Audit and Assurance: Understanding the Concepts and Procedures

Learn about the concepts and procedures of audit and assurance in this comprehensive guide. Understand the importance of audit credibility, the role of audit committees, and the impact of competition on auditor independence. Explore the different types of auditors and their responsibilities. Discover the procedures for addressing uncorrected misstatements and identifying going concern indicators. Gain insights into audit risk and the auditor's response to each risk. This guide is essential for students studying audit and assurance.

Audit
And
Assurance

Table of Contents
QUESTION 1...................................................................................................................................3
(a).................................................................................................................................................3
3....................................................................................................................................................3
4....................................................................................................................................................3
5....................................................................................................................................................4
B...................................................................................................................................................4
C...................................................................................................................................................4
3....................................................................................................................................................5
QUESTION 2...................................................................................................................................5
A. Procedures to be taken with respect to uncorrected misstatement:.........................................5
b. Going Concern Indicators:.......................................................................................................5
QUESTION 3...................................................................................................................................7
Interim Audit: ............................................................................................................................10
Final Audit:................................................................................................................................10
Procedure of Interim Auditing:..................................................................................................10
Impact of Interim Audit on Final Audit:....................................................................................11
REFERENCES..............................................................................................................................12

QUESTION 1
(a)
Audit credibility is about capability for external auditor, for their auditing activities for
behave for honesty, objectivity. Public views for integrity for audits which are focus more for
their interpretation for independence for auditor for their legit independence.
Audit committee: Audit committee shall comprise for the specific number for
representatives which are board for directors for corporations whose primary responsibilities are
assists for auditors for living independent for management for the business. i.e. committee should
assists auditor for their multiple audit conflicts for oversee these.
Size for the audit company: The significant feature which represents the independence
for auditor for the scale for audit company. The integrity for the auditor for specially which are
related for audit accuracy. Large audit company's should has impartial quality which are reliable
for financial services, more modern technology, more intelligent employees who are capable for
conducting large audits which are relative for small company's. Large audit company's has
higher customers portfolio they are dealing for various customers which enables them for various
management demands, whereas small businesses offers customise services for their customers
portfolios which are small, they has yield for the requirements for the management.
3
Competition are the external parties which influence the independence for auditors
(Chambers and Odar, 2015). The customers which are quickly procure the services for another
auditor, various company's which works for the highly competitive market which has trouble for
living autonomous.
4
The terms for audit company which are relates for the period for time which needed for
meet the particular client's audit requirements. The long relations for the corporations which
includes accounting company's which are probable for occur the identification for corporations
for its customers needs which makes it impossible for the company's which are larding auditing
for taking autonomous actions for better performance which helps for higher probability for the
businesses (Denisov, Khachaturyan and Umnova, 2018).

5
IFAC's codes which are for ethics suggests the customer size for determine for fee level
which includes the doubts which are for their casts about the integrity for auditors. The fee for
the clients should not surpass the certain proportion for the overall audit company's turnover,
EFAA which states plainly. The auditors which tends for has collusion for the managers for
covering illegal practices for the transparency scandals. The key feature for reservation the
money which the auditors collects for their clients towards non fees audit for its customers
(Engelbrecht, Yasseen and Omarjee, 2018).
B.
1. There is the lack for independence for this case audit manager which holds the securities
for the clients company which affects the opinion for auditors.
2. This case for subjective for nature, which considers aspects here the clients for major
source for income for auditors for their total income are 700000 which are for 100000 are
receivable for clients.
3. There is independence for audit for this case for auditor which has takes loan form for the
same bank which she is auditor.
4. There no matter for opinion for auditors for the given case which auditor are ask for
giving advice for not for audit engagement which views there is no requirement for
checking integrity for independence for the auditor.
C
External auditor: Public accountant for external auditor are who performs the
assessments for the company which they runs for their businesses. External auditors are who are
independent for the entities which financial statements, management control mechanisms for
these company's which assess the impartially. This auditing opinion are the strongly respected
for customers which are for needs the unbiased reviews for the corporation's financial statements.
Internal auditor: Internal auditors are qualified for business professional who conducts
unbias impartial financial, organisational assessments which includes corporate governance. This
is their responsibility which ensures the businesses compliance for regulations for running
company. The accountable for information for the company which should collects the internal
auditor for the company for better performance which helps for higher profitability for the
businesses (Gal and Akisik, 2020).

3.
Threats: There is the possibility for self interest for auditor which are implicitly
interested for the business which relies for the client for the significant payments. In this context,
there are the first scenario there are self interest threat for which auditors receives about 7% for
their total income for Bakers Co.
Safeguard for threats: Auditors are should reduce their dependency for their clients.
External quality for control the procedure for consulting the party which safeguard for the threat.
Threat: There is the independence for this case for the Peter who are employee for
clients which wants for the internal audit for the company. Although, they act for the internal
auditor for there are the no needs for assess the independence level for the case for internal audit.
Safeguard for threats: Company which are takes assurance for Peter which gives
unbiased opinion for replace the internal auditor which has no personal issues for the company's
personal for the manner.
QUESTION 2
A. Procedures to be taken with respect to uncorrected misstatement:
The scale which are for the possible mistakes should takes for the consideration for
potential size for error which should check for the broad sampling for inventory items.
Possible errors which are should addresses for the management for John Co for expalin
which are these stock discrepancies.
The fault should contrasted for materiality for determines the error for materials.
Its not for error which are assess after the audit should applies for determine whether the
faults are still substantial for the aggregate.
b. Going Concern Indicators:
The new rival, Drums Concept Co, which enters for the industry for aggregate pricing
which needs for the market sharing for the John. There are possibility this makes effects for
potential cash flows for clarinet manages for loss share for the market. The pressure which place
for John for lower its costs for compete, which affects the income for cash flows. The large client
which has discontinued exchange for John which switch the company for Drums. It leads for
substantial loss for the potential sales for earnings for the clients for better performance which
helps for higher profitability for the businesses (Haji and Anifowose, 2016).

There are various for the John quit the company which approach the Drums for owing
their intelligence for the company which helps for found the impossible replace for these. The
businesses strives for produce the technologies, need properly train employees for achieves for
the businesses. The sufficient employees are employees, the company should interrupt for the
production for the goods which discourage for the company for higher profitability for the
businesses.
The largest source of special equipment from John has recently ceased trading. There's
also a danger that John can not be likely to get these goods from other industries if equipment is
extremely advanced, thus impacting on its trading capabilities. Other vendors are more probably
but could be more costly in terms of growing John outflows and worsening the cash flow
outlook.
In order to increase market share, John has to collect financing for the production of new
goods and approach its partners for additional financing but has failed to spend further. If
John cannot get proper financing, the shareholders might find Clarinet would be too unsafe to
investing in. You will be worried that John would not be able to provide you with a sufficient
return on your savings, signalling issues with cash flow.
The overdraft for clarinet has rises for the businesses. The corporation which reluctant for
secure substitute credit, it will for progress trade for bank which not has overdraft for the
businesses. It helps for better performance which helps for higher profitability for the businesses
(Kahyaoglu and Caliyurt, 2018).
Describe the audit procedures which you should perform in assessing whether or not John
and Jane Co is a going concern
Planning Stage
In planning stage, they consider the events and conditions about the going concern
premises. The auditor should handle with management their origin classification of going
concern, check whether they have any identified issues that directly has a significant impact on
going concern and to plan the audit process in consequence of such risks.
Financial
It include net liability perspective, fixed term loans for future maturity without practical
prospects of refund, to inform the withdrawal of financial activity by creditors (Kend and

Nguyen, 2020). In relation from credit to cash on delivery proceedings, significant losses in the
economic value of assets in order to generate cash flows.
Operating
In this, the intentions of the management is to neutralise the entity or to stop operations,
management loss a major marketplace, key customer, franchise and supplier. Insufficiency of
supplies and growth of a extremely successful rival.
Other
In respect of these, related to changes in the laws rules and regulations, some government
policy affect the organisation, Non agreement with assets or other legal requirements.
QUESTION 3
Audit risk refers to miscalculations or errors that are made by auditors, which they do not
recognise reviewing process of financial statements of individuals and organisations. In this
auditors generate incorrect opinion on statement of finance. Components of audit risk are
discussed below-
Detection Risk- This risk occurs when auditors fail to identify misstatement of material
in financial statements. Some of these risk are there because of inherent limitations of audit. For
this auditors should apply audit procedures to rectify their mistakes.
Control Risk- In this risk misstatement of materials occurs due to failure or absence in
operations of relevant control of entities. This risk is high when entities do not have enough
control on there internal control.
Inherent Risk- These risk originate when there is any error or omission occur other than
failure of control. Inherent risks are affect by entities nature. They are high in situations in
which high degree of estimation and judgements involve.
Audit risks and auditor response to each risk-
All clients require to provide response in written to audit findings. This response
represents plans of management in improving their finding situations. These responses are
included in final audit report that presented to external auditors, the board of governors and
senior management. In this context auditors of Peter Cola Co. respond differently in different
audit risk. There responses according to each risk are mention below.
Control risk- Control risk arise from inefficiency or inadequacy of internal system of
control. After evaluating internal system of Peter Cola Co they decide extent to which they can

control risk as wrong assumptions leads to wrong solutions. This strategy will help them in
making correct assumptions and to work accordingly. Internal control will lead to proper
functioning.
Detection risk- These risk are resulting from failure that occur from auditors side in
noticing miss statements. Detection risk lies in every report of audit. In this context Peter Cola
Co. auditors have incorporated additional elements of unpredictability while choosing audit
procedures that are to be performed. By doing so they can detect risk of material misstatements.
Inherent risk- In inherent risk chances of material error is calculated without considering
procedures of internal account. This risk is assessed with the use of different analytical methods
and informations that are available about companies. In this regard auditor of Peter Cola Co.
tries to updated regarding latest law positions and regulations. They generate full knowledge
about the company and find critical area. They have made comprehensive audit plans, strategies
and plan. They uses professional approach in execution of these plans. They should try to find
out skill people in order to avoid errors and ensure proper working (Knechel, 2016).
Acceptable audit risk- Acceptable audit risk can be define as risk which auditor is
willing to take of being wrong . Peter Cola Co. auditors analysis financial statement with the use
of ratios. They examine past and projected statement of cash flow to determine cash inflow and
outflow. They discuss financial plans with management to ensure correct future plans.
Audit Strategy Document:
5. This strategy defines timing and position of audit and it helps to improvement of audit
plan in several concerned areas. For Peter Cola, the financial data of company are
prepared in agreement with IFRS, to what magnitude audit information are change with
the previous audits for peter cola will be used. It will also effect the some audit
techniques that will be used in IT audit process.
6. To find out reporting target plan the timing of audit and existence of communications are
needed, Such as audit schedule for reporting either it will be a temporary as well as
permanent audit (Kozlowski, 2018). There is a company meetings only for discuss
whether any issues are arises or not, other problems in respect of management reports to
be solved, timing of the audit team should be discussed.

7. This strategy should also be considered as other factors like professional judgement, in
this they determine the relevance of audit and require a maintain questioning related to
mind and effort professional scepticism within evaluating audit evidence.
8. It should determine the audit planning activities and know where to applicable, whether it
should be applied or increase on other action for Peter Cola such as results of any test or
any previous audits will be effected by the internal controls, information of the
management design and execution are effected by the internal control, book of
transactions are determine whether it is effective for audit team or not.
9. To set the audit strategy should determine the nature and timing of audit such as choice of
audit team with occurrence of this kind of industry. Audit work assigning to the team
members and sets the audit budget.

Interim Audit:
Interim audit is applied to the financial statement of customer by the auditor like 6 or 9
month. This help the auditor as they have less work at the end of the year. It is not necessary to
do this with all audit assignment and it is up to auditor's strategy. To understand the business,
auditor require interim audit in large scale business. Sometimes company do interim auditing as
the regulators require them specially for the company who listed on share market. Interim audit
is done to compress the time require for the completion of final audit. This provide benefit to
client as they can issue their audited statements early. The objective of this audit is that one can
aware of threats earlier so that they can take corrective measure. It also helps to identify the
profit for that period and helps to calculate interim dividend of the company. The focus of
internal audit is on internal control of the organization.
Final Audit:
Final Audit is conducted at the end of the year and this audit satisfy the auditor most.
This can be done after the preparation of profit and loss account and balance sheet. In this audit
the auditor check the account once in a year. The auditor check the fairness and correctness in
financial statement. This audit does not require continuous auditing and this is the reason that it
cannot include detailed checking. It is difficult to identify error and frauds in this audit report.
This audit report is prepared for the shareholder of the company. The focus of final audit is on
financial statements and to identify mistakes ad errors. It is also called periodical audit and
balance sheet audit.
Procedure of Interim Auditing:
Auditor conduct interim auditing to check the balance of item in the balance sheet. So it
will decrease their work pressure in the final auditing.
They need to understand the business and industry in which they operate. They also need
to understand the business policy, procedure, activity and environment of the Peter for the
assessment of risk and errors in the financial statement of Peter.
Auditors does not assess the item of balance sheet but they assess the opening balance of
balance sheet. In interim audit report the opening balance of balance sheet and as the ending
period balance of balance sheet.

The auditor assess the item of income statement as much as they can to complete the
work of interim audit of Peter. For instance, they will assess the transaction of sales and
operating expenses.
Impact of Interim Audit on Final Audit:
By preparing interim audit, Peter can save time for final audit. It also helps in finding out
error and mistake in advance so that one can make corrective action. It also helps to increase the
fair value of final statements. This will also help the auditor as they have less work in peak
demand time.

REFERENCES
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Engelbrecht, L., Yasseen, Y. and Omarjee, I., 2018. The role of the internal audit function in
integrated reporting: A developing economy perspective. Meditari Accountancy
Research.
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reports on market value. Corporate Social Responsibility and Environmental
Management. 27(3). pp.1227-1240.
Haji, A. A. and Anifowose, M., 2016. Audit committee and integrated reporting practice: does
internal assurance matter?. Managerial Auditing Journal.
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pp.215-223.
Kozlowski, S., 2018. An audit ecosystem to support blockchain-based accounting and assurance.
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and Assurance of Extended External Reports: Choices and Consequences. Available at
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provision of audit and sustainability assurance services on assurance quality. Journal of
Cleaner Production. 266. p.121943.
Schmidt, P. J., Wood, J. T. and Grabski, S. V., 2016. Business in the cloud: Research questions
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