Assessment of Audit, Assurance and Compliance Practices

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The Audit, Assurance, and
Compliance
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Executive Summary
For operating the business in a proper manner, it is required for the companies to make the
financial statements free from the fraud and wrongdoing activities. Further, it is the key
responsibility of the auditor to analyse all the financial statements in the proper manner so that
any kind of issues or fraudulent activities can be identified. This report explains the stakeholder
analysis of an ASX listed company i.e. Collins Food Limited. The company is known for the
restaurant chain in Australia and various parts of Asia. Further, the impact of a material
misstatement on the stakeholders of the company is discussed in the report. Concepts of
‘whistleblowing’ and independence in the audit process are discussed in the report and their
relations with the public interests are explained in this part. Key lessons learned from the Enron
scandal case are given in the third part. At last, the process of audit quality is elaborated in a
detailed manner.
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Contents
Executive Summary....................................................................................................................... 1
Introduction...................................................................................................................................3
1. Stakeholder Analysis..................................................................................................................4
2. The concept of independence and ‘whistleblowing'..................................................................8
3. Lesson learn from Enron scandal.............................................................................................10
4. Audit Quality............................................................................................................................ 14
Conclusion................................................................................................................................... 19
References................................................................................................................................... 20
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Introduction
In each and every business entity, stakeholders are the important part as they are concerned
for the profitability and success of the business. In order to retain the stakeholders, the
companies are required to disclose all the financial statements to them. The report is focused
on the stakeholder analysis of an ASX listed company i.e. Collins Food Limited. The impact of
material misstatements on the key stakeholders is also discussed in the report. Further, the
concept of independence and ‘whistleblowing' is explained in the report. In the next part, the
case of the Enron scandal is discussed and key lessons learned from the case are explained. In
last, the process of audit quality and key elements affecting the audit quality is properly
discussed in the report.
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1. Stakeholder Analysis
Stakeholders are the group of people who have a keen interest in the performance of
profitability of the company. Their investment decisions depend upon the profitability of the
company in the business operations. Basically, creditors, debtors, suppliers, employees,
customers, shareholders, and community can be the key stakeholders of a company. This part
of the report is focused on the stakeholder’s analysis of an ASX listed company. For the
discussion, famous restaurant operations company Collins Food is selected. In the companies,
stakeholders have influence and importance in the business operation and their decisions
impact the business operations in a direct and indirect manner. So, it is required for the
companies to disclose all the financial statements to them in the proper manner (Harrison &
Wicks, 2013).
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Figure 1: Key Stakeholders
(Source: Harrison & Wicks, 2013)
Collins Food Limited is publicly-listed Australian company engaged in the restaurant operations.
The company is best known for the restaurant chain in Australia and various parts of Asia. In
the company, there are various stakeholders that impact the business operations of the
company in a significant manner. The stakeholder analysis of Collins Food Limited is as follows:
Shareholders- They are basically the corporate owner of the company. Shareholders in Collins
Food Limited take the decision related to future investments on the basis of performance of the
company. If the shareholders are not getting proper returns over their investments, then their
decisions related to investment in the business can be changed. It is important for the company
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to disclose all the financial and material statements to the shareholders so that they can take
their decisions related to future investments.
Suppliers- In Collins Food Limited, suppliers are key stakeholders who provide the goods and
services to the company for further business operations. They have a keen interest in the
growth of the business so that the demand of the food products can be increased in the future.
Employees- In the case of Collins Food Limited, employees are the key to the growth and
success of the company. So they are considered as the main stakeholders of the business. They
are also affected by the profit and various business practices of the company. It is crucial for the
company to implement policies and regulations in favour of employees so that they can be
motivated to give their best in their job role.
Customers- In the restaurant chain, end users or customers are major stakeholders of the
business as the sales and profitability of the products totally depend on the customers. If they
are satisfied with the products and services of the company, then the sale would be increased.
This would definitely increase the profitability of the company for the future.
Community- the Company is responsible for the community or society in which it is operating.
The company needs to comply with the laws and regulations developed of the environmental
protection. In addition to this, it is important for Collins Food Limited to understand the needs
of the community so that the sustainable growth of the business can be ensured.
Risk of material misstatement
Stakeholders are an important part of the company as their decisions impact on the business
operations in a direct or indirect manner. If there is any material misstatement within the
company, then stakeholders would be affected in a negative manner. The reason for material
misstatements is presenting wrong financial information in the statements. If there are errors
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or issues in the financial statements, then the stakeholders would face economic losses in the
business. Their investment decisions for the future are also affected by the company. In order
to minimize the negative impact of material misstatements, the auditor is responsible to
provide fair opinion and viewpoint on this matter. In the company, if there is the risk of material
misstatement then it would also impact on the brand image of the company in a negative
manner (Promtong, 2016).
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2. The concept of independence and ‘whistleblowing'
The concept of independence- This concept in the audit process is directly related to the state
of mind of the auditor by which the opinion of the auditor can be expressed without being
affected by anything in the company. For the audit engagement, independence is the core
requirement of the auditor so that the work can be provided in the proper manner. In the audit
process, the concept of independence is associated with the integrity and objectivity of the
work of the auditor. Under this concept, the auditor is required to perform duties and
responsibilities in an effective manner. The auditor is required to provide true and fair opinion
on the financial records affecting the credibility of the business operations of the company. So,
the concept of independence is important for an auditor to provide a meaningful opinion on
the financial statements during the audit process.
The concept of ‘whistleblowing'- In the audit process, ‘whistleblowing' is the method by which
the fraudulent and suspicious activities in the business operations can be identified by the
auditor. This method is helpful for the management in controlling the negative situations in the
company due to fraudulent activities. By the concept of ‘whistleblowing’, the company can
implement better management process so that wrongdoing g activities can be minimized. In the
concept of ‘whistleblowing’, there are internal and external processes which are important for
effective business operations. In the case of external processes, regulators as the external
bodies can be hired by the company so that a controlled environment can be implemented in
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the business operations. Next, in the internal process, the information can be achieved by
employees and other people who are interested in the business (Alhajr, & Shamki, 2017).
Relations with public interest requirements
The public has a keen interest in the business operations of the companies. So, the companies
should give more importance while there is an issue of material misstatement in the auditing
process. It is essential to protect the interest of the public. For this manner, effective auditing
process is required in the company. The concept of independence and ‘whistleblowing' are
related to the public interest within the company. Independent auditor is required for
protecting the interest of the public. The auditor is required to ensure that he or she is not
affected by any threats within the company. In addition to this, the concept of ‘whistleblowing'
is also helpful in protecting the public interest by giving the knowledge to management
regarding the fraudulent activities so that corrective actions can be taken against those
activities (Yuan, & Zhang, 2014). It is also helpful in improving the correct practices and bringing
transparency within the company. By the better mechanism of both the concepts, the company
is able to implement the risk management process and ensure the general public that their
interests are protected in an effective manner. Both independence and ‘whistleblowing'
concepts are the key requirements to protect the public interest in the audit process.
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3. Lesson learn from Enron scandal
Enron started its operations in 1985 and this was the largest corporate trading houses in the
American economy. In 2001, the company w3as declared as bankrupt and the share prices of
the company decreased from $90.75 to $ 0.26 per share. This was one of the biggest scandals in
the overall financial market. In addition to this, the scandal also affected the economy of the
American market. It affected the public interest of those who were interested in the profit and
growth of Enron. The reasons for the Enron scandal were fraud and wrongdoing activities,
unethical behaviour and conspiracy.
In Enron, Arthur Andersen was the auditor who was basically known for higher standards and
quality risk management in the audit process. In the case of Enron, Andersen was also one of
the reasons for the scandal as he gave his opinion on the manipulated facts and figures of the
company without raising any kind of question. Basically, it is the core responsibility of an
auditor to collected proper audit evidence and gives a fair opinion on the financial statements.
In the Enron scandal, it was the unprofessional and unethical behaviour that impact the
credibility of the company in a negative manner. There are some points which must be
considered by an auditor during the audit process.
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Professional behaviour- It is required for the auditor to show professional behaviour during the
audit process. The auditor should comply with the legislation and regulations so that the
standard of audit process can be maintained within the company.
Objectivity- The auditors are required to follow the key principle of objectivity in the audit
process. The key responsibility of the auditor is to protect the public interest within the
company. If the auditor is providing fair opinion on the financial statements, then the credibility
of the company can be maintained. So, it is clear that auditor should follow the work ethics in
the audit process to minimize the possibility of scandals.
New laws and regulations- in order to control fraudulent activities and conspiracy within the
company, it is required to implement new regulations and legislation. In this manner, strict laws
need to be implemented. In addition to this, the company should not appoint the external
auditor for the audit process as there can be a conflict of interest in the company. In the Enron
scandal case, the auditor was totally responsible for the scandal and issues. In order to avoid
such kind of scandals, some of the changes or amendments are essential in the auditing laws.
Confidentiality- In the audit process, the auditors are required to maintain the confidentiality of
the clients so that proper opinion can be provided on the financial statements. If the auditor is
using the information unethically then there would be professional misconduct in the company.
Conflict of interest- In the audit process, the auditor is required to manage the situation of
conflict of interest. It impacts on the key principle of the auditing process within the company.
This is also required to work ethically by the auditor within the company. Auditors are required
to give a fair and true opinion on the financial statements.
Internal control- By implementing internal control within the company, the auditor would be
able to complete the overall audit work in the best possible manner. Better internal control is
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