Audit & Assurance: Credibility, Steps, Independence, Objectivity, Threats

This document discusses the credibility of auditors, steps related to the accounting profession, independence of auditors, concept of objectivity, and threats to objectivity in the context of audit & assurance.

Audit & Assurance

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
(a) Audit credibility & steps which are related for accounting profession:................................1
(b) Discuss the following situations in the context of the independence of the auditor, showing
clearly the principles involved....................................................................................................3
(c) Concept of external auditors and internal auditors................................................................3
(d) Threats to objectivity.............................................................................................................4
QUESTION 2...................................................................................................................................4
(a) Procedures to be taken in regard of uncorrected misstatement.............................................4
(b) Going concern indicators.......................................................................................................5
(c) Going Concern Procedures...................................................................................................6
(d) Some going concern disclosures...........................................................................................7
QUESTION 3...................................................................................................................................7
(a) Audit risk and their types.......................................................................................................7
(b) Audit risk and auditor's response...........................................................................................7
(c) Identify the main areas, other than audit risks.......................................................................8
(d) Difference between an interim and a final audit...................................................................9
(e) Procedure of interim audit and impact of final audit.............................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Auditing is a procedure of analysing of business entity's financial records to review when
they are accurate as per the any applicable rules, regulations and laws. From other organisations
auditor come to analysis accounting and financial records after that provide independent opinion
in regard of such records. Assurance is procedure of analysing and used in the assessment of
business accounting transactions as well as financial records (Sukma and Bernawati, 2019).
Audit & assurance is more than the numbers and based on attesting to achievement and
difficulties that supports to ensure about strong foundations for potential aspirations. On the basis
of Audit get greatest level assurance in the context of business's financial statements that fairly
presented that depend on the application of generally accepted accounting principles. This report
based on the Audit & Assurance in which cover various topics like credibility of auditor in
regard of independence, concept of objectivity, internal auditor of ACCA, safeguards of
objectivity and potential indicators of going concern.
QUESTION 1
(a) Audit credibility & steps which are related for accounting profession:
Audit credibility is related with the ability of external auditor as per the auditing activities
and behave with honesty as well as objectivity. In the opinion of other people it is coordinated
with auditors with legit independence.
 Independence: The auditor independence is based on the internal as well as external
auditors from clients having financial interest in regard of audition of entity. The
requirement of independence is related with different objective approaches during the
audit procedure.
 Integrity: This term related with the audit in which auditor should manage coordination
with different departments to manage their corporate financial and professional relations
effectively. It is not only use for honesty but also for trustfulness and dealing effectively.
 Objectivity: It is based on the different aspects that requires to present independent
views during the audition procedure (Atkins and Ritchie, 2019).
 Professional competence: It is concerned with abilities of auditor in which analysis
competencies effectively and their duties in professional way for the presentation of
particular task with applying skills with relevant quality.
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 Confidentiality: The factor mainly necessary for the auditor that should not present
confidential as well as personal information of customers with other except client's
consent.
 Professional behaviour: There are consisting of imposition of key liabilities of an
auditor to do compliances in regard of previous mentioned relevant guidelines, laws &
regulations.
There are including different steps in regard of accounting relation has been taken such
as:  Audit committee: This committee prepare by the auditor in which including those persons
whose main liabilities to assist auditors to stay independent from management. Such as,
committee should analysis auditors opinion in different manner due to different conflicts
overseeing them (Mantelaers, Zoet and Smit, 2019). Size of audit firm: It is essential aspect that are presenting independence for auditor that
are scale for the audit business. The integrity based on the auditor speciality that are
based on the audit accuracy. In the large entities that makes certain things in regard of
impartial quality for audit services that focus on the stronger analysis of facilities that are
reliable for financial services. Moreover there are using modern technologies for
qualified employees who are able to conduct large business audit and relate with small
company audit.
 Competitiveness degree in audit service sector: It presents outer impacts that are affecting
on the independence for auditors. The clients are quickly procure different services for
other audit and different organisation can work for highly competitive market that have
trouble staying autonomous.
Tenure of audit firm that meets the interest of particular client
This term based on the business activities and require to meet with the specific client's
audit requirements. A long relationship mainly based on the organisation and financial institution
that mainly occur in close of identification of business with clients requirement and make it
impossible because of company is considering to take independent action (Boiral, Heras-
Saizarbitoria and Brotherton, 2019).
Auditing size and non auditing fees
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The auditing size mainly based on three criteria such as, wealth of the audit partners and
size of customer's portfolios and the number of audit partners in the firm. Moreover number of
audit partners is an audit firm is adversely related with audit quality. A fee pays by company to
their external auditors for exchange of performance in regard of audit that make audit procedure
more complex. As a result it is increasing audit fees significantly in the United States since 2001.
The IFAC's code of ethics defines that consumer size analysed on basis of fee that could
create doubts in regard of integrity of auditor. The fee of auditor should not surpass a particular
proportion in regard of audit business turn over. Along with auditors tended with managers in
which including illegal practices in the context of business transparency (Zhang, 2019).
(b) Discuss the following situations in the context of the independence of the auditor, showing
clearly the principles involved
There are defining various situations in the subject of independence of auditor and
presently principles clearly such as:
 When case is subjective in nature and considerable aspect for client is major source of
income for auditor since total income is 700000 out of which 100000 is receivable by
client.
 Due to lack of independence the case auditor manage all the securities in proper manner
that impact on auditors opinion.
 If in audit identify lack of independence as auditor so has taken loan from same bank
where conduct auditing procedure effectively.
(c) Concept of external auditors and internal auditors
External Auditors: External auditors are those accountant of public who perform
appraisal, reports and other kind of functions for their firms. Statement of finance and control of
management of their firms can be assessed impartially which make them independent of entities.
His opinion about auditing is respected by borrowers and customers as they provide fair and true
review of companies financial statements in all respects of material (Sampet, Sarapaivanich and
Patterson, 2019). Management perform financial statements in the respect of all materials so that
they can obey framework of financial reporting which is relevant for them and external auditors
keep a check on these reports. They need to be sure that what ever document provided to them
are sufficient in delivering their opinions and it is the primary intention in order to carry out
statutory audit. In order to meet objectives it is important for external audit to match certain
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guidelines and other authorities strictly. More often than can also follow rules of local
professional bodies which are establish by government.
Internal Auditors: Internal auditors are business professional who are qualified as
individuals of this department should have certain qualifications. They conduct fair
organisational and unbiased assessment with the participation of corporate governance. It is their
obligation to ensure business compliance with regulations and legislation as sometime they are
require to establish departments for internal audit so that criteria of local legislation could be
meet (Lai and Pham, 2020). They should follow protocols appropriately and run functioning as
effectively as they can . They are answerable for the work they have done and in providing
correct information about entity to the entity. They help organisations to estimate and handle
risk in order to conduct independent and systematic work.
(d) Threats to objectivity
First threat: It is a possibility of self interest when auditor effectively conduct their
business activities but do not relies on customer in regard of payment. As per the first scenario
there is identifying self interest threat in regard of auditor received 7% of total income From
bakes Co.
Safeguard to threat: For this threat deduct dependency of client in which require to follow
external quality control procedure.
Second Threat: The other threat in second scenario that independence. Peter is a staff
member that want to conduct internal audit in their organisation.
Safeguard to threat: The organisation can take assurance from Peter to provide unbiased view
and replace internal auditor that have no personal problem with organisation in regard personal
activities.
QUESTION 2
(a) Procedures to be taken in regard of uncorrected misstatement
 The error in the inventory misstatement has been the major issue that decide the actions
of future sales and profitability and there could be many ways to correct that in order to
monitor the best output to the company (Rozario and Thomas, 2019).
 Some possible errors must be addressed with the operational management of John Co and
need to explain the stock discrepancies in the warehouse.
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 The mistake should taken into the consideration and that differentiate according to the
size of error and should monitor the broad sampling of inventory items.
 Analysing incorrect amount from the accounts books like an asset and it has not valued
according to the IFRS requirement.
 After this procedure there is need to classify all errors and it should be addressed
according to the administration and management of John Co to defined type of material
variance. This is important to identify all kinds of inventory types and accordingly check
their nature.
 There is need to differentiate the stock to analyse the material separately and has to
evaluate the stock according to the inventory portfolios (Handa, Pagani, and Bedford,
2019).
 At the end of the auditor procedure some other error are need to be recorded after audit
and it should be done with practical analysis.
From the auditor point of view this is important to find out the such kinds of misstatement in
order to communicate effectively with John. CO and need to ask the require corrections in the
material books. From the help of factual misstatement, there is chances for discussion with
administration and that will be treated falsely in the income statements. Auditor present
conclusion that robust audit transaction in order to defined misstatement that has been disclosed.
The need of proper communication between John. co and auditor will help in maintaining the
best results to the company.
(b) Going concern indicators
There are many going concern indicators of John& Jane company that new competitors
Drums Concept Co has entered the market with the tendency of aggressive pricing strategy and
providing products at low price. This is possibilities that an effect on cash-flows will lead to loss
in the share market. This has impact the company as it has reduce their cost and provide products
on low profit to their competitors and also will effect the profitability as well as cash position of
business.
As big client has refused exchange with John and start working with competitors will
lead to big loss in forecasted sales. Many suppliers do not continue their business activities with
John and started with the Drums.
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Many developers are from the John leave the organisation and approached to Drums and
because of its skills and expertise it is not possible to replace as they were looking for the new
technology and trained employees.
The main source of danger has been ceased during trading and this negatively impact the
business as they were not able to get the goods from other industries and when they need
extreme advance capabilities (Habib, Bhuiyan and Sun, 2019).
To increase the market share, John has collect financing for the production but failed to
do additional financing and could not do the proper financing to the shareholders as well as.
If noticed, it shows that John's cash flow position is at worse position. Unless, company
maintains capital outflows, it might rise overdraft and start the running out of money.
(c) Going Concern Procedures
 Having cash balance outlook from the business and regulating cash-inflow and outflow.
Assumptions and review the results with executive to acknowledge the cash flows
 Analysing sensitivity study of cash flow by considering the company' cash-flows
margins.
 Discussing with the finance director about the new clients.
 Determining the company's post-year revenue and evaluate the trade volumes that
whether they are expected to grow in the comparison of competition with Drum.
 Identification that managers whether replacement designers skilled in replacing
drummers that have been hired.
 Review all contacts with the Bank, regarding overdrafts to decide any contact that has
been broken.
 Evaluating all loans and carefully examined the risk of overdrafts renewal.
 To assist the product growth and having discussion with directors and approach any
financial banks
 Reviewing all administration information at the end of the year.
(d) Some going concern disclosures.
The John and Jane directors has promised that they will make the public disclosure and
the effect of such in audit reports will depend on how much they are satisfied.
In the paragraph, audit judgement will not be revised and connection to management's
disclosure statements. It is appropriate to change the audit opinion as some errors can be
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occurred and required proper audit from auditor. Management should always disclose all the
relevant information with them so that they could identify the best method to execute it. It
require sufficient knowledge, judgement and it should be based on the materiality of the subject
matter.
There is determining the issue that need to be maintained and incorporated and explicit
that defines the inability in communication and existing ambiguity in following question.
QUESTION 3
(a) Audit risk and their types
Audit risk is the risk that an auditor may face due to the misstated financial statement It
include three components which are inherent risk, detection risk, control risk. The main purpose
of auditing is to decrease auditing risk as it is required by shareholder, government, customer,
creditor etc.
Inherent risk is defined as chances of misleading in accounting statement, transactions
and in report due to unmanageable factors in the financial statement which is complex to detect
omission by auditor in statement while conducting audit of a company (Serly and Helmayunita,
2019).
Control risk is said when errors are detected by account analysist in an organisation. It is
prevented by auditor of the misstatement in financial information. When accountant will not
prevent and lack of control then it reflects false picture about a company financial situation.
Detection risk is the possibility that an auditor cannot find omission in organisation
financial statement this misreport will result to fraud in business. Auditor determines there is no
error while ascertaining statement and after that it is suspected by audit procedure.
(b) Audit risk and auditor's response
Audit risk Audit response
Milla has repair, update and replace his
machinery for processing and sustain an
amount of $ 5m in production process.
This expenses on machinery is of capital
nature. It comes under head of Property, Plant
and equipment in International Accounting
Auditor has to analyse these cost to determine
to break into revenue and capital expenditure
and ensure that accounts are categorised
correctly in financial statement under each
head.
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Standard 16 PPE. Therefore, if it identifies
more repair then this will express in
Statement of P&L.
This expenses are wrongly categorised then
PPE and profit will be overstated and
understated (Aobdia, 2019).
In the end there should be calculation of raw
material in 15 storehouses. It is impossible for
auditor to review all the storehouses to assess
inventory but they make sure that they check
and combine proof of count of inventory and
total and existence of raw material in
storehouse which auditor has not reviewed.
Auditor will determine places where
inventory is kept to count them. They will
check the past data for specific errors.
Where auditor has not review then they need
to look the exceptions and the problems with
management which occur during inventory
count.
Raw material stored in warehouse by Milla
and some are rented from outside parties.
Those inventory which is owned by Milla
comes under heading Property, plant and
equipment as there will be possibility of
underestimation of rent expenses and
overestimation of PPE.
It should assess all the evidence documents of
all stores to ascertain whether non-content
asset are not overstated.
(c) Identify the main areas, other than audit risks
As per the strategy of audit provide scope, time table and course and assist in designing
audit plan. There are mentioning various areas in effective manner such as:
 The main characteristics of commitment that identify scope in broad manner.
 This approach focus in the company team activities accordingly take potential action for
further activities.
 The results carry out through audit plan information necessary for company and focus on
liability in appropriate way.
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(d) Difference between an interim and a final audit
Interim Audit is important audit that conduct by the business at the end of year. In interim
audit conduct audit procedure effectively at timing pressure that become critical at the end of
financial year. When final audit will be conducted that time closes auditing report with the point
of view of auditors. It is required to remember that both audit reports are focusing on the final
opinion effectively (Quick and Henrizi, 2019).
(e) Procedure of interim audit and impact of final audit
 Analysis and changes of Peter Company at the time of setting accounting documents.
 Discuss with managers in regard of recent developments and apply all other
improvements at the time of current year for auditor's comprehension of the business
entity.
 Risk appraisal impact on the Peter Cola Co's final audit effectively.
 Present different activities of audit in regard of stock periods, as well as credit
management of Mila's main transaction times.
CONCLUSION
As per the above report it has been concluded that audit and assurance both are important
terms for any business entity that supports to carry out different risk that occur in the business
during to audit. Along with follow a basic procedure for conduct audit procedure in which
consist of different indicators. Moreover follow going concern indicators and identify that
interim and final audit are important for financial goals.
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REFERENCES
Books and Journals
Sukma, P. and Bernawati, Y., 2019. The Impact of Audit Committe Characteristics on Audit
Quality. Jurnal Akuntansi. 23(3). pp.363-378.
Atkins, A. C. and Ritchie, M., 2019, April. Improving board assurance of technical and
operational risks in mining. In Proceedings of the first international conference on
mining geomechanical risk (pp. 97-110). Australian Centre for Geomechanics.
Mantelaers, E., Zoet, M. and Smit, K., 2019, December. The Impact of Blockchain on the
Auditor's Audit Approach. In Proceedings of the 2019 3rd International Conference on
Software and e-Business (pp. 183-187).
Boiral, O., Heras-Saizarbitoria, I. and Brotherton, M. C., 2019. Professionalizing the assurance
of sustainability reports: the auditors’ perspective. Accounting, Auditing & Accountability
Journal.\
Zhang, C., 2019. Intelligent process automation in audit. Journal of Emerging Technologies in
Accounting. 16(2). pp.69-88.
Sampet, J., Sarapaivanich, N. and Patterson, P., 2019. The role of client participation and
psychological comfort in driving perceptions of audit quality. Asian Review of
Accounting.
Lai, T. and Pham, D., 2020. The quality of audit services: An assessment from FDI clients in
Vietnam. Accounting. 6(6). pp.1071-1076.
Rozario, A. M. and Thomas, C., 2019. Reengineering the audit with blockchain and smart
contracts. Journal of Emerging Technologies in Accounting. 16(1). pp.21-35.
Handa, P., Pagani, J. and Bedford, D., 2019. Audit Methodology for Knowledge Assets. In
Knowledge Assets and Knowledge Audits. Emerald Publishing Limited.
Habib, A., Bhuiyan, M. B. U. and Sun, X., 2019. Audit partner busyness and cost of equity
capital. International Journal of Auditing. 23(1). pp.57-72.
Serly, V. and Helmayunita, N., 2019, April. The Correlation of Audit Fee, Audit Quality and
Integrity of Financial Statement. In 2nd Padang International Conference on Education,
Economics, Business and Accounting (PICEEBA-2 2018) (pp. 67-72). Atlantis Press.
Aobdia, D., 2019. Do practitioner assessments agree with academic proxies for audit quality?
Evidence from PCAOB and internal inspections. Journal of Accounting and Economics.
67(1). pp.144-174.
Quick, R. and Henrizi, P., 2019. Experimental evidence on external auditor reliance on the
internal audit. Review of Managerial Science. 13(5). pp.1143-1176.
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