Audit and Assurance: Objectivity, Independence, and Going Concern

This document discusses the concepts of objectivity and independence in audit and assurance, and explores the indicators that a company may not be a going concern. It also covers the procedures for dealing with uncorrected inventory misstatements. The content is relevant to the subject of Audit and Assurance, and is suitable for college or university courses.

Audit and
Assurance

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK-1............................................................................................................................................1
Matters other than independence, which might be relevant in relation to the credibility............1
Following situations in the context of the independence of the auditor, showing clearly the
principles involved:......................................................................................................................2
Explain the concept of objectivity, with reference to..................................................................3
Threats and the safeguards to objectivity ....................................................................................4
TASK-2...........................................................................................................................................5
Describe the procedures the auditors in relation to the uncorrected inventory misstatement.....5
Explain SIX potential indicators that John and Jane Co is not a going concern.........................5
Describe the audit procedures which you should perform in assessing whether or not John and
Jane Co is a going concern...........................................................................................................6
The auditors have been informed that John and Jane’s bankers will not make a decision on the
overdraft facility until after the auditor’s report is completed.....................................................7
Describe the impact on the auditor’s report of John and Jane Co if the auditor believes the
company is a going concern but that this is subject to a material uncertainty.............................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Audit and assurance is a complex process in which there is a link between the financial
reporting and the auditors also have an important role when decisions are to be taken in
organisation. They are trusted advisors and are more valued in organisation so that the decisions
regarding company are to be taken in the proper manner (Denisov, Khachaturyan and Umnova,
2018). An audit is an proper review of accounts and helps in providing the reasonable assurance
related to financial statements of company. It helps in providing true and fair position of
company and helps in taking decision. Assurance helps in improving transparency and quality of
information to individuals which reduce chance of inaccuracy in organisation. Audit is an type of
the assurance service by which decisions are accurate. The topic cover under this report are
relation to credibility, various situations in context of independence of auditor, concept of
objectivity in reference to internal and external auditor, Procedure and impact of the auditors so
decision in an organisation are to be taken care in proper manner and will not affect organisation
in the future.
MAIN BODY
TASK-1
Matters other than independence, which might be relevant in relation to the credibility
To secure the credibility of investors and the auditors it is important for shareholders to
function as a whole so that the individual can take the decision in an proper manner and will not
affect the organisation. If the auditors not able to identify the fraud in the company it leads to the
failure of responsibility of an auditor in an organisation. It is an responsibility of an auditor to
perform the work with the credibility and reasonably in an organisation so that the true financial
position of the company can be analysed (Fernandez-Feijoo, Romero and Ruiz, 2016). The
public opinion regarding the company is based on the independent audit and also on the legal
autonomy so the decisions taken by the individual in proper manner and have the trust on the
company.
 Audit commission: It helps in designated and monitoring the committee members and
there work regarding the preparation of accounts regarding the revenue and the
expenditure in an organisation so the decision are to be taken properly. It also helps in
setting the standards for an auditor so that they can perform properly in an otganisation.
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 Audit business scale: The important thing for the auditor is the size of the business. As
the firms having the efficient amount of resource and the technologies so that there is
growth in business (Kahyaoglu and Caliyurt, 2018). It helps in finding the revenue and
the expenses in an organisation so the decisions are to be taken care in proper manner as
the large firm has the larger client portfolio and should also meet needs and demands of
client.
 Company meeting the needs of specific customer: It helps in meeting the desired auditing
standards of the customer. A relationship will occur and will help the auditors to have the
close look on the needs and the demands so that the work can be done in proper manner
and will not affect the organisation.
 Scale and the non-audit cost auditing: It helps in determining the amount of the fees. It
helps in having the partnership with the committee and helps in identifying the unlawful
activities in an organisation so the work can be done properly. It do not surpass the
portion of the global audit scale in an organisation.
Following situations in the context of the independence of the auditor, showing clearly the
principles involved:
 The audit manager in charge of the audit of Andrew Co holds 1,000 £1 ordinary shares in
the company (total shares in issue – 100,000). The audit partner holds no shares.
In this situation the external auditors of the company owing the shares in the business model so
the decision are to be taken properly in an organisation in an ineffective manner so that the
organisation will get affected and should take the proper decisions with the accountant.
 The audit fee receivable from Janet Co, a private company is £100,000. The total fee
income of the audit firm is £700,000
In this situation the nature is arbitrary and also the significant in regard of the customers in the
audit committee where the tax is the main source of income and is not affected by the businesses.
The contribution of the tax in the Janet co. Private company is 700000 and the 100000 is owned
by the customers so that they can earn profit and have the benefits.
 The audit senior in charge of the audit of Margot Bank Co has a personal loan from the
bank of £2,000 on which she is currently paying 13% interest.
In this situation the Margot bank co. suffers from the loss of the external auditors as the
accountant in organisation has investigated from the own fund so the decisions are to be taken
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care in the proper manner and will not affect the organisation. As the company pay the high
interest rate to the bank.
 The audit partner is responsible for two audit , Harry Co and the Jean Co. Harry Co has
recently tendered for a contract with Jean Co for the supply of material quantities of
goods over a number of years (Knechel and Salterio, 2016). Jean Co has asked the audit
partner to advise on the matter
In this situation there is no judgement made by the accountant in an organisation and the
examiner have to offer an advice to the individual so that the company will not get affected and
there is no obligation to control the autonomy and the independence of an auditor and will not
get affected by the organisation so the decision are taken properly and helps in getting the
desired stated results in an organisation. Auditor should view the financial position of the Harry
co. on that basis only the decisions should be taken so that the company have no clashes in the
future and will not suffered from the losses in the future.
Explain the concept of objectivity, with reference to
(i) External auditors
It helps in finding out the true and fair position of the company so the decisions are to be
taken care in the proper manner and auditors can take the decision properly in an organisation.
The externals auditors should find the actual position of company on that basis only the company
should take the decisions. They investigates the business and do the other activities. The
committee which are performing the audit control should be self employed and do the work with
full transparency. The management of the executive is fully recommended with the clients and
the borrowers and should properly reviewed the books of account so the decision are to be taken
in an organisation effectively.
(ii) Internal auditors, who are members of ACCA, outlining any general threats to objectivity
that exist as the internal auditors have the social pressure so they have to work in proper
manner.
It helps in evaluating the business activities in an organisation so that they can function properly
in an organisation. It helps in finding the accounts with full accuracy. The regulatory audits in an
organisation helps in performing better and should follow the protocols so that the efficient
working is possible (Knechel, 2016). The fair report of the organisation is to be provided and
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there should be no misstatement regarding the work. Internal auditors should verify the
documents properly so that the mistakes can be cleared at early stage.
Threats and the safeguards to objectivity
Threats: the threat to the objectivity refers to the commitment to have a proper look on
the evidence so that there is no misuse and can be control easily in an organisation by having the
interview properly and should have an realistic interview of an individual then only the threat
will be avoided. It depends on the consumer and has the and also have an risk personality so the
decisions are to be taken properly. There is a chance of the personality as the accountant is
earning 7% of the profit during the first situation from the bakers company and the company
may also have the growth in the future.
Safeguards against threat: It helps in reducing the threats of an consumer by using the
external qualities and having the meeting with the third parties authorities by which the risk can
be reduced in an easy manner and will not affect the organisation. The quality of the work should
be maintained so there is a chance in which the risk can be reduced.
Danger: There is a chance of the freedom as the consumer is performing the work
properly in an organisation and can also have an future growth by which the company will not
get affected in the future. There should be a proper auditing of the firm so that the company can
earn the revenue and have the future growth. It is not mandatory for the individual to determine
the extent of the independence of the individual in an organisation.
Safeguarding the threats: The advice is to be given to the individual and should also
provide the proper substitutes by which the individual will not get affected in the future and
helps the employees by which the disputes in an organisation can be removed and help in taking
the decision in an proper manner and will not affect the company in the future. The decisions
regarding the risk and the threats are to be taken on the early basis when the problem is minor
and will not affect the company in long run.
TASK-2
Describe the procedures the auditors in relation to the uncorrected inventory misstatement
The procedure followed in the given statement is the face of errors. It is important for an
organisation to check the errors on the early basis so that the risk can be eliminated on time
before the situation get serious in an organisation. There is an production of an inventory in an
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organisation and the errors are to be checked on the regular basis (Louwers, 2018). The
managers of the John company had made the error in explaining how the stock irregularities may
occur in the business. The error of the statement is different from the statement that is contrasted
from its objective reality. These errors are reported and is to be applied in the proper manner and
have the faults which may be significant as well as normal so the decisions are to be taken in the
proper manner and will not affect the organisation. The misstatement helps in providing the
wrong information by which the company annual performance will get affected and the auditing
helps in providing the results in an organisation so the decisions are to be taken care in proper
manner. The performance of the company are to be measured on the regular basis and the
statements are to be corrected properly in an organisation and will be benefited in the future. The
errors are to sorted in timely manner and will not affect the organisation and helps in providing
the solutions of these errors at the initial stage so the company have the proper growth in the
future.
Explain SIX potential indicators that John and Jane Co is not a going concern.
There is a new rivals in the market that is the Drum design company and company have
the competitive price in the market which helps in increasing the revenue and the profit margin
from the John Company so the decision are to be taken in properly as there are high competitors
in the market. If company start loosing the clients there are chances the company have the low
cash flow in the market and may suffer from the high risk (Zhao, 2017). The company of the
John will forced to compensate the cost so that there is no rivalry by which the income and the
working capital will be impaired. The customers have stopped exchange of the Johns company
and bought it to the exchange of the drums where the profitability increases. There are chances
of the low sales and the earnings and there is low projected cash flow in the market till the client
has been replaced. Talent of the company make it impossible to have the substitute of them. The
companies needs an creative technology and should have the skilled staff so that the decisions
are to be taken in an proper manner. The company start interrupting in the decision and will stop
developing the commodity till the sufficient staff is recruited in an organisation. The John
company cannot purchase the goods from the other places as the other countries are using the
highly advanced technologies which affect the organisation and will not have the growth in the
future. In term of the demanding of the product the John company have the economic growth and
weakens the working capital of an organisation. To come out from these risk the John company
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should start collecting the resources so that the future growth can be established and should stop
spending the money any more (Martínez-Ferrero and García-Sánchez, 2018). As there is no
sufficient finance with the John. The clarinet becomes too risky to participate. They are worried
about the John company as they are not able to recover the risk on the time they may suffer from
the loss. As the cash flow concerns the debit card of the clarinet will increase by which the
overdraft of the company will increase. The deposit account of the John company has the worst
situation in the 12 months as no money is generated by the company. The liquidity should be
controlled properly in an organisation so that there is proper flow and money will not be lost.
Describe the audit procedures which you should perform in assessing whether or not John and
Jane Co is a going concern.
 The company should have the deposit account where the out flows of the cash and also
have an economic view of the financing activities in an organisation.
 Finding and the outcomes are to be measured to find the appropriate returns of the
investors.
 Working capital balance of the company is to be reviewed properly to identify the ratios.
 Discussing the financial information with the new clients.
 There is increase in the currency values that is to be consulted is the post year profit and
the company books.
 If the different styles are available for the bank loan we have to chat with the
administration about that.
 Examine the overdraft facility properly with the fees.
 The communication is to be reviewed properly to see weather there is extension in
overdraft facility or not.
 The person should feel free to contract with the management if they have to approach for
the financial bank and new profit opportunities.
 The person has to contact with the council in charge about the agreement regarding the
loss or benefits (Schmidt, Wood and Grabski, 2016).
 The experiments are to be done so that the future risk can be avoided in the proper
manner.
 Accounts are to be analysed at the year end to know the estimate cash flow of the
company.
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The auditors have been informed that John and Jane’s bankers will not make a decision on the
overdraft facility until after the auditor’s report is completed
John and the Jane's have decided to disclouse the information sheet so that there is proper
knowledge about the work of an organisation and is to be managed in an proper way. If the
information is acceptable in an organisation than it should be reviewed in an proper manner and
should have the focus on the particular topic by which the information is reviewed. There is a lot
of confusion arises in the documents that should be clear in an proper manner. Examination
statements should be put directly after the financial statements (Ruiz-Barbadillo and Martínez-
Ferrero, 2020). AS the results are not satisfactory the judgement decisions are to be changed in
an proper manner it is an unfavourable option for an organisation. The view point of the
company should be changed and should be not viewed integrally.
Describe the impact on the auditor’s report of John and Jane Co if the auditor believes the
company is a going concern but that this is subject to a material uncertainty
The auditor report of the John and Jane company follow the going concern concept as it helps in
disclosing the financial statements so the decisions are to be taken in the proper manner and will
not affect the organisation and there are chances where the uncertainty arises if the transactions
are not recorded in an proper manner. The company is following the Going concern so that the
profitability and the accountability is to be measured in an proper manner.
CONCLUSION
From the above report it has been concluded that the audit assurance helps in checking the
financial accounts in an proper manner and helps in assuring that the work done is correct and
accurate and the giving results are to be observed properly in an organisation. Auditing helps in
checking of the documents and helps in providing the results and helps in accomplishing the task
properly in an organisation so the decisions are to be taken properly and will be benefited in the
future. The procedure of the audit is to be studied to find out the going concern objectives in the
company. Different potential indicators are studied to find the company is going concern or not.
The threats and the safeguards of the company are studied to find the financial position and
decision are to be taken by observing the situation so that in future the company will not get
affected and can increase the profit by having the transparency in the financial statements of the
company.
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REFERENCES
Books & Journals
Denisov, I. V., Khachaturyan, M. V. and Umnova, M. G., 2018. Corporate social responsibility
in Russian companies: Introduction of social audit as assurance of quality. Calitatea.
19(164). pp.63-73.
Fernandez-Feijoo, B., Romero, S. and Ruiz, S., 2016. The assurance market of sustainability
reports: What do accounting firms do? Journal of Cleaner Production. 139. pp.1128-
1137.
Kahyaoglu, S. B. and Caliyurt, K., 2018. Cyber security assurance process from the internal audit
perspective. Managerial Auditing Journal.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Knechel, W. R., 2016. Audit quality and regulation. International Journal of Auditing. 20(3).
pp.215-223.
Louwers, T. J. and et. al., 2018. Auditing & assurance services. McGraw-Hill Education.
Martínez-Ferrero, J. and García-Sánchez, I. M., 2018. The level of sustainability assurance: The
effects of brand reputation and industry specialisation of assurance providers. Journal of
Business Ethics. 150(4). pp.971-990.
Ruiz-Barbadillo, E. and Martínez-Ferrero, J., 2020. Empirical analysis of the effect of the joint
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
on governance, audit, and assurance. Journal of Information Systems. 30(3). pp.173-
189.
Zhao, M. and et. al., 2017. Quality assurance and the need to evaluate interventions and audit
programme outcomes. European journal of preventive cardiology. 24(3_suppl). pp.123-
128.
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