Audit and Assurance

This document discusses various topics related to Audit and Assurance, including the duties of an external auditor, compliance with food hygiene regulations, setting up an internal audit department, substantive testing for trade debtors and redundancy provisions, and audit ethics. It provides valuable insights and study material for students studying Audit and Assurance.

AUDIT AND ASSURANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
SECTION A.....................................................................................................................................1
1. Duties of RBK as an external auditor of four chimps.......................................................1
9...................................................................................................................................................2
10.................................................................................................................................................2
SECTION B.....................................................................................................................................3
11. Audit Committees, Internal Controls over Cash and Audit in the Not-for-Profit Sector......3
b)..................................................................................................................................................3
c)..................................................................................................................................................4
12 Substantive Testing for Trade Debtors and Redundancy Provisions.....................................4
a)..................................................................................................................................................4
b)..................................................................................................................................................5
c)..................................................................................................................................................6
13 Audit Ethics............................................................................................................................6
14 Auditor considerations regarding the Going Concern assumption.........................................8
a)..................................................................................................................................................8
b)..................................................................................................................................................9
c)..................................................................................................................................................9
REFERENCES..............................................................................................................................10

SECTION A
1. Duties of RBK as an external auditor of four chimps
RBK as an External auditor has several responsibility that are essential to perform .
foremost duty of auditor is to understand company operations and evaluate control and manage
audit report. Consult with management of four chips to assess risk and supervise control of cost
and make rectifications of error statements. It also has duty to visit branches and can check
records of cost reports.
2. to lauana januzzi for prohibiting RBK from providing both audit and non audit services
An auditor has to follow several norms of committee of auditing for being eligible to perform
auditing of financial statement of company. An external auditor can not perform as internal
auditor of organization to co cope with regulation. As it is differentiate between two types of
auditors and their roles and responsibilities are also divided so that evasion of tax can not be
done. this is the main reason for prohibiting RBK from providing both services.
3. Reasons for which four chimps compliance with food hygiene regulations
Quality control partner of RBK do not want company or any member of management to get in
touch with audit reports because they can make changes that are suitable or advantageous for
their firm. As director of comp1.any was not sure about its internal reports so wanted to
compliance with food hygiene so it can make changes and improve status of company’s financial
statement and avoid unwanted penality that it may have to pay in case of any mistakes (Masdor
and Shamsuddin, 2018)
.
4. Materiality concept and its compliance with food hygiene regulations
It is a concept that can be ignored by organization if it has very less impact on financial
statements of company. Compliance with food hygiene regulation can give adverse impact on
financial statements of company. As audit committee will review the transactions between firm
and its related party to cross check the statements (Bananuka, and et.al., 2019). It can be
consider appropriate only if it is interest of company and parties.
5 Benefits for setting up an internal audit department for Four chimps
There are different advantages according to type of firm. Biggest advantage is that it can improve
efficiency of operations of firms. Financial reliability and integrity is also increases with the
help of internal audit team. Company can serve evidence its reports as internal auditor can
assure reports are prepared with laws regulators norms and conditions Akisik and Gal, (2019). It
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also establishes supervisory procedures.
6. Audit test to verify completeness of account payable
Three ways to check accuracy of account payable, first way can be reconciling account payable
ledger with abbreviation of account with control. Another way is contacting to company’s major
vendors to check the transactions of company statement that they match with it or not. and third
method is an detail analysis of statements so omission and rectification of transaction can be
checked. With te help of these tests verification can be done. Best way out of all three can be
detailed analysis of statements.
7. Reasons for difference in three accounts of suppliers
From the above statement it can be analyzed that wrong transaction of £88929as credit note is
the reason that difference in all three suppliers is occurring. As the ledger balance has been
miscalculated due to wrong amount of credit note entry. Such errors are big that can lead to big
changes in statement. As correct entry of invoice are very essential for proper accounting.
8. Evidence for difference in Arcelor mittal difference
Evidence can be given in many ways like receipt can be use as evidence which ahs been given to
Arcelor mittal , statement of bank can also be used as evidence. Difference in the transaction of
ledger is proof for the difference.
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 Review of the previous year ending balance with opening balance of purchases.
 Discuss with management about the reasons behind such difference
 Review the aged balance of suppliers from last year and current year and why they are
not cleared or marked as paid
 It would have to review the purchase invoices and agree it with the balance in ledger
accounts of account payables
 It has to review if any disputes are existing over the payment.
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The overstatements of the purchase and operating expense overstated will require the audit
tests for payables to be performed to agree the expenses are authorised by the proper authority.
The balance of previous year should be agreed with opening balance. It would require to perform
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additional substantive procedures to identify the actual purchases and expenses including
external party confirmations.
SECTION B
11. Audit Committees, Internal Controls over Cash and Audit in the Not-for-Profit Sector
a) Objectives of audit committee and benefits
There are various objectives that an audit committee set for fair practices of an organsiation .
main objective of an auditor is to assist the board in fulfilling its responsibilities and roles so that
company can perform in fair manner. Another objective is to check the quality and accuracy of
accounting , auditing and company’s reporting practice and how its follow the regulatory and
legal requirement.
The main purpose of conducting auditing is to oversee financial reports and accounting of
company and auditing of firm. The other objectives are to seek information regarding unfair
practices from employees of company and managing reconciliation of those practices to make
reports right. Other objective is to enhancement of internal and external creditability of financial
reports. And risk protection and financial management, compliance with regulation of law and
best practices to maintain corporation with guidelines of audit Nurunnabi, (2017)
Monitoring is main objective of auditing committee and keeping internal and external
audior efficient so proper auditing can take place. Review of independence of statutory audit
firm in provision of any extra or supplement service to audited entity. Operating risk
management is another objective to identify, prioritize and reaction to risk are mainly monitored
by audit committee.
b)
The funds could be restricted by charity where donor wants money to go for specific program or
donor has defined the specific use of money for event or time. It provides assurance to donor that
the funds are used for defined purpose. The auditor has to review composition of all the
restricted funds. The use of such funds should be analysed and ensured that they are released
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from the specific purpose stated by Imtiaz. The restricted fund should be released as per the
requirements and also verify that released funds are also used for that specific purpose (Bucior
and Kujawski, 2017). Also the auditor has to inspect the type of restriction imposed over funds
from the receipts.
c)
a. Current Practices and Effect b. Recommendation
It has been collecting donations in buckets at
different locations through the volunteers in
different city. Volunteers are depositing the
cash using pay in slip with bank account
number and code of Charity. This practice
made difficult to identify which volunteers
have deposited cash as deposit slips does not
include the reference number of the city that
could be identified uniquely. In this practice
there is possibility that all the donations may
not be deposited in bank. This could create
people to take donations which they do not
deposit back in account of charity.
In this case it can make volunteers to maintain
separate register for the amount of donations
and their sign which will provide evidence for
cross reference. Making entry of name and
amount should be shown in TV so that people
remember to donate only when their name and
amount are recorded.
Julie has provided for cash collections tins.
They will in shape of blocks of the flats. Every
tin was to be stamped with unique serial
number. This will allow them to identify the
amount of donations from that specific
location. It will help them to identify which
location has not deposited the money.
It could also issue deposit slips to donors
which will help in counting the amount of
donations received. The serial number of the
tins and location should be made already
printed in paying in slip which will prevent
volunteers to defalcate cash.
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12 Substantive Testing for Trade Debtors and Redundancy Provisions
a)
 Obtain consent from finance director of the Ritzy ltd for undertaking circularisation in
advance
 Obtain list of the trade receivables at year end, cast list and then agree it with sales ledger
control account
 Select sample from receivable list to ensure that number of old, nil, credit and big balance
are chosen
 Circularisation letter needs to be prepared on letter head of Ritzy ltd requesting
confirmation of year end balance of receivables and replies to sent directly to auditors
using pre-paid envelopes (Larrinaga and et.al., 2020).
 Where no reply is received, needs to follow with other letter or call and also alternative
procedures to be performed where essential
 Where replies are given, it should be agreed with receivable records and discrepancies
should be investigated.
b)
Receivables substantive procedures
 Valuation, Accuracy and allocation
 Review after the date receipts of cash and follow through previous year ending balance of
receivables
 Inspect aged receivables to identify which have been due from long whether they needs
allowance or should be written down
 For slow moving balances review the customers correspondence to identify if any
invoices are under dispute.
Completeness
 Select sample of the goods despatched notes of before year end, to agree with sales
invoice and its inclusion in sales ledger and year ending receivable ledger.
 Agree total of the individual sales ledger to aged receivables lists and with trial balance.
 Obtaining previous year receivable list and compare significant balances with the current
year receivables list for amount due and inclusions
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 Review sales ledger for credit balance and identify if they need to be classified as
payables
Rights and Obligations
 Review loan agreements and bank confirmations for evidence that the receivables are
assigned security for the amounts owed by Ritzy
 Review the board minutes for evidences that legal title of receivables is sold to third party
like factor (Lobwo, Davis and Anthony, 2020).
 For sample of receivables, agree balance recorded over sales ledger to original name of
customers on sales order or contract.
c)
Substantive procedures
 Discussion with directors about whether they have announced intention for closing
production and making employees redundant for confirming present obligation at year
end
 If this is announced before year end, the review of support documents for verifying that
decisions are announced formally
 Review minutes of board to identify probability of payments for redundancy
 Obtain break down of redundancy calculations from employee and cast them to ensure its
completeness and agree them with trial balance.
 Recalculating redundancy provisions for confirming completeness and agreeing
components of calculations for supporting documentation like employee contracts.
 Obtain written representation from the management for confirming completeness of
provisions
 Review disclosures of redundancy provisions for ensuring compliance with the IAS 37
13 Audit Ethics
Ethical threats Mitigations
Finance Director requires the audit report of
financial statements of CBL before the normal
EP should discuss timing with Financial
director, and ask to commence audit earlier for
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time and asked to complete 3 weeks earlier.
It could create intimidation threat on auditors
team as it would create pressure to cut the
corners and not raise issues for meeting the
deadlines imposed and it could compromise
objectivity of audit team and also quality of the
audit performed.
CBL has arranged race day at the Shawfield
Horse Racing for staff working for the HBW.
The package included entry, lunch, tea and
unlimited refreshments for HBW staff.
Package will this year be provided to partners
and auditor.
It represents self interest threats as partners and
auditor would be provided with free
entertainments apart from the auditing services.
It will make the partners and auditor overly
reliant over the income and profits of CBL.
Auditor has key role of overseeing audit
process and the accounts and it may influence
them.
Asil Wadhwani until last year working for
HBW has been appointed as financial
controller of CBL and is responsible to prepare
draft accounts.
It represents familiarity threat as director was
associated HBW for a long period of time for
adit matters and therefore may not retain
objectivity and professional skepticism.
HBW provides taxation services and audit
engagement services
gathering evidence. In other case director
should be informed for audit to be conducted
as per ISA and quality control procedure and
therefore require time
In case of residual concern exists or
intimidation threat remains HBW could resign
from engagement.
If CBL is listed company then it should not
accept audit where the partner has been
working with HBW
Auditor to communicate with those charged
with governance for audit fee to be dependent
over time spent and level of skills and
experience of required audit team (Gospel and
et.al., 2019). Auditor should also discuss why
fee of last year is not paid and also revise the
payment schedule before more work is
performed.
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In this also there is potential self interest or the
intimidation threats as total fees could be
represent the significant proportion of income
of CBL. It could make the HBL more reliant
over the income. It will make result in firm
being less objective or challenging due to the
fear of losing significant client.
Audit fee is based over profits before tax that
creates contingent fee
It gives rise to self interest threat and is also
prohibited under Code of Ethics of ACCA.
Team would ignore the audit adjustments
leading to reduction of profits
Last year’s fee is outstanding still and this
creates self interest threat as fee may remain
outstanding if HBW do not agree over certain
accounting adjustments for receiving full
payments.
14 Auditor considerations regarding the Going Concern assumption
a)
If the draft financial statements are not as per going concern assumptions following adjustments
are required to be made
 Ensure that creditors have been paid
 Ensuring that all the collections for due amount has been made
 Depreciation will be charged in same accounting year
 There will be no outstanding or accrued balance shown in financial statements
 It has to clear all the bank interest and payments due (Going Concern, 2020.).
 Ensure that dividends for the year have been paid
 Company has to follow cash accounting system for preparing financial systems.
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b)
Audit procedures to be performed
 It has to assess decline in sales of company from last year and also in profits
 Auditors have to analyse the trends of goodmarket sales and profits for last few years
 It is not facing difficulties in payment of dividends
 Discuss with management and obtain written representation from them that company is
going concern
 It can verify the terms of the loan and debentures and whether they are breached
 Reviewing post year end sales to assess the increase or decline in profits with cash flow
forecasts
 Enquiring the lawyers of company regarding existence of litigations pending from long
time(CELAYİR, 2020)
 Review board minutes to find any decision regarding closure in future
 Reviewing post year engagements entered into by the company
c)
If the adequate disclosures for the going concern are made in the audit report it will enable
the auditor to express an opinion on the financial statements. It will provide the readers about
whether is complying with going concern assumption and will be running in future.
If the disclosures are not made in the audit report it will misguide the readers and the
opinion framed on financial statements would not be reliable. It will make the auditors report
invalid and not reliable. It may cause auditor to be guilty for the professional misconduct.
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REFERENCES
Books and Journals
Bucior, G. and Kujawski, J., 2017. Podyplomowe studia „Rachunkowość ACCA-poziom
profesjonalny” na Wydziale Zarządzania Uniwersytetu Gdańskiego. Folia Pomeranae
Universitatis Technologiae Stetinensis. Oeconomica. 87.
Larrinaga, C., and et.al., 2020. Institutionalization of the contents of sustainability assurance
services: A comparison between Italy and United States. Journal of Business
Ethics. 163(1). pp.67-83.
Lobwo, S.K., Davis, J. and Anthony, V.D., 2020. AUDIT AND ASSURANCE: SOME
EMERGING ISSUES. Studies in Indian Place Names. 40(29). pp.317-326.
Gospel, J., and et.al., 2019. Sufficiency and Appropriateness of Audit Evidence for Giving an
Opinion on the True and Fair View of Financial Statements.
CELAYİR, D., KEY AUDIT ISSUES AS AN ELEMENT OF THE INDEPENDENT AUDIT
REPORTS AND A STUDY WITHIN THE SCOPE OF THE INTERNATIONAL
STANDARD ON AUDITING (ISA) 701. In ACADEMIC STUDIES (p. 2).
Bananuka, J., and et.al., 2019. Audit committee effectiveness, isomorphic forces, managerial
attitude and adoption of international financial reporting standards. Journal of accounting
in Emerging Economies.
Masdor, N. and Shamsuddin, A., 2018. The Implementation of ISA 701-Key Audit Matters: A
Review. Global Business & Management Research. 10(3).
Akisik, O. and Gal, G., 2019. Integrated reports, external assurance and financial
performance. Sustainability Accounting, Management and Policy Journal.
Nurunnabi, M., 2017. Auditors’ perceptions of the implementation of International Financial
Reporting Standards (IFRS) in a developing country. Journal of Accounting in Emerging
Economies.
Online
Going Concern. 2020. [Online]. Available through : <
https://www.accaglobal.com/ca/en/student/exam-support-resources/fundamentals-exams-
study-resources/f8/technical-articles/going-concern.html>.
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