Auditors' Report on Financial Statements

This assignment explores the structure and content of an auditor's report on financial statements. It emphasizes that the report should adhere to International Financial Reporting Standards (IFRS) and Australian Accounting Standards Board (AASB). The report outlines the responsibilities of management and auditors, the scope of the audit, and the auditor's opinion on the fairness of the presented financial information. Key elements include a statement regarding independence, the company's responsibility for the financial statements, the nature of the audit, and the auditor's belief in the reasonableness of their opinion.

Running head: AUDITING AND ASSURANCE
Auditing and assurance
Name of the student
Name of the university
Author note

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Question 1
Answer (a)
Ethics – it will hamper the ethics related to disclosure of confidential information of the client
as the auditor disclosed some important details regarding the products and services of the
client to the intended buyer of the business.
Recommendation – the principle related to confidentiality is keeping the information of the
client confidential and take all the necessary steps for preserving the confidentiality. Proper
and safe approach on the part of an auditor is to treat all the information related to client and
his business as confidential, irrespective of the way the information gained. The auditor shall
not disclose the confidential information of the client even if it is relevant for an engagement
or it would be beneficial to the client.
Answer (b)
Ethics – it will violate the ethics of professional behaviour
Recommendation – as Fred Hingarra was in oversees country for 6 years and involved in
playing full time soccer, it is likely that he is unaware of the recent amendments, additions
and deletions in the accounting standard and auditing standard, therefore, instead of taking up
the audit immediately after returning to the domestic country and starting his 1st audit he must
comply with the following activities to carry out the audit smoothly –
 Plan the audit well before initiating the audit procedures
 Stay updated regarding the amendments in the accounting standards as well as
auditing standards
 Analyse the changes in the activities
 Ask various questions to the client and organize the data

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 Plan for the evaluation of client’s internal control system
 Perform the self-review process.
 Forecast the results.
Answer (c)
Ethics – it will violate the ethics related to professional behaviour as the accountants are not
allowed to advertise of their work or anything related to work.
Recommendation – in promoting and marketing themselves and works they carried out, the
professional accountants must not bring their profession into dispute. Further, they shall be
truthful and honest and shall not –
 Make any exaggerated claims regarding the services they offer, experience they
possess and qualification they gained, or
 Make unsubstantiated comparisons or judgmental references for working with others
 Make any promises that may lead to fake assurance
Therefore, the Asquith Accountants shall not specially advertise to provide guarantee
for refunding the tax within the period of 10 days as it will lead to threat to professional
ethics.
Answer (d)
Ethics – it will not violate any principles related to general ethics. The club treasurer
administers the financial aspect of the company, for instance the planning for financial future
of the club, budget preparation, assisting in the committee areas related to finance. Further,
the treasurer will be responsible for –
 Issuance of receipts and depositing all the received monies promptly
 Responsible for petty cash of the client

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 Responsible for making all the payments and keeping the exact updated records of
expenses and incomes
 Act as the signatory authority for the cheques
 Investment of the surplus funds
The auditor can act as the treasures of the athletic club as the audit firm is not engaged
in the auditing of the club and it will not violate the ethical principles.
Answer (e)
Ethics – it will hamper the ethical issues related to professional behaviour
Recommendation – the auditor in any situation shall provide his opinion on the financial
statement and internal control of the client based on his professional judgement, opinion and
experience. If they are engaged on the basis of the fact that the payment will be based on the
type of the report the client will receive. Accepting the audit engagement based on these
terms will lead to threat to the auditor’s independence. Therefore, accepting engagement on
such terms will lead to violation of ethical issues with regard to professional behaviour.
Answer (f)
Ethics – it will lead to violation of ethical issues
Recommendation – an auditor is not supposed to receive any payment apart from his audit
fees, in form of commission, remuneration or in any other form. If an auditor is engaged in
any activities where he is expected to receive any payment based on commission, it will
violate the ethics related to professional behaviour. Further, the auditor is not supposed to any
other job apart from the accounting job. Therefore, engaging under the activities of providing
client to Cheap Insurance Company on the basis of 5% commission will violate the
professional behaviour.

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Question 2
Answer (a)
Threat - Familiarity threat
Recommendation – As per the given situation there will arise the familiarity thereat on the
part of Ellen Davis, if he is appointed as the auditor of Jetkins Ltd. The familiarity threat is a
threat that takes place owing to close or long relationship with the client’s organization. It is
very likely that due to long time association the auditor will have sympathetic feelings
towards the interests of the client organization or he will be in the view that it is not required
to go through the in-depth procedure of audit. Appointing a person as auditor of the
organization who is associated with self-interest threat will pose the threat towards
independence of the auditor. Therefore, Ellen Davis shall not be appointed for auditing of
Jetkins Ltd.
Answer (b)
Threat – Self-interest threat
Recommendation - Under the given circumstances, there is a likelihood that the earnings of
the management based on the development capitalisation cost for increasing the profits and
thereby increasing the bonuses of the management. Further, it will be the ethical issue if the
auditor consents the management’s optimistic assessment approach. It will raise the threats of
self-interest, if auditors accept the dubious numbers for retaining the customers. Therefore,
the bonuses of the staffs shall not be based on the performance.
Answer (c)
Threat – Self-review threat and self-interest threat

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Recommendation – the auditor is not supposed to carry out any other job that is not included
under the audit engagement letter. Further, the auditor is not supposed to audit his own
activities as it will raise the self-review threat. Moreover, if the auditor is associated with any
activities that will threaten his independence he shall not accept such engagement. In the
given case, the auditor is requested to visit the 2nd shop for chocolate of the company where
they sell their defective chocolates at discount before completing the audit. It will raise a
threat to auditor’s independence owing to the fact that while carrying out the audit procedure,
the auditor shall apply his analytical knowledge, experience and professional judgement
regarding which activities to be covered under the audit process and which are not to be
included.
Answer (d)
Threat – self-interest threat
Recommendation – quality of the audit report is an important issue to be considered as it is
utilised by various users like shareholders, creditors and potential investor for making various
crucial decisions. Therefore, while auditing the auditor shall apply professional approach,
integrity and objectivity. To be flexible as per the auditing terms for taking up the
engagement will definitely have an impact on the independence of the auditor. Further, the
auditor must issue a report that will be free from fraud, material misstatement, error or any
kind of self – interest. Here in the given case, if the auditor agrees to provide flexible services
to The Expert Travel Company as per their requirement and confirming that before initiating
the audit will raise the chances of self interest which in turn will raise the threat to
independence of the auditor.

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Answer (e)
Threat – relationship threat
Recommendation – the relationship threat is broad enough to cover various relations like
relation with members, staffs, and accountant and on personal level. If these persons are
associated with the client company for which the auditor is engaged to carry out the audit, it
will raise the threat to independence. However, under such circumstance, it is not required to
leave the audit as incomplete rather the audit firm shall take steps to eliminate such threats.
As per the given case, the senior member of the audit team is associated with the senior
accountant of Elmtree, the client company. There is the likelihood that the audit team will not
carry out the audit with in-depth research with regard to client’s business. Therefore, to carry
out the audit transparently and with appropriate independence level of the auditor, the senior
audit team member, Elaine Ong shall be excluded from this particular audit engagement.
However, if it is not possible to exclude him from this audit engagement, then the audit of
Elmtree Ltd shall not be accepted.
Answer (f)
Threat – self-interest threat
Recommendation - if the member of the audit team is in anyway associated with the client
company, it will raise the self interest threat as involving with the client in anyway will
influence the auditor to give partial judgement. It will further raise a threat to auditor’s
independence owing to the fact that while carrying out the audit procedure, the auditor shall
apply his analytical knowledge, experience and professional judgement regarding which
activities to be covered under the audit process and which are not to be included. These will
be impacted by the audit member’s association with client’s company that will lead to
insufficient check of the client’s information and internal control system. However, under

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such circumstance, it is not required to leave the audit as incomplete rather the audit firm
shall take steps to eliminate such threats. As per the given case, the senior members of the
audit team, Diane Polo involved in the softball team shall be excluded from this particular
audit engagement. However, if it is not possible to exclude him from this audit engagement,
then the audit of Rangers Ltd shall not be accepted.

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Question 3
The standard report of the auditors states that financial statement of the company are
fairly presented in all the material aspects, the financial position of the company, operational
results and the cash flow of the company is in accordance with the IFRS. The report
recognizes that the audited financial statement has an introductory paragraph, states the audit
nature under the paragraph for scope and the opinion of the auditors are stated in the separate
paragraph for opinion. The primary aspects covered under the report are as follows –
 Title for the audit inclusive of the word ‘independent’
 A statement that states that the financial statement of the company are the company’s
management’s responsibility and the responsibility of the auditor is expressing
opinion on financial statement on the basis of auditor’s judgement
 A statement that will state that the financial statement included under the report are
audited
 A statement stating that the audit involves –
Analysis of the overall presentation of the financial statement
Investigating the supporting evidences for the involved receipts, payments and the
disclosures related to the financial statement
Analysing the principles of accounting that are used in the preparation of statement
and the significant estimates that are made by the management
 Printed or manual signature of the firm of auditors
 Date of audit report
 The country, state and city from where the report of the auditors is issued
 Stamen stating that auditors believe that her or his audit offers reasonable basis for her
or his opinion.

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Further, the report shall also include the following statement –
As per the opinion of the auditor the financial statement of the company are fairly
presented with all the material aspects. Further, the financial position of XXX Company as on
30th June 20XX , the operational result of the company and the cash flows for the closing of
the year are in compliance with the IFRS and AASB.

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