Issues with Auditor's Responsibility | Audit Evidence | Inventory Counting

Online exam BA7010-
Auditing & Control

Table of Contents
Question: 1.......................................................................................................................................2
QUESTION 2..................................................................................................................................4
(a).................................................................................................................................................4
(b).................................................................................................................................................5
(c) Procedure of obtaining audit evidence involves:...................................................................6
QUESTION 4..................................................................................................................................7
(a) Audit procedure for inventory counting.................................................................................7
b) Five audit procedure for carrying out the ascertainment of the value of CRV’s inventory....7
Question 5........................................................................................................................................8
Difference between external and internal audit...........................................................................8
Requirements to appoint internal auditor....................................................................................9
Internal auditor reply upon external auditor................................................................................9
REFERENCES..............................................................................................................................11
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Question: 1
a)
To
The Audit Senior
From: Audit manager
Subject: Issues identified with regards to Auditor’s responsibility
Date: 6 May, 2021
The various responsibilities stated regarding auditor’s responsibility as an auditors has been
found out to be incorrect on certain ground and there are many issues related to these
mentioned auditor’s responsibilities in the draft audit report of Keynes Ltd has been identified.
First of all, as an auditors are not responsible for preparing financial statements for or of the
companies rather it is the duty of the management of the company to prepare the same, and
auditors are just responsible for presenting their opinion about the fairness of these financial
statements based on the evaluation done (Hajering, 2019).
Second, the statement stating that “our responsibility is to express an opinion on all pages of
the financial statement based on our audit” is found to be incomplete as auditor’s are
responsible for listing out all the components of the financial statement they have audited
which may be balance sheet, income statement, cash flow statement, accounting policies
followed and all other information forming part of the notes to the account (DeZoort and
Harrison, 2018).
Third, in the second responsibility mentioned in the draft audit report which says that most of
the international standards on auditing has been followed is incorrect as auditors are obliged to
comply with all ISAs and there is a need to state to state they all the ISAs has been followed.
Fourth, with regards to obtaining maximum assurance in order to ensure that the financial
statements are free from any kind misstatements is incorrect as it is not possible even for
auditors to provide maximum assurance and no clear cut confirmation can be given that the
financial statements are free from errors due to the reason that practically it is not possible for
auditors to test each and every transactions and balances. And only sample of transactions are
tested upon along with some of the material balances that the auditor thought to be important
and therefore able to give reasonable assurance related to financial statement that they free
from misstatements (Maroun, 2017).
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Fifth, auditor is not in anyways responsible for preventing and detecting frauds and errors as
the same is the responsibility of the management and thus auditors are responsible just for
detecting material misstatements either caused due to fraud or errors.
Sixth, a statement saying that auditors has nothing to do with the presentation of the financial
statements as the same is the duty of the management of the company is not true as auditors
are also responsible for ensuring that the presentation of financial statements is in accordance
with the relevant accounting standards and thus in line with the findings of their auditing.
b) Ten factors indicating that the company has a going concern difficulties are as follows:
 Significant reduction in the sales revenue of the business indicates that the business is not
doing well. The decreased sales always leads to reduction in the overall profitability of
the business and profitability is necessary for any business to ensure long term survival.
 Huge amount due on account of debt and interest payable thereon indicates that there is
financial problems with the company and management needs to resort to bank for the
loans. Such problems may arise on account of operating losses and poor cash flows. A
huge debt and interest payable thereon is a major indicator of business’s going concern as
sometimes financial crisis leads to the closure of the business.
 Due to lack of cash flows there may be large amount of overdrafts and the same may
leads to the more cash outflows in the form of higher interest payable on such overdraft
amounts. And resorting to overdraft in itself is not a good option as bank may anytime
stop extending financial support in the form of overdraft which leads to negative impact
on the business operations. So, this may affect the going concern of the businesses (Chen,
Eshleman and Soileau, 2017).
 Key management of the business when lost to competitors is considered to be a big threat
on the survival of the business as ordinary leaving of key management is also considered
as a negative sign of the company in the market and generally leads to the loss of cus-
tomer base too and thus affect the going concern of the business.
 Cash flow problems with the business indicating through its cash flow statements, bal-
ance sheet and liquidity ratios are a major concern for the business management team as
it too indicates going concern objective of the business.
 When some major projects of the business are lost in the hand of the competitors then it
might create a problem for the business going concern as continuous loss of projects may
lead to the closure of the business (Näsman, 2019).
 When businesses reliance on excessive short term borrowing for financing its long term
projects is the indicator of business going concern difficulties.
 When there is a withdrawal from financial institutions, banks and creditors from lending
any additional finance to the business indicates that the business is facing an issue of en-
suring its going concern.
 Adversity depicted by company’s financial ratios is a key indicators of business’s going
concern difficulties.
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