Advanced Auditing and Assurance - Analysis and Reporting

This assignment solution for Advanced Auditing and Assurance provides a comprehensive analysis of various auditing concepts and scenarios. It addresses material inconsistencies in financial information, the valuation of stocks, and the refusal of management to allow auditors to perform circularization of debtors, detailing the appropriate audit responses, including qualified and adverse reports. The assignment also explores the implications of the "going concern" assumption, environmental issues that may lead to misstatements, and the auditor's responsibilities in such cases. Furthermore, it examines noncompliance with regulations like the Factories, Offices, and Shops Act, and the potential threats and safeguards related to auditor independence, such as self-interest threats due to significant fees received from a client. The assignment concludes by identifying and analyzing business risks faced by UP-Link airlines, offering a detailed examination of practical auditing challenges and solutions.

ADVANCED
AUDITING AND
ASSURANCE

Contents
MAIN BODY...................................................................................................................................3
Question No 1..................................................................................................................................3
Question No 2..................................................................................................................................4
Question No 3..................................................................................................................................6
Question No 4..................................................................................................................................8
REFERENCES..............................................................................................................................10

MAIN BODY
Question No 1
a i)
1. In the given case there is a material inconsistency between financial information and
other information and management has refused has refused to effect any change when
requested by the auditors to do so. In that case the auditor should communicate this
matter to those charged with governance that management has refused to current the
inconsistency in the financial statements. After that the auditor should disclose this fact in
his audit report and issue a qualified report (Abuazza, Labib, and Savage, 2020).
2. The stocks are valued by the entity at cost. However, the rule sale that investment must
be valued in the books by the management at cost or NRV whichever is lower if such
stocks are hold for long term purpose. In the given the director has refused to value the
stocks at Cost or NRV whichever is lower. In that case such facts must be disclosed by
the auditor in his audit report and issue the qualified report.
3. In the given case the management has refused to allow the auditor to carry out
circularization of debtors. Further the auditor does not receive the reply from solicitor of
company regarding major litigation affecting the company. Since both the items has been
material and pervasive then in that case the auditor must issue adverse report.
4. The management has refused to make provision for doubtful debts in the books of
accounts regarding the major debtor who has become insolvent. In that case this fact is
material but not pervasive hence the auditor must issue a qualified report disclosing such
fact in that report.
a ii)
In all the above cases when the management refuses the auditor to make the corrective changes
in the books of accounts, the auditor must communicate this fact to the higher authority of the
company that is those charged with governance and disclose the fact in his audit report (Canant,
2020).
b)

The audit is and audit and should be conducted in line with same auditing standards. This
statement means that it is not possible that all the auditing standards are being applicable in the
respective company whose books of accounts are being audited for the given period of time.
Further this statement means that audit must be carried out in complying with relevant auditing
standards applicable in the given point of time. The small and medium enterprise are being
proportionately exempted from the applicability of the standards so as to give them relaxation.
However, such relaxation will be granted depending upon the nature and size of small and
medium enterprise (Cetinoglu, 2021). The IAASB clarity project on ISA indicates the following:
 Each standard now without a doubt identifies the goal of the auditor withinside the audit
location addressed. One of the primary desires of the IAASB in redrafting its
requirements changed into to cast off any feasible ambiguity approximately the
necessities an auditor wishes to fulfil; as a result, the goals in every ISA at the moment
are supported with the aid of using without a doubt said necessities designed to beautify
consistency of practice. In all cases, necessities are expressed with the aid of using the
phrase “the auditor shall.”
 The clarified requirements additionally have a brand-new structure, wherein records is
offered in separate sections: Introduction, Objective, Definitions, Requirements, and
Application and Other Explanatory Material. This restructuring, similarly to the opposite
drafting enhancements, improves the clarity and understandability of the requirements.
 Thirdly, particular organizations of entities are addressed. Users can now locate issues
particular to small- and medium-sized entities (SMEs) and public quarter entities
withinside the requirements themselves. These issues are highlighted withinside the
Application and Other Explanatory Material segment of the ISAs (Dzuranin, Jones, and
Olvera, 2018).
Question No 2
a i)
In the given case the directors of Rockland Limited are relucted to disclose the facts in their
books of accounts that their business has been facing the difficulty towards operational cash
flows and they are trying to raise the finance in order to support their operational cash flows.
Since they are facing the difficulty in cash flows, their going concern assumption has failed to

survive in the future then such fact must be disclosed in the Noted to accounts. They are reluctant
to disclose such fact in the books because in that case it will be clearly visible to all the
shareholders and other stakeholders that company is not being working properly and their cash
flows are being negative then they will be closed down soon and will go for winding up. The
director is of the opinion that such cash flows problem is of temporary nature and such problem
will be resolved if they are supported by finance provided by the financial institution (Fotoh and
Lorentzon, 2021).
a ii)
If the going concern assumption is failed that such fact is material and pervasive too. If must be
disclosed in the notes to accounts and if management has refused to do so then in that case the
auditor must issue an adverse report in that case.
b i)
The following are the environmental issues that may lead to risk of misstatement in the financial
statements:
 Credit risk can rise up in a roundabout way in which banks are lending to clients whose
groups are adversely laid low with the charges of cleansing up pollutants or through
modifications in environmental regulations. For example, the charges of assembly new
necessities on emission tiers can be enough to position a few corporations out of
business. Banks might also locate themselves without delay affected in the event that they
locate that the fee of belongings that they've taken as collateral is impaired through
contamination (Hoang and Nguyen, 2019).
 Legal risk can take some of one-of-a-kind forms. Most obviously, banks like different
corporations are at danger in the event that they themselves do now no longer observe
applicable environmental legislation. But extra specifically, they may be vulnerable to
direct lender legal responsibility for clean-up charges or claims for damages in the event
that they have sincerely taken ownership of infected or pollutants inflicting belongings
because of realising security. There is likewise the even extra traumatic prospect that
during a few jurisdictions the mere act of lending to an agency or venture which reasons
environmental issues may also cause the lender incurring a few legal responsibilities for
clean-up charges. Banks may also protest, with a few justifications, that they need to

know no longer be pressured into the position of “environmental police”, however this
will convey little weight in a few courts. •
 Reputation risk may also rise up even withinside the absence of lender legal
responsibility, mainly if banks are visible as related to large-scale tasks which might be
considered as socially or environmentally damaging, consisting of dam tasks. The boom
of globalised protest moves and the usage of the net to disseminate facts have
significantly elevated the danger that man or woman corporations may be the problem of
concerted campaigns of public criticism (Johl, Muttakin, and Gioffre, 2021).
b ii)
The actions taken by the auditor i.e. Dell max and associates when they realize that Digwell
Mining Company Ltd has environmental issues are being explained below:
 The environment matters are important for certain set of companies and auditors must
have the general understanding towards the impact of such factors on the financial
statements.
 It is the duty of Dell Max and Associates to obtain information from the management
relating to the environmental risk they are exposed too and should make discussions with
management so that auditor can identify easily the significance of environmental issues.
 It is the duty of the auditor to ensure that environment related controls must be effective
enough as management is responsible for the internal controls effectiveness as it
safeguard the investment made by the shareholders in the entity and assets of the
organisation.
 The auditor must ensure that all the laws relating to environment must be duly complied
with by the business that would materially affect the financial statements.
 When the management provides technical advice in estimation and disclosed to financial
statements then it is the duty of auditor to consider the adequacy of such work as well as
competence and capability of such expert (Kend and Nguyen, 2020).
Question No 3
a i) The examples of the noncompliance with Factories, offices and shops Act that comes to the
auditor attention could be as under:
 The license permission to run the factory that must be obtain with the government as
showed under licensing provisions of the act.

 The factory must be cleaned such as floors, windows, passage etc and the factory must
have proper arrangement of disposal of wastes and effluents as mentioned under Heath
provisions of the act (Mactavish, McCracken, and Schmidt, 2018).
 The machines used in the factory are properly fenced and the new machine used in the
factory must be cased properly to prevent danger as covered under Safety provisions of
the Act.
 Separate and adequate washing facility to be provided for male and female workers as
covered under welfare provisions of the Act.
 The workers must not be allowed to work for more than 48 hours per week and must be
granted weekly holidays.
 Chile labour must be strictly prohibited in the factories as there is prohibition towards
employment of young children in the factory.
a ii) The auditors should consider when evaluating the possible effect on the financial statement
for the noncompliance with ISA 250 are being mentioned below:
 If the laws and regulation have the direct impact on the material amounts and disclosures
in the financial statements then it is the duty of the auditor to obtains sufficient and
appropriate evidences with respect to such noncompliance.
 And if the laws and regulations does not have the direct impact on the books of accounts
but their compliance is significant towards the operations of the business and to avoid the
significant penalties then the auditors does not have any responsibility towards that.
b i) The significant threats in the given case could be the self interest threat that Cash Put and Co.
has as they are receiving 20 % of their total income from the BFT Bank Ltd. Such financial
interest in such client could be the reason as they have financial interest and under dependence
on total fees they received from the client (Moroney, Phang, and Xiao, 2021).
b ii) The safeguards to eliminate the possible impact of such threat could be mentioned under:
 If the fees received by the auditor if more than 15 % of the firm’s total revenue for the
two consecutive years then it is important to inform the board of director of the bank to
carry out independent quality control review after issue to 2nd year audit opinion report
submission.
 The external Quality control review can be carried out for the firm performance with the
help of professional accountant such as ACCA or ICAEW.

Question No 4
a i) The five types of business risk that has been faced by the UP-Link airlines are being
mentioned below: -
 They are using 35-year-old aircraft whose engine requires overhauled in every two years
and they are expected to put into the aircraft out of commissions for several weeks.
 The quality of the food they are serving to the passengers are not satisfactory especially
on the Johannesburg to Accra flight.
 Over booking has been made on several occasions for the economy class and customer
who are being affected by this are being transferred to the business class that shows that
mismanagement from the point of view of airlines (Taha, Ramo, and Alkhaffaf, 2021).
 The UP-link airlines do not operative on various cities but they are limited to flights
between Accra and Johannesburg. Their revenue depends on this platform only as they do
not diversify them in various others routes.
 The prices of the tickets are not fixed for the particular period and they varies depending
upon the tickets that whether they are refundable or non-refundable, exchangeable or
non-exchangeable, single or return etc.
a ii) The risk identified above could be mitigated or reduced with the help of following ways:
 The UP airline should use new aircraft instead of old one as they are carrying human
lives and there are huge chances that 35-year-old aircraft they are using will not be able
to survive for the longer period of time.
 The food quality they are serving in the place are being rejected by the passengers
carrying on such aircraft. The questionnaire they are filling in the form of feedbacks from
the passenger must be implemented accordingly as it improves the customer satisfaction
and trust on the airlines.
 The UP-link airlines must diversify themselves on various other routes also to increase
the customer base and revenue because for the longer period of time they need to increase
the number of flights on same route or to carry out different flights on multiple
destinations that would help them to increase their market share as well (Thogmartin,
2019).
b) The unmodified report issued by the auditor that is Veracita and Co. is not correct due to the
following reasons:

 During the year the group has sold the significant amount of its business and assets which
must be disclosed in the audit report as it indicates they are closing down their business in
the near future and their going concern assumption is no survive.
 Their must be disclosure in the notes to accounts that the groups going concern
assumption has been failed as sale of assets of the business is considered to be crucial for
the organisation and it is the duty of the auditor to disclose such facts in the audit report
and must be communicates to those charged with governance.
 The auditors must issue the qualified report and disclose the above facts in the report
itself instead of issuing the unmodified report.

REFERENCES
Books and Journals
Abuazza, O.A., Labib, A. and Savage, B.M., 2020. Development of a conceptual auditing
framework by integrating ISO 9001 principles within auditing. International Journal of
Quality & Reliability Management.
Canant, M.A.S., 2020. Auditing Your Program. In Implementing Information Security in
Healthcare (pp. 229-248). HIMSS Publishing.
Cetinoglu, T., 2021. Reflections of Developments in Information Technologies to Internal Audit:
Blockchain Technology and Continuous Auditing. In Auditing Ecosystem and Strategic
Accounting in the Digital Era (pp. 339-359). Springer, Cham.
Dzuranin, A.C., Jones, J.R. and Olvera, R.M., 2018. Infusing data analytics into the accounting
curriculum: A framework and insights from faculty. Journal of Accounting
Education, 43, pp.24-39.
Fotoh, L.E. and Lorentzon, J.I., 2021. The Impact of Digitalization on Future Audits. Journal of
Emerging Technologies in Accounting, 18(2), pp.77-97.
Hoang, D.L. and Nguyen, T.M., 2019. Auditing staff costs for FDI companies in the process of
auditing financial statements at KPMG Vietnam Limited Company.
Johl, S.K., Muttakin, M.B., and Gioffre, N., 2021. Audit firm transparency disclosures and audit
quality. International Journal of Auditing, 25(2), pp.508-533.
Kend, M. and Nguyen, L.A., 2020. Big data analytics and other emerging technologies: the
impact on the Australian audit and assurance profession. Australian Accounting
Review, 30(4), pp.269-282.
Mactavish, C., McCracken, S. and Schmidt, R.N., 2018. External auditors' judgment and
decision making: An audit process task analysis. Accounting Perspectives, 17(3),
pp.387-426.
Moroney, R., Phang, S.Y. and Xiao, X., 2021. When do investors value key audit
matters? European Accounting Review, 30(1), pp.63-82.
Taha, A.A., Ramo, W. and Alkhaffaf, H.H.K., 2021. Impact of external auditor–cloud specialist
engagement on cloud auditing challenges. Journal of Accounting & Organizational
Change. Brazel, J.F. and Koreff, J., 2021. Practitioner Summary: Do Different Data
Analytic Inputs Impact Auditors’ Decisions? Available at SSRN 3977701.

Thogmartin, J.R., 2019. Internal Auditing: Seeking Action from Top Management to Mitigate
Risk. In Data Analytics (pp. 119-130). Auerbach Publications.