UGB 238 Audit and Assurance 2020 Alternative Assessment Analysis

This comprehensive report analyzes an audit and assurance assessment, addressing key areas such as auditor independence, audit procedures, and the concept of objectivity. It examines various scenarios, including potential threats and safeguards, and describes the procedures auditors should undertake. The report further delves into potential indicators of a company's going concern issues, detailing the related audit procedures to assess these concerns and their impact on the auditor's report. Additionally, it explores audit risk and its components, identifying risks and the auditor's responses. The report also differentiates between interim and final audits, outlining relevant procedures and their impact. This analysis is critical for understanding the complexities of audit processes and the importance of financial statement accuracy.

UGB 238 Audit and Assurance 2020
Alternative Assessment 2020
Student Number:

Table of Contents
Question 1..................................................................................................................................3
(a) Matters Other Than Independence....................................................................................3
(b) Discussions of Situations in the Context of the Independence of the Auditor.................4
(c) Concept of Objectivity......................................................................................................4
Question 2..................................................................................................................................5
(a) Describing the procedures the auditors of John and Jane Co Should undertake..............5
(b) Explanation of SIX potential indicators that John and Jane Co is not going to concern. 5
(c) Description of audit procedures which one should consider to assess the concern of
John and Jane Co....................................................................................................................6
(d) Impact on the auditor’s report of John and Jane Co.........................................................7
Question 3..................................................................................................................................7
(a) Audit Risk and the Components of Audit Risk................................................................7
(b) Identification of Risks and Responses of the Auditor to those........................................9
(c) Identification of the Main Areas Other Than Audit Risks...............................................9
(d) Explanation of the Difference between an Interim and a Final Audit............................10
(e) Procedures to be performed during an Interim Audit of Peter and Its Impact on Final
Audit.....................................................................................................................................10
References................................................................................................................................12
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Question 1
(a) Matters Other Than Independence
Audit credibility requires the willingness of independent auditors to conduct their auditing
activities in a fair and critical manner. Public opinion on the value of audit quality is founded
not only on a statute that presumes audit independence but also on a consumer's view of
independent audit.
I. Commission of Audit:
To make the accountant completely unbiased, an auditor should include a specified
number, instead of supervision, for the accountants of the committee of employees of
the organisation whose main roles are to help auditors to stand entirely independent
(Alkasim, Agbi and Ahmed, 2019).
II. Audit business scale:
The scale of the auditing sector is an important consideration when choosing an outside
auditor. The accuracy of the report is based on the integrity of the auditor. The fastest
growing audit companies appear to be getting stronger analytical equipment, effective
accounting tools, more modern technologies and far more skilled practitioners
conducting big corporate audits, in comparison to larger accounting companies (Noor,
N.R.A.M. and Mansor, 2020). Even if large auditing companies have a broad client base
of clients that helps them to fulfil management’s requirements, smaller firms have
customised resources because they have limited portfolios of clients, and must
accommodate management’s expectations in a desired period.
III. Participate in auditor sector competition:
Competition was often thought to be an intrinsic market factor that determines how
autonomous auditors are. As the clients can reach other investigator’s services through
the telephonic call or mail or digital platforms, several companies cannot operate
independently in such competitive dynamo (Kend and Basioudis, 2018).
IV. Auditing company which meets the needs of a specific customer:
The concept of an audit firm includes the time needed to meet the auditing requirements
of a particular client. There will definitely be a long association with an organisation
and accountancy, making it difficult for the Impartial Auditor to undertake independent
intervention by tightly linking the company to the interests of its clients.
V. Scale and non-audit costs auditing:
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IFAC Ethical standards imply that the size of a custodian should challenge the
credibility of an audit as measured by the quantity of sum charged. In compliance with
transparent conditions, the accounting experts (auditors) tended to already be in
collaboration with the executive committee to continue to hide fraudulent practises
(Meuwissen and Quick, 2019). “A certain portion of the global audit scale is not
exceeded by the (total) consumer fee,” states EFAA.
(b) Discussions of Situations in the Context of the Independence of the Auditor
i) As seen in this case, the external auditor who owns shares in the business model is
inefficient and will affect the decision, even the accountant.
(ii) This case is subjective in nature but critical in such sense is that consumers are the
primary sources of income of the audit committee as the tax contribution is owed by
customers can vary from 700,000 to 100,000.
(iii) There is an income deficit of external auditor in this case because the accountant has
been loaned from the inspector's own fund.
(iv) In such a case, there is actually no accountant’s judgement needed, so the auditor is
required to give advice that there is no duty of him to monitor the autonomy and discretion of
the inspector.
(c) Concept of Objectivity
i) External Auditors
An auditing agency that controls, audits and conducts other market functions is an
international auditor (Lu, Simnett and Zhou, 2019). Audit committees that externally conduct
their audit function are self-employed by corporations in a way that impartially checks the
financial records and internal compliance procedures of those companies. This advice from
senior management is completely in accordance with consumers and creditors who want an
impartial review of account books.
ii) Internal Auditors
Internal audit becomes trained practitioners performing unbiased or independent financial
compliance assessments in accounting and corporate financial regulations. They are obliged
to ensure that corporations adhere with the regulations, comply with the appropriate
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procedures and function as quickly as possible (Kend and Basioudis, 2018). Fair and
accountable information on the company should be given to an independent consultant.
(iii) Threats and Safeguards
Threats in Situation 1: There is a threat of personality, whether the inspector is expressly or
implicitly involved or depending on the customer for significant rewards. In this regard,
during the first case, there is a probability of personality since the accountant receives from
Bakers co. about 7 percent of his total profits.
 Safeguard to Objectivity: This vulnerability can also be safeguarded by external
quality control systems or meetings with third parties or agencies. The auditor may
mitigate customer dependency.
Threats in Situation 2: There appears to be a risk of freedom in this case, as Peter is a
customer worker who now has to execute a company audit firm. It can, however, act as an
investigative contractor and it is not necessary to assess the degree of freedom for
independent inquiry.
 Safeguarding to Objectivity: Peter should be assured of providing unbiased advice
and replacing an in-house auditor who may not have any personal disagreements with
the company’s personnel.
Question 2
(a) Describing the procedures, the auditors of John and Jane Co Should undertake
1. Evaluating the degree of materiality of the improper inventory deficiency in the financial
statements.
2. Since a revision of the loss inventory is a revision occurrence that demonstrates the
situation at the end of the year (30 April 2014). The auditor may instruct John and Jane Co to
note down the inventory if the misstatement is material. If the error is immaterial, the auditor
should instruct John and Jane Co to make the financial statements disclosures (Denisov,
Khachaturyan and Umnova, 2018).
3. Discuss the effect on the auditor report whether the uncorrected inventory misstatement is
not adjusted or disclosed in compliance with IAS 2 Inventories and IAS 10 Events during the
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monitoring date with John and Jane Co management (Denisov, Khachaturyan and Umnova,
2018).
4. In order to ensure mathematically accurate/mathematical precision, the listing of the
inventory without correction/damages must be verified.
5. Review reports on the financial statements as of 30 April 2014 in order to verify that the
incorrect inventory mistake was correctly disclosed.
6. Preview the financial Statements for April 2014 and verify that the inventory of errors has
been excluded from the profit/loss statement.
7. Ask the administration for a written representation of the malfunction or error in the
inventory (Denisov, Khachaturyan and Umnova, 2018).
(b) Explanation of SIX potential indicators that John and Jane Co. is not going to
concern
1. A successful rival emerges named Drums. By means of aggressive pricing Drum acquired
substantial market share from John and Jane Co. There is the possibility in a substantial
reduction in potential sales and cash flow caused by a loss in market share.
2. Labour problems with well trained workers recruitment. A few developers from John and
Jane have quit the firm and entered Drums. Because of their experience and expertise, John
and Jane find it difficult to substitute these staff. Since the company of John and Jane Co is
led by specialists. There is a risk that the company would be unable to compete in the market
if the professional is not well substituted. John and Jane Co would therefore not be willing to
produce innovative innovations to distinguish the firm from its competitors (Ji, Lu and Qu,
2018).
3. The main supplier of John and Jane has stopped dealing with the company. This shows that
vital supplies are lacking. Unless alternative providers for supplying the specialized
equipment could be identified by John and Jane Co, the possibility exists that the firm cannot
produce products that could contribute to loss of tradability (Kahyaoglu and Caliyurt, 2018).
The new supplier would therefore pose risk by contracting providing the equipment at a
higher price and reducing potential cash flow.
4. The shareholders of John and Jane Co also refused to invest more in the company to
produce new products. This shows that John and Jane Co. have been unable to secure funding
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to produce key new products or other important investments (Kahyaoglu and Caliyurt, 2018).
There is a possibility that because of financial problems, the company may have to postpone
or pause the schedule for developing new goods.
5. Over the course of the year, the overdraft of John and Jane Co has risen considerably and
will be renewed next month. This shows that the company was mostly dependent on the
overdraft (Kahyaoglu and Caliyurt, 2018). If the banking firm may not resume the overdraft
and the company may not secure substitute financing, it will not be possible for John and
Jane to begin trading.
6. The cash flow forecast for John and Jane reveals a considerably deteriorating position over
the next 12 months. This shows that the cash inflow of John and Jane Co to fund the
everyday costs will not be accessible. In addition, the company could have insufficient capital
to service its obligations and contribute to liquidation according to the Section X Companies
Act 2016 (Kahyaoglu and Caliyurt, 2018).
(c) Description of audit procedures which one should consider to assess the concern
of John and Jane Co.
1. Discuss and assess the corporate future management strategy. Discuss if the firm won any
new customers to offset the lost customer, with the financial officer.
2. Discuss and review Management plans for properly hiring expert developers to ensure
John and Jane Co's capacity to deliver new products in a competitive way (Martínez-Ferrero
and García-Sánchez, 2018). If the company's recruitment is ongoing, Review Board Meetings
of progress on hiring developers to substitute those left to Drum.
3. Discuss and assess the management plan to make the latest provider accessible. If there is
no other supplier on the market, the ongoing issue appraisal can be affected. If the
competition is open to other suppliers, check the offer from the latest supplier to evaluate the
rationality of John and Jane's cash flow to keep the price quoted (Martínez-Ferrero and
García-Sánchez, 2018).
4. Discuss and review management's proposed product growth alternate financing strategy.
Where the organization receives some alternative investment, check the meeting minutes for
evidence of fresh equity injections or new credit arrangement at the meeting of the Board
(Noor and Mansor, 2020). Examine the shareholder communications to see whether any
shareholders have shown an interest in increasing their stake.
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5. Examine overdraft arrangements to see if any covenants have been broken, and examine
communications with the bank to see if the overdraft service can be renewed.
6. Get the cash balance estimate from John and Jane and check in and out of cash flows.
Evaluate the presumption of rationality and analyze the results with management to
understand whether there are enough cash flows for the business.
(d) Impact on the auditor’s report of John and Jane Co
1. If the auditor knows the material uncertainties of events or conditions that might give
significant doubts about the ability of the entity to continue as an ongoing concern, the
financial statements shall make those uncertainties known. “Material uncertainty related to
going concern paragraph” (Shalimova and Androshchuk, 2018). The opinion of the auditor
relies on the effectiveness of the management's disclosure.
2. The auditor's report would remain unchanged and unskilled if the disclosures provided by
management are satisfactory. Following the paragraph Basic of Opinion, material uncertainty
relating to the subject matter would be addressed (Shalimova and Androshchuk, 2018).
3. Whether there is not enough transparency, the auditor's report may be changed, unless
there is a material error. This would be either a competent or an adverse opinion, depending
on the materiality of the issue.
4. In relation to current concerns, the reports in the financial statements shall be defined as
material uncertainty. It explains that material uncertainty exists, the existence of uncertainty
is defined and the management refers to the disclosure notice. It would come after the
paragraphs on the opinion and the basis for the opinion.
Question 3
(a) Audit Risk and the Components of Audit Risk
The risk of audit risk is that if the financial statement is substantially misstated the auditor
holds an incorrect audit opinion. The probability of audit often depends on the chances of
content mistakes and the risk of identification.
Audit risk consists of three elements. They consist of “Inherent risk” “Control risk” and
“Detection risk” (Shalimova and Androshchuk, 2018).
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The inherent risk is the vulnerability, either separately or in combination with other mistakes,
of assumptions regarding a class of transactions, account balance or declaration of a
misstatement prior to consideration of any associated controls (Shalimova and Androshchuk,
2018).
Control risk is a possibility of not preventing, detecting and correcting an abnormality in a
claim regarding a class of transaction, balance or declaration and it may be information either
separately or when combined with other abnormalities in a timely manner by the internal
control of an entity (Shalimova and Androshchuk, 2018).
Detection risks are the possibility that an error that occurs which may be material, whether
internally or when combined with more abuse is detected in the auditor's procedures for
reducing an audit risk to an acceptably low amount.
(b) Identification of SEVEN Risks and Responses of the Auditor to each risk
Audit Risk Auditor’s Response
Peter Cola Co has invested $5 million to
update, upgrade and replace major machines
for cola and fizzy drink manufacture. There
is a possibility that certain expenses are
capitalized when expenses are expensive or
vice versa. Under IAS 16 PPE capital
should be capitalized in nature spending and
SOPL should be expended on income in
nature (Higgins-Biddle and Babor, 2018).
This may contribute to an exaggeration of
EPI danger and an underestimation of
spending. Non-current misrepresented
SOFP assets and SOPL spending.
Review the expense breakdown and accept
invoices in order to evaluate the extent of
these expenses. For expenses that are of a
capital type, they are capitalized to
guarantee that they are part of the non-
current asset. When spending on sales is
concerned, make sure it is spent on SOPL
(Shalimova and Androshchuk, 2018). To
check the update, maintenance and
replacement expense that was capitalized
over the year, inspected the registry of fixed
assets to the invoice description.
At all 15 of its warehouses Peter Cola Co is
going to carry out a year-end inventory
count at 30 September 20x5. The auditor is
unable to attend stock numbers at any
venue. There is a possibility that the auditor
A sample of warehouses for the year-end
inventory count must be selected by the
audit team. The selected sample is focused
on certain holdings that store stock balance
sheets or the past year's background of stock
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will not be able to provide adequate and
adequate proof of internal management
exercise and efficacy in the count (Tang and
Karim, 2019). The inventory could be
misunderstood. Both stock numbers, if not,
are precise.
figures (Tang and Karim, 2019).
The 15 warehouses are in turn operated and
partly leased by Peter Cola Co. It should be
included in the PPE just the warehouses run
by Peter Cola Co. If Peter Cola Co
capitalized all 15 warehouses, there is a
chance of over establishment of the PPE and
understatement of leasing expenses
(Shalimova and Androshchuk, 2018).
In order not to overestimate properties, the
audit team should inspect the Fixed Asset
Register. In order not to underestimate
rental costs, inspect the general ledger. To
recognize the warehouses capitalized
throughout the year, inspect the registry of
fixed assets, validate the title or title of
warehouse to be names of Peter Cola Co.
At the beginning of the year, Peter Cola Co
was introduced to a new accounting general
ledger with two months of concurrent
functioning of existing and new processes.
There is a possibility that the closing test
balances of the previous systems were not
correctly converted to the current ledger
framework (Higgins-Biddle and Babor,
2018). This might lead to an error in the FS
on 30 Sept 20X5 as the opening balance
includes misrepresentation
To ensure that the balances entered into the
current programs correspond to the audited
closing trial balance, compare them to the
audited closing trial balance.
In the creation of a new fizzy soft drink
brand Peter Cola Co has spent a further 4,5
million dollars. The costs of IAS 38
Intangible Assets are called research and
production. It is only because it satisfies the
six conditions, as set out in the norm that
research costs and production costs can be
Confirm the expense of capitalized growth
Through discussing with the Director of
Finance, affirm the IAS 38 guidelines.
Inspect the project details to check if all
eight six conditions to be capitalized as
construction costs have been met by the
costs in respect of the intangible asset
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capitalized. The possibility exists that Peter
Cola Co will mis-capitalize the $4.5 million
as intangible asset that will overstate and
underestimate immaterial assets.
(Higgins-Biddle and Babor, 2018). discuss
the 4.5 thousand cost of production with the
Finance Director for clarification and
review the full breakdown of capitalized
development costs to ensure compliance
with definition from the Director
Peter Cola Co's finance manager has
published the opening benefit because he
believes that the allowance must not be
constantly maintained. There is a chance of
overvaluing trade claims. Since a new credit
controller is hired, Peter Cola Co will not be
able to exclude any debtors (Carcello et al.,
2020). Therefore, the provision for
receivables is overvalued if not supplied.
Examine the reasonableness of the
management payment allowance. Check the
accounts for receivable ageing to determine
any remaining balance and to do the cash
receipt examination during year end to
validate the balance that has been collected
after year end. If no, the director suggests
giving the debt credit. their achievement and
the requirement for a receivable’s deduction
(Carcello et al., 2020).
The combining of raw materials during
processing in April was problematic,
leading to a separate catching of a huge
selection of cola goods. The risk of faulty
inventory because of the mixing method
issue would not be deleted from the
inventory closed at year-end. This would
lead to overestimation of inventories and not
lower NRV and expense (Christensen,
Newton and Wilkins, 2020). This leads to a
failure of IAS 2 inventories to comply.
Ask the management why the value of the
affected stock has not been adjusted.
Consider, through administrators, whether
to write or write down and determine the
reasonability by checking the inventory plan
with the appropriate supporting text, the
number of affected inventories. Suggest that
the Finance Manager impair or enter the
NRV warehouse. Explain the effects of non-
adjustment in the auditor's view where the
financial officer refuses.
(c) Identification of the Main Areas Other Than Audit Risks
The main areas other than audit risks are varied, which should be included in the audit
strategy document for Peter Cola Co, in the following evaluation of these areas are
contextualized followed by relevant examples:
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 The audit strategy should describe the interaction characteristics (Grosse, Ma and
Scott, 2018). For example, the auditor should define the nature of the corporate
segments of Peter Cola Co and the financial reporting system of Peter Cola Co.
 The audit strategy should cover reporting goals, audit scheduling and communications
nature. For example, if consultations with the management of Peter Cola Co and with
others responsible for governance should be held in relation to audit reporting before
dissemination.
 The audit strategies should cover the design, pacing and extent of the audit resources
(Lu, Simnett and Zhou, 2019). A range of auditors with common skills and business
experiences as Peter Cola Co for engagement, for example.
 The audit strategy should involve key considerations, preliminary collaboration
activities and other commitments. For instance, the number of transactions that will
help to assess Peter Cola Co's audit procedures.
(d) Explanation of the Difference between an Interim and a Final Audit
Interim Audit Final Audit
Peter Cola Co's preliminary audit will be
conducted during the year, to minimize the
period consumed throughout the final audit.
At the end of the year, 30 September 20X6,
the final audit for Peter Cola Co will take
place.
Implementation of processes which will be
impossible to carry out at year-end due to a
monthly reduction in time constraints.
Any examination techniques may only be
done during the final audit, such as
observation of product count, physical
observation, etc (Carcello et al., 2020).
Concentrate on risk evaluation and internal
management documentation and monitoring
(Carcello et al., 2020).
Concentrate on financial auditing.
There are also substantive protocols, but
they are minimal
Concludes the publication of a study
containing the view held on the financial
results for the whole audited year
Help in early identification of important
issues
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(e) Procedures to be performed during an Interim Audit of Peter and Its Impact on
Final Audit
 The auditor can study and update the accounting systems manual before 30
September 20X6 at the time of the Peter Cola Co's interim audit.
 In order to refresh the knowledge of the auditor about Peter Cola Co, the auditor
should address the recent development and improvements that have taken place
inside the company by 30 September 20X6
Impact of Interim Audit on Final Audit
If any testing is used in the interim audit, the function of the final audit is shortened and the
final audit may be carried out in a shorter period. Furthermore, the substantive protocol
during final audit can be minimized if the control test indicates that the knowledge is
accurate. Finally, once a temporary audit has checked the financial details of a number of
months in the FY, it would not be necessary to access the financial information in the final
audit.
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