Running head: AUDITING AND RISK ASSURANCE Auditing and Risk Assurance Name of the Student Name of the University Authors Note Course ID
AUDITING AND RISK ASSURANCE1 Introduction: Theauditing standard ASA 240is associated with the responsibilities of the auditor associated to fraud in audit of a financial statement. Particularly, the scope of auditing standard expands onASA 315 and ASA 330in respect to risk of misstatement because of fraud. Misstatement in financial statement might arise either because of fraud or error (Aicpa 2017). The distinctive factor amid the fraud and error is whether there is underlying action which lead to misstatementof the financialstatementis deliberateor not deliberate. According to the Australian auditing standard fraud is regarded as the wider concept. The auditor is generally concerned with the fraud which causes material misstatement in the financial statement. Even though auditor might suspect or in rare circumstances recognize fraud the auditor does not make the lawful determination of whether the fraud has eventually happened. The primary accountability for preventing and detecting fraud relies on those that are charged with the governance and management of organization (Li, Simunic and Ye 2017). It is vital for the management to place a high stress on reducing the opportunities of reducing fraud and deterring fraud that may persuade an invidious to commit fraud due to the probability of detecting and punishing. The auditor enters much expanded ground to detect the fraud. Auditors Responsibility: An auditor performing the work of audit in compliance with the ASA is accountable for attaining sufficient reassurance that the financial statement that are taken as the whole is free from material misstatement originating from fraud or error (Bozkurt 2014). Because of the inherent disadvantages of audit there are risks that are unavoidable since some of the
AUDITING AND RISK ASSURANCE2 material misstatement of financial statement should not be detected, even though the audit is sufficiently planned and executed in compliance with Australian auditing standards. The auditor is responsible for assessing the correctness of the accounting policies used and appropriateness of the accounting estimations disclosures that are made by the directors. The auditor is accountable for identifying and evaluating the risk of material misstatement relating to the financial statement due to error and fraud and conduct an audit procedure that are responsive to the risk. The auditor is accountable for assessing the overall demonstration, construction and content of the financial report along with the disclosure whether the financial statement provides an underlying evidence of transactions that attains fair presentation (Shah 2017). At the timeof obtaining the reasonableassurance the auditor accountablefor upholding professional skepticism during the audit. The auditor is responsible for communicating with the directors concerning the matters, prearranged scope and timing of audit with significant findings from audit. This comprises of identifying the significant deficiencies in the internal control which the auditor is required to identify during the audit. Auditor failure in detecting and reporting fraud in ABC Learning: In context of the current case study of ABC learning an evidence of overstatement of revenues were noticed. In context of the revenues it is held that the auditor of ABC has failed to derive sufficient and appropriate audit evidence for numerous fee revenue (Kassem and Higson 2016). This ultimately resulted in significant amount of material overstatement of the ABC revenue. Furthermore, the items originating from the provision of childcare services were erroneously categorized since the revenues resulted in overstatement of the ABC revenues.
AUDITING AND RISK ASSURANCE3 The audit report of ABC learning suggests that there was incorrect treatment of the development revenues. The ASIC notes that the revenues transaction was not considered as revenue derived through the provision of childcare services (Ma’Ayan and Carmeli 2016). On classifying the normal revenues as the transaction the users of the monetary reports enabled them to consider developer’s fees as the recurring revenues that originated from the provision of child care services. Therefore, any kind of attempt made to value the childcare centres were useless. Evidences from the audit report suggest that the revenues were not disclosed in a manner which clearly indicated that were recurring and resulting from the provision of child care services. The critical assessment suggested that payment formed the part of scheme that was artificially designed to inflate the profits (Fazliet al.2014). The auditor was unsuccessful in obtaining the adequate audit evidences in respect of the accurate bookkeeping treatment for numerous fees which resulted in significant amount of material misstatement of the ABC proceeds. Among the other auditing issues surrounded the ABC learning was that the auditor has failed to get the adequate evidences to enable a sensible knowledgeable auditor to determine that ABC was a going concern. Requirements of Professional skepticism: At the time of getting reasonable assurance the auditor is required to maintain the professional skepticism all through the audit. Fundamentally, ISA 200 necessitates the use of professional skepticism as the medium of improving the ability of the auditor to recognize the risk of material misstatement and respond to the risk recognized (Soh and Martinov-Bennie 2015). Professional skepticism is closely associated with the essential ethical deliberations of theauditorfairnessandliberation.Professionalskepticismisassociatedwiththe implementation of professional judgement by the auditor. If an audit is conducted without
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