Audit, Assurance and Compliance

This study material provides an overview of audit, assurance, and compliance. It explains the concepts of reasonable assurance and professional scepticism. It also discusses the ethical problems faced by auditors and provides solutions. Additionally, it covers the determination of materiality and the auditor's responsibilities for going concern assumptions. The material includes relevant examples and case studies.

Audit, Assurance and
Compliance

Contents
INTRODUCTION...........................................................................................................................................3
QUESTION 1.................................................................................................................................................3
(a). Write a letter to Nayan explaining the concept of reasonable assurance...........................................3
(b). Explain in the letter to Nayan the concept of 'professional scepticism’.............................................4
QUESTION 2.................................................................................................................................................5
(a). Explain the ethical problem and why it is a problem.........................................................................5
(b) What can be done about it..................................................................................................................5
QUESTION 3.................................................................................................................................................6
(a). Explain why determination of materiality is a matter of auditor judgment........................................6
(b). Explain whether the information provided impacts on the auditor's assessment of preliminary
materiality................................................................................................................................................6
QUESTION 4.................................................................................................................................................7
(a). Explain the auditor's responsibilities for 'going concern assumptions...............................................7
(b). Identify any significant events or conditions.....................................................................................8
QUESTION 5.................................................................................................................................................9
(a). Justify the events and accounting treatment......................................................................................9
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
Audit & Assurance Compliances serves to maintain an overview of how businesses adhere
to Taxation Operating & Legal compliance requirements and ensure accountability in company
activities to meet the requirements of all shareholders. There is a need for assurance only occurs
when a party intends to take happiness in an issue formulated by a second player, and
confirmation is supplied and when an autonomous point of view can be services of a third party.
An audit is the review of an entity's financial statements of somebody outside of that entity, as
described in the financial statement (Brenninkmeijer and et.al, 2017). A balance sheet, an income
statement, a statement of adjustments in equity, an income statement and documents containing a
description of relevant accounting practices and other supplementary documents are contained in
the financial report. The aim of the audit is to determine if the data contained in the financial
report, taking in its entirety, represents the company's monetary condition. This evaluation
addresses many subjects that are mostly about the audit and auditors, and how they work in each
event-related organisation. The objective of this review is to ensure that business statements are
accurate and fair; all operations should also be carried out in accordance with regulations and
practices.
QUESTION 1
(a). Write a letter to Nayan explaining the concept of reasonable assurance
To: Nayan
Subject: Explaining the concept of reasonable assurance
Dear Nayan,
I hope you doing well and in good health. I am enjoying my new job and environment of
business. Thanks for your letter and it was great to hear from you. You asked me to tell you
about reasonable assurance. It requires for better understanding that there is still a potential
probability of not eliminating or finding material defects on a periodic basis. It needs a greater
understanding there is still a possible possibility that material defects will not be removed or
detected on a recurring basis (Davis, 2017). Similar assurance, if not total faith, is indeed a high
degree of certainty. There is a discrepancy between the requirements of the NGA (National

Governors Association) and the auditor's level of competence. Reasonable verification is
conducted by audit, not by utter confirmation.
A significant concentration of assurance based on material mistakes, but not an unmitigated
version, is reasonable assurance. Reasonable assurance contains the information that there is still
a faraway probability of not preventing or detecting material mistakes on a periodic manner. The
auditor must get sufficient and acceptable audit proof to increasing the risk to an acceptable level
and achieve fair confirmation. This suggests that there is some doubt resulting through the use of
analysis, since it is likely that a content misrepresentation would be omitted. Not because they
perform collaborations with inadequate caution, but also because constraints intrinsic in the
mechanism hinder the opportunity to offer absolute assurance, auditors are still unable to achieve
absolute assurance. In the behavior of various audit process, the use of research methods.
A high degree of confirmation is reasonable assurance, but just not absolute assurance. It is not a
certainty that financial reports (if either attributable to fraud or mistakes) are safe from across all
material mistakes. They should, even so, include a reasonable assurance that financial statements
as a whole are not substantially misrepresented (Eulerich, Kremin and Wood, 2019). The
external auditor has put an attempt to narrow the information asymmetry between the standards
of assurance that consumers believe an audit report will provide, and the success of a project that
it actually delivers. In order to provide further clear feedback, it has modified legal requirements
and, in accordance with regulatory agencies, presented more active supervision and delivered
with more disciplinary actions for the issuance of inaccurate findings.
(b). Explain in the letter to Nayan the concept of 'professional scepticism’
To: Nayan
Subject: Explaining the concept of professional Scepticism
Dear Nayan,
I hope you understand the importance of reasonable assurance and in this letter I want to disuses
about professional scepticism. Professional scepticism is a mindset that encompasses a
challenging mind, remaining responsive to complications whereby can signal suspected

misstatement attributed to negligence or fraud, and a reasonable consideration of audit proof. It is
a pillar of the audit committees that we'll need to preserve and develop to help the auditor of the
potential. Professional scepticism has been used to years of knowledge thru the pointed
questions, structure consisting of corroboration, and awareness to warning signs and
discrepancies (Ji, Lu and Qu, 2018).
The degree to which professional scepticism is being used has attracted a lot of scrutiny recently.
In particular, regulatory authorities contend that, in performing its duties, inspectors are not
adequately sceptical. An auditor should have the sceptic mindset that will allow him sensitive for
the circumstances to avoid fraudulent activity. He needs to be careful about the risks of mistakes.
Some inspectors with competent scepticism skills should be present in addition to making the
financial reports straightforward, thereby shielding the report from all sorts of mistakes.
Technical scepticism is often the strength acquired from continued preparation and knowledge.
QUESTION 2
(a). Explain the ethical problem and why it is a problem
According to the situation, a dispute with the basic values of a community is generated by
situations or actions and ethical problems arise. Both people and organizations may be
influenced by these disputes, as all their actions can be challenged from an ethical perspective. In
this situation, it is discussed that the ethical dilemma of the retailer does not reimburse
examination rates on time and time. While the auditor could not publish an audit opinion on the
impact of the management team in a straightforward way, it is considered to become an ethical
issue. Most law specifies that deals need to be reached once counseling starts, so that consumers
are it's what everyone wants (Maroun, 2017).
(b) What can be done about it
The steps involved in resolving the ethical problems are:
1. Lay the actual information down:
2. Recognize the legal challenges that are concerned:
3. Describe the basic values that are under attack:

4. Pinpoint the appropriate possible courses of action for you:
5. Keep comparing and analyze the solutions (the advantages and drawbacks are laid down),
6. Deciding:
In order to solve this problem, it is necessary to notify the consumer that they will not reveal an
audit opinion that has a negative impact on their business if they do not pay on time. As a
consequence, consumers are asking for reimbursement and communicating with people who
would have the authority and strength to address the situation completely (Maroun, 2019).
QUESTION 3
(a). Explain why determination of materiality is a matter of auditor judgment
The determination of materiality by the audit committee is a subject of professional
judgment and is influenced by the inspector's understanding of the consumers of the company's
financial' business information requirements. The duty of the auditors is to evaluate if the
financial reports are significantly mischaracterized. Auditors depend on principles of wisdom
and technical experience to develop a standard of materiality. The number and quality of
misjudgment is also termed by them. The minimum of materiality is commonly expressed as a
generic proportion of a line item of a particular financial statement. ISAs auditing standards to
provide fair confirmation as the criterion for the auditor's judgment over whether the financial
reports of the whole of the free of material mistakes. Consequently, the notion of materiality is
central to the audit.
(b). Explain whether the information provided impacts on the auditor's assessment of preliminary
materiality
Qualitative variables that impact the materiality decision of an auditor include: quantities
involving fraud. Fraud quantities are generally deemed more severe than accidental mistakes of
equivalent amounts of dollars since fraud represents the integrity and competence of the
management or other workers involved (Mendez and Bachtler, 2017). Materiality depends on the
nature and quality of the failure or defect measured in the situation surrounding it. The deciding
factor may be the size or value of the object, or a combination of both. The preliminary
judgments of materiality would be influenced by the planned presentation of the income
statement. Unless the financial reports are widely disseminated to consumers, it is possible that

the preliminary materiality judgment will be set smaller than if it is not anticipated that the
financial statements will be extensively spread. There are mentioned some qualitative factors
which required for auditor’s assessment of preliminary materiality:
 The future impact of the misrepresentation on trends, in particular profitability trends.
 A error that turns a loss into revenue or vice versa.
 The effect of the misrepresentation on sector information , for example, the relevance of
the subject to a specific segment, which is essential for the potential profits of the
business, the omnipresence of the matter on sustainability reports, and the influence of
the subject on developments in sustainability reports, all in addition to the business
certificate verification overall (Mentz, Barac and Odendaal, 2018).
 The possible impact of the misrepresentation on the enforcement of the business with
employment contracts, other mutual arrangements and government regulations.
 The presence of criteria for legislative or regulatory compliance that influence standards
of materiality. For example, by meeting the conditions for the awarding of incentives or
other types of performance pay, a mistake that has the impact of can organisation’s
remuneration.
 Awareness of the conditions underlying the misrepresentation, such as the repercussions
of misrepresentations associated with fraud and alleged criminal activity, breaches of
contract clauses and improprieties.
 For instance, the importance of the aspect of the financial report impacted by the error is
an error concerning ongoing income as opposed to one concerning a nonrecurring
expense or credit, including an exceptional object (Robinson and McKee, 2019).
QUESTION 4
(a). Explain the auditor's responsibilities for 'going concern assumptions
The theory of the going concern enables the corporation to delay some of its prepaid costs
until accounting periods. A basic assumption in the preparing the financial statements are the
going concern concept. In the absence of sufficient irrefutable evidence, an individual is believed
to be a continuing concern. In the preparation of financial reports, the principle of current
concern is an implicit presumption, since it is presumed that the company has neither the purpose
nor the need to significantly consolidate or reduce the size of its activities. Another of the basic

accounting principles on the grounds where its financial statements are prepared is Going
Concern. Financial statements must be prepared believing that, in the near future, a corporate
organisation can continue to thrive even without manager's need for it desires to consolidate the
organisation or substantially reduce its company's operations (Shahzad, Saeed and Ehsan, 2017).
In the preparation and presentation of financial statement, it is also the duty of the auditor
of a corporation to assess if the going concern assumption is acceptable. Unless the going
concern assumption is found by the administration to be incorrect, the statement of financial
position will have to be updated on end things framework. This implies that the resources will be
recognized at a sum that is supposed to be realized in the normal course of business in its
disposal (net of healthcare distribution) instead of from its continued use. Assets, rather than
their significance as a coordinated team, are valued for their financial value. Liabilities are paid
for in sums which are likely to be resolved. It is not the duty of the auditor to decide whether or
not an organisation should conduct its financial reports and use the accounting basis of the
growing concerns; this is manager's responsibility. However according ISA 570, the auditor 's
duty is to give accurate audit proof as to the advisability of the company's use of the statutory
basis of recent question in the statement of financial position and to determine if there is
considerable difficulty as to the ability of the economy to proceed as an increasing concern
(Shalimova, and Androshchuk, 2018).
(b). Identify any significant events or conditions
 Lack of ability to offer distribution analysis
 Significant losses or problems with cash flow which have occurred since before the end
of the reporting period
 Detrimental important economic ratios
 Evidence of removal from the banking or financial organizations of monetary assistance
 Negative cash flows for operations
 Significant interest payments of debt that the company will not be able to fulfil will fall
due to
 Currently awaiting legal and regulatory action against organization, which could result in
charges that are impossible to be settled if approved.
 A substantial drop in gross profit. ...

 Major Outstanding Debt or Owing Taxes. ...
 The rest of the checking account. ...
 Complete lack of Fund for Science & Architecture. ...
 Lost in Core Management. ...
 Cash Flow issues. ...
 Lost from the Project Nice (Střihavková, 2018)
QUESTION 5
(a). Justify the events and accounting treatment
Client Accounting Treatment Justification
Caufield Ltd The corporation received an
order of natural resources from
Korea that increased the periodic
inventory level. It was listed in
the financial statement assets
side.
In the audit process, in order to
preserve correct financial
documents, the auditor assesses the
time and the place of receipt of a
customer order or manufactured
goods.
Caufield Ltd It is the unpaid cost that is not
reported beforehand. This
accident claim costs is reported
in the costs section in the
statement of financial position.
It is very important for inspectors
to evaluate all the expenses at the
period of the audit quarterly report
and to check that expenditure
should be reported and if any
unpublicized occurrence is
detected, that someone should be
marked for rectifying (Yasoa,
Abdullah and Endut, 2020).
La Trobe Electrical Ltd In the financial report, the
accounts receivable for the
acquisition of shares outstanding
will be removed and the sales
value of Caufield Ltd. will
Accountants implement analytical
methods for acquiring the
outstanding shares of La Trobe
Electrical Ltd. Companies have
found it financially viable with the

improve. assistance of the analysis approach,
which is why they buy these share
capital.
Caufield Ltd The loss for Caufield Ltd was
the unregulated stock loss,
which should be reported as
profit and loss account
expenditures. Furthermore, the
inventory balance is also
withdrawn.
The auditor determines, with the
assistance of review, the reduction
of stock removed from its total
amount and the extra costs already
reported in the profit & loss
account.
QUESTION 6
(a). Identify the type of audit opinion that should be issued and justify your response
Client Audit opinion Justification
Steel Limited The auditor must check all the
services in order to amend
government rules, but amendments
will be made of the next accounting
year as well current review of
records will be performed as before.
Or in multiple accounts, auditors
may make changes.
As others have already
described, the various
accounting policies cannot be
checked by recent
modifications. So, for that
time, they have had to make
adaptation records.
Surf Limited Since it was private, all intangible
activities that are meaningless to
users and screenwriter-related details
are not reported would be totally
fine. The auditor approves in writing
that the financial reports are accurate
From the perspective of the
accountant, intangible
payments are not reported to
be accurate.

and that they reflect a real and pos
tagging.
Ranger Limited The sales graph needed to adjust so
the organization would draw new
buyers who may be more worthwhile
that printing costing is the process of
it.
For a real or reasonable
representation of the financial
condition, it is very essential
for the firm to provide correct
details to its clients.
Minco Limited The clear given in the adjustment of
a significant amount of extra
depreciation in the following period.
Lifespan falls from five to
three years, resulting in more
deprecation, modified at the
close of every year.
CONCLUSION
As per the above report it has been concluded that audit is the review or inspection by an
inspector of multiple accounting system accompanied by physical stock verification to ensure
that all entities follow a recorded making decisions procedure. It is done to assess the
authenticity of financial statements supplied by the firm. Assurance refers to financial
compensation for an incident that is likely to occur that includes remuneration. Assurance is
comparable to insurance, with both the terminology used different words frequently. The
verification facilities provided by bookkeepers and other practitioners may also be protected by
certification.

REFERENCES
Books and Journal
Brenninkmeijer, A. and et.al, 2017. The Application of Audit Standards in ECA's Work.
Davis, A., 2017. Managerialism and the risky business of quality assurance in
universities. Quality Assurance in Education.
Eulerich, M., Kremin, J. and Wood, D. A., 2019. Factors that influence the perceived use of the
internal audit function's work by executive management and audit committee. Advances
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Ji, X.D., Lu, W. and Qu, W., 2018. Internal control risk and audit fees: Evidence from
China. Journal of Contemporary Accounting & Economics. 14(3). pp.266-287.
Maroun, W., 2017. Assuring the integrated report: Insights and recommendations from auditors
and preparers. The British Accounting Review. 49(3). pp.329-346.
Maroun, W., 2019. Exploring the rationale for integrated report assurance. Accounting, Auditing
& Accountability Journal.
Mendez, C. and Bachtler, J., 2017. Financial Compliance in the European Union: A Cross‐
National Assessment of Financial Correction Patterns and Causes in Cohesion
Policy. JCMS: Journal of Common Market Studies. 55(3). pp.569-592.
Mentz, M., Barac, K. and Odendaal, E., 2018. An audit evidence planning model for the public
sector. Journal of Economic and Financial Sciences. 11(1). pp.1-14.
Robinson, M. and McKee, M., 2019. Medical Audit in the United Kingdom: the Past, Present
and Future. Medicina nei Secoli. 5(2). pp.157-173.
Shahzad, M. A., Saeed, S. K. and Ehsan, A., 2017. Sharī’ah Audit and Supervision in Sharī’ah
Governance Framework: Exploratory Study of Islamic Banks in Pakistan. Business &
Economic Review, IM Sciences, Peshawar. 9(1). pp.103-118.
Shalimova, N. and Androshchuk, I., 2018. Approaches To The Interpretation Of The Term
“Historical Financial Information” As The Criterion For The Classification Of Audit,
Review, And Other Assurance Engagements. Baltic Journal of Economic Studies. 4(3).
pp.333-342.
Střihavková, E., 2018. Analysis of the status and quality of internal audit in selected
organizations. MS&E. 393(1). p.012115.
Yasoa, M. R., Abdullah, W. A. W. and Endut, W. A., 2020. A Comparative Analysis between
Shariah Audit and Shariah Review in Islamic Banks in Malaysia: Practitioners’
Perspective. Environment-Behaviour Proceedings Journal. 5(14). pp.195-200.