The main role of an assurance engagement is to build strong confidence in the users for the details given by the responsible party (Pounder, Stoffell and Choi, 2018).
It is the responsibility of the audit manager of Overseas Explorer Ltd (OEL), to carry all the types of assurance engagement activities related to the financials belong to the target company Local Pty Ltd (Local) that will be responsible to provide different assurance levels.
The major responsibility of an auditor is to create an analysis of financial reports of the company and find out a conclusion. It is necessary to get every relevant audit evidence before declaring the conclusion that can help and support the conclusions. It is not possible for an auditor to provide 100% assurance for the financial reports that there will not any misstatement. The only assurance that can be expected is reasonable assurance. IN the case of unqualified audit report, the auditor always mentions that there is a true and fair view of the financial statements. It can never be seen that auditor reports that financial statement is completely true and fair. The reason behind this is the inherent risk that is always there in any type of audit. But this does not make auditors to take the audit in an easy way. It is important for an auditor to perform audit only according to the correct riles and pre-defined auditing standards. Auditor always try to avoid any negligence while conducting audit and try to do it with professional way (Irving and Walker, 2012).
According the audited financial statements, Data Ltd had the loan sanctioned by Better Bank Ltd when the loan got disbursed, Data Ltd started facing many difficulties in conducting the business and then it resulted in the process of liquidation. Afterwards, Data Ltd. was out of funds in order to repay the loan to Better Bank (Maroun, 2018). In the current scenario, auditor of data Ltd. Is not responsible and liable because it is not his primary responsibility to find out upcoming fraud by data Ltd. An auditor has the bandwidth to only know about the details that are disclosed to him by the company. It is not expected from an auditor to find out the misstatement related to the information that has not been provided or disclosed to him. With add on, the management of Data Ltd is only liable for the difficulties they are facing in the business and hiding of facts from the auditor (Hoos, Kochetova-Kozloski and d'Arcy, 2015).
1. According to the auditing standards and principles, it is the responsibility of the auditor to take overall care about the audit function. Every auditor has an independence state of mind and because of the same auditor provides an unaffected as well as unbiased assurance related to the financial statement. According to the Apes 110, an auditor is not required to engage in those affairs that may result in compromise. Many factors create an impact on the independence of auditor in a negative way. Such factors are the threats to the auditor’s independence. Below is the discussion of the threats of independence of Hall & Associates.
2. The board of Computer Games Ltd. (CGL) has clearly showed that the market value of the shares is equivalent to the audit fees for the year 2013. Because of such indication, Hall & Associates may gain the level of financial interest that is comparatively more than the market value of shares provided and the same involve more fees. According to the Paragraph 100.12 of APES 110, the financial interest of the business of the client is called as the threat of self- interest (Zhou and Zhu, 2012).
• It is recommended to the auditor to consult with the other professionals who charge with the governance.
• In case of unresolved conflict, vacate the position of auditor.
• Create some plan of action after ascertaining the results of threat.
3. There is an indication by The Board of CGL regarding the plan in order to engage Hall & Associates if they disclose the quick asset ratio in their audit report. This is called as Intimidation threat where Board try to stop auditor to perform auditing activities with the concept of objectivity (Doroshenko, 2014).
• In case of requirement, changes in the engagement terms.
• Involve experienced and senior people in audit team.
• Include consultation with some other professionals (Farooq and de Villiers, 2019).
• In case of unresolved conflict situation, vacate the position of auditor.
4. Hall & Associates provided assistance to CGL in the process of redesigning the software in order to ensure all the adequate internal control on the sales. As Hall & Associates is a part of audit, they are required to measure the level of internal controls of CGL. So, the auditors need to review the work done by them. When there can be the chances where auditors may give biased opinions. it is known as Self- Review threat (Caron, 2019).
• Including an auditor who is not a part of the firm.
• Performance with the quality of independence.
• In case where conflict stays unresolved, the auditor’s position is vacating (Bhaskar, Majors and Vitalis, 2019).
There are three types of audit risks that provide the auditors an inappropriate assurance regarding the financial reports in the case of material misstatements.
1. One of the inherent risks is that sometimes things go out of control in the company and may result in material statement in the company’s report.
2. There are risks that comes up when internal control system stopped work efficiently in order to detect the misstatements are known as control risks.
3. Some risks arise when auditor is unable to detect misstatements because of inefficient work practices are known as detection risk.
i. The responsibility to handle the funds is of the treasurer. It was observed that the financial controller od Sampson seems least interested in earning profits by conducting foreign exchange transactions as they have limitation and inherent risk.
ii. It also involved inherent risk as the financial controller may be failed to know the right provisions. Financial controller may fail in such case as there was an expectancy related to the redeployment and disposal of assets that is not possible to get complete by year end. So, there are high chances of inappropriateness of the financial controllers.
iii. Sales bonus is based on the sales on individual basis and needs a new control system too. Sales figures play a major role, so it is important to record accurate sales in the financial systems and there might be a chance of system failure as well. It reflects the control risk.
iv. There might be the case wen software stop showing the correct closing balances of previous years as the current year opening balances. So, the training is needed t work with the software, and it includes control risk as well as inherent risk (Andrikopoulos, Bekiaris, Vadasi and Zounta, 2015).
v. Making a single person responsible for everything is a trouble making decision and there is no concept for checking the control system. So, there are chances of failure of control system and leads to failure of detecting misstatements. Sometimes, auditor may fail to detect misstatements because of the lack of system administrator.
Ratios are very helpful in understanding the financial condition of the company. With the help of these, the company’s financial performance can be assessed as well as compared.
Below is the analysis of different ratios of Nova Ltd.
Andrikopoulos, A., Bekiaris, M., Vadasi, C. and Zounta, S., 2015. International Collaboration in Auditing Research: A Note. International Journal of Auditing, 20(1), pp.66-71.
Bhaskar, L., Majors, T. and Vitalis, A., 2019. Are Auditor Negotiations Impaired During Depleting Times? The Importance of Client Characteristics and Auditor Skepticism. SSRN Electronic Journal,.
Caron, F., 2019. Obtaining reasonable assurance on cyber resilience. Managerial Auditing Journal,.
Doroshenko, T., 2014. Parallel tax accounting - just about the importance. Auditor, 0(21), pp.95-101.
Farooq, M. and de Villiers, C., 2019. How sustainability assurance engagement scopes are determined, and its impact on capture and credibility enhancement. Accounting, Auditing & Accountability Journal, 33(2), pp.417-445.
Hoos, F., Kochetova-Kozloski, N. and d'Arcy, A., 2015. The Importance of the Chief Audit Executive's Communication: Experimental Evidence on Internal Auditors' Judgments in a ‘Two Masters Setting’. International Journal of Auditing, 19(3), pp.166-181.
Irving, J. and Walker, P., 2012. Auditor Resignations and the Importance of Monitoring Client Acceptance Risk. Current Issues in Auditing, 6(1), pp.P7-P11.
Maroun, W., 2018. Modifying assurance practices to meet the needs of integrated reporting. Accounting, Auditing & Accountability Journal, 31(2), pp.400-427.
Pounder, J., Stoffell, P. and Choi, E., 2018. Transformational classroom leadership and workplace engagement. Quality Assurance in Education, 26(3), pp.333-342.
Zhou, G. and Zhu, X., 2012. Client Importance and Auditor Independence: The Effect of the Asian Financial Crisis. Australian Accounting Review, 22(4), pp.371-383
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