This document discusses the different threats faced by auditors and their impact on the audit process. It also provides insights into auditing practices and principles. The document includes answers to questions related to auditing and examples of different types of opinions that auditors can give.
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Auditing and Professional Practice 1
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Question 1: 1.It states to be an intimidation threat as the CEO is not allowing the auditor to do his job rightly and pressurising him to act as per his motive. 2.It is an advocacy threat as the client is trying to influence the auditors by offering them the gift of holiday cruise. 3.It stands to be a self-interest threat as the auditor being a shareholder might get carried away of his audit behaviour. 4.It is a familiarity threat as there are chances that the auditor could be sympathetic to the Company’s Director who happens to be his brother-in-law. 5.It could be categorised as self-interest threats as the auditor runs the risk of exploiting his auditing skill for the purpose of promoting the shares of the client company. 6.It is definitely an advocacy threat as the auditors run the risk of compromising their audit responsibilities as they are representing their clients for negotiations with third parties. 7.It stands to be the self-interest threat as the auditor’s remuneration would be affected because the company is trying to reduce the audit hours. 8.It is the self-interest threat as by offering the position of the Board Member for the next year, the client is trying to influence the auditor of his current responsibilities. 9.It is an instance of self-review threat as the supposed auditor would be going to evaluate his own service as he was Director to the company. 10.It could be an intimidation threat as the auditor has been asked to reconsider the inventory process although the audit for the company got over by that time. Question 2: Company Ltd has ABC as its audit firm for 10 years, John and Robert being its audit partner. It is seen that each year after the audit gets over, Company Ltd offers a paid weekend for its staff engaged in the audit process and the audit firm. According to IFAC Code it definitely stands for a self-interest threat as by providing such complimentary trips, Company Ltd is at a position to influence the audit judgement by making the process less formal(Arens, Elder, & Mark, 2012). Again John had been offered the post of Director by Company Ltd on the terms that the audit fees need to be reduced. It is also a scenario depicting self-interest threat in line with the IFAC 2
Code as by offering a prominent position in the organisation, the management is trying to compromise on the current audit fees(DeFond & Zhang, 2014). It is noted thatby reducing the audit fees, the organisation is trying to limit the extent of the auditor in dispensing his duties and responsibilities. Question 3: a)The auditor has the ‘Qualified Opinion’ in this case as the audit samples were not properly provided to the auditor for the purpose and the client has not been supportive to conduct the process(Knechel, 2017). b)It could be stated as the ‘Disclaimer of Opinion’ on the grounds that the auditor was not allowed to verify the property, plant and equipment of the organisation constituting 35% of the total assets. So the auditor was not able to reach at a suitable opinion owing to lack of information. c)It is definitely of the ‘Adverse Opinion’ as the contingent liabilities were not included in the disclosure of the financial reports(Hayes, Gortemaker, & Wallage, 2014). It is gross violation of the way the financial statements would be prepared in accordance to the GAAP regulations. d)It is of ‘Disclaimer of Opinion’ as the auditor is unable to gather any audit evidence on the cash sales owing to a loose internal control system in the company. e)It presents for ‘Qualified Opinion’ as the client has not provided with the opening balances of the accounts raising a suspicion in their financial activities. f)It is a matter of ‘Adverse Opinion’ as the client has not been following the Australian Accounting Standards since its operations(DeFond & Zhang, 2014). So the financial statements need to be prepared as per the prescribed standards to make it eligible for auditing. g)It is definitely of ‘Adverse Opinion’ as LIFO inventory system is not allowed under the Australian Standards, so the method itself or representation of inventories would not be admissible. h)It is of ‘Unqualified Opinion’ as there is no concern regarding the financial misstatement of Numark and the cause of its customer is a separate issue. 3
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References Arens, A., Elder, R. & Mark, B., 2012.Auditing and assurance services: an integrated approach.Boston: Prentice Hall. DeFond, M. & Zhang, J., 2014. A review of archival auditing research.Journal of Accounting and Economics,58(2-3), pp. 275-326. Hayes, R., Gortemaker, H. & Wallage, P., 2014.Principles of auditing: an introduction to international standards on auditing.Sydney: Prentice Hall, Financial Times. Knechel, W., 2017.Auditing: Assurance and Risk.4th ed. New York: Routledge. 5