Audit, Assurance, and Compliance: A Case Study Analysis

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Audit, Assurance, and Compliance
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Contents
Executive summary..........................................................................................................3
Introduction...................................................................................................................... 4
Description of organization...............................................................................................5
Responsible party............................................................................................................ 5
An issue in auditing and accounting.................................................................................7
Main causes of issue........................................................................................................8
Misrepresentation, a mistake in financial report.............................................................10
Improvements................................................................................................................ 11
Conclusion..................................................................................................................... 13
References.....................................................................................................................14
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Executive summary
In this summary reporting requirements of the auditing standards are discussed along
with the main and essential responsibility and obligations of the auditors towards their
client and third parties are also discussed in the summary. Auditing standards have an
important role and are highly relevant in reducing risk in relation to business and this will
completely be discussed in this reporting summary. According to this report, it was
summarized the overall reporting effectiveness in the procedures of auditing and
critically discusses on the topic of accounting and its compliance for the purpose of
making compliance for making the balance of operations in the business. Hence the
entire report of auditing is concentrated on the crucial roles of auditing, components,
and application of the auditing standard, as well as accounting standard for the purpose
of eliminating business risk and litigations by effective measures of accounting standard
and this all, will complying with an auditing standard.
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Introduction
In any organization, accounting standards are the pillar of a business financial report
which can be carried out in an effective and smooth manner. This report or brief or
assignment is mainly focused on the role and importance of the standards related to
accounting that is required for every firm or the organization. The main object of making
this report reading auditing is to critically analyze the legal case on the organization that
involving in the matter of litigation and want to sort out these related problems of
litigation by auditing, it should require to implement proper audit strategies within the
firm or organization. This report also contains the role and important part of an auditor in
regarding financial statements and problems, this will be discussed in the below report.
It does not contain the importance of an auditor but it also includes the complete
knowledge of the reporting requirements and the responsibility of an auditor in respect
with their clients and the third parties. How can the auditor and the applicable
accounting standard balance and maintain the operations of the business and their
reliability and integrity for the long term success in a sustainable manner is discussed in
this report? The overall case study is made on the Royal Bank of Scotland v
Bannerman Johnstone Maclay. Hence all the issue, the role is concerned or relevant to
this case.
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Description of organization
The factual issue behind the case of bank v/s Company was the defenders of the
company because they are engaged in preparing the accounts for a customer of the
bank. The bank claimed on the company for the negligence in the part of the company
regarding the accounts that have been prepared by its chartered accountants because
here the defenders are the CA of the company. the auditor of the company does not
reveal the case as it is already known that bank should believe on the accounts of the
company that was present in form of them for the purpose of the lending capital
decision. As the defenders of the company knew and if they will disclose about the
accounts of the company they fulfill the statutory duty regarding the bank (Brasel et. al.,
2016).
Responsible party
In this case study, Paul canning and McMahon are the two persons who are responsible
for the company. One is an employee of the company named Paul Canning and another
one is an auditor of the company named McMahon. This person is the main in terms of
responsibility because he is an auditor of the company and all the responsibility
regarding the company financial reports are produced by their permission. McMahan is
the person who prepares all the report of the company that is engaged in preparing the
company financial report and monthly report. Any issue occurs in the company financial
report, McMahon is only the person who is liable regarding the financial reports of the
organization. In this case the defenders the CA, who know in advance that the pursuers
grips major place within the organization. The pursuers are the company shareholders
and after auditing process is complete than it is clear that the pursuers are the
shareholders and they are the main for the APC. The shareholders of the company are
existing since October 1996. In this case, it is known by everyone that the shareholders
of the company basically depend on the auditor’s auditing procedure in order to
evaluate fraud and, misconduct within the entity (Knechel, and Salterio, 2016).
It has been disclosed that it provided two types of loan, one term loan of 1500,000 euro
and the second one is the loan for the firm of 100,000 euro. The pursuer appoint a
receiver for the company in order to see that the fact that was included in the company
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financial report are true, correct and not included any immaterial or unethical errors of
which affect the financial report of the company the appointment of the joint receiver
was made on date of September 24 in the year of 1998. The reason being the
appointment of the joint receiver that the company financial statement or report is
inaccurate and it is full of immaterial fact or false presentation of reports. It was also
seen that it was claimed regarding the profitability of the company.
The shareholders of the company sued that the defenders of the company i.e. CA’s
having a connection with APC, it was when the management of the company boycott
employee named Adam Bruce then company management start to make a secret plan
with another employee of the company named McKerral and they are in busy in order to
open new business. In 21995, the CA’s of the firm produce a financial report in the
company with APC for the year ended November 30, 1997. The main person (justice or
lord) places a condition in front of them (both parties) that they should be presents their
financial report for the last three years within a stipulated time. Both parties are bounded
by the time limit say 180 days.
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The issue in auditing and accounting
As the study was made on the case study of Royal Bank of Scotland (RBS) v/s
Bannerman Johnstone Maclay (Bannerman), it has been seen various types of issues in
relation with auditing and accounting. Some of the issues are to be discussed below
that were relevant to the case study.
“Revenue recognition”:
It is the main method of the company in terms of considering the income of the entity.
This will show how the company should be recognizing its revenue that is generated by
its various business activities. But according to this case study, accounting and auditing
standards are not the same in terms of considering the income of the company
(Blankley, et. al., 2012). the accounting standard suggests that organization registered
its income only when the actual cash is received but on the other part of the revenue
recognition method in refer4nce with auditing standard it said that all the income of the
company should be registered as soon as the sale of goods or services exist.
“Simplification”:
GAAP, it helps in business as it provides the guidelines or standards regarding
accounting and auditing of the company report that these are true and fair and it shows
transparency in the documents but all these are missing from the part of the in the
above case study.
“Substitute”:
Here it has been discussing the alternate or substitute for the private companies. It has
been already seen that "Private Public Council" (PCC) having a more important role in
FASB. The reason is that it made easy and simple understanding of generally accepted
accounting principles when the users want to obtained information regarding the
company financial reports or statements. There are less or a few items within GAAP
that will create a trouble situation when the auditor present company financial report for
the year. That points that were used by PCC in their business lines are as below:
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 Provide the ability to choose the intangible assets of the entity that brought separately
from the goodwill of the company.
 Aids in providing an exemption to fulfill the needs of consolidated interest (Ruhnke, and
Schmidt, 2014).
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Main causes of the issue
The issue is dependable to another person how they behave in each own life link to
other people. In the part of it, it has been seen various issues that came in the above
case study. These main issues are discovered by proper investing in the company
financial statements.in this case study, the various main issue is found but the following
are the important issue in terms of accounting and auditing standards (Ruhnke, and
Schmidt, 2014).
 Market pressure:
The term pressure means that something enforces. In the case of market pressure, it
means those market pressures that enforce the company financial statements.
According to the case of bank v/s Company 2002, the market pressure means that
pressure or make compulsory for the company to compile the norms of accounting and
auditing in their business or entity. It comes when the company needs to audit its
business within a short period of time due to ignoring any charges in the company if it
fails to make its entity audit. By doing such things in the organization it will create a
situation of producing inappropriate of false reports due to not sufficient time is taken
while making audit report of the concern (Ruhnke, and Schmidt, 2014).
 Culture-related to an organization:
The organizational culture means those values of the entity that make the organizational
atmosphere good and healthy and it will also help in creating a good environment within
the company.
As per the above case (bank v/s company), the organizational culture of the company
was not so good because it does not follow the organization cultural standards that are
necessary for the firm in order to make a good and healthy relationship between the
company and its employees. This cause is the main cause of the company.
 Fraud:
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Fraud is a term that can be referred to as cheating made by one person with another for
the purpose of their self-benefit. In reference with auditing, fraud means any cheating is
done by an auditor with the presenting of false financial statement of the company in
order to attract an investor or regarding changing their decision in a positive way
according to the company. Fraud also means that any unethical activity is done by the
auditor which not give permission by any auditing norms in presenting the company
financial statement (McDonald, and Wilson, 2016).
All the above three were found and it is discussion is made on the main cause that
related to the case study
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Misrepresentation, a mistake in the financial report
Royal Bank of Scotland v Bannerman Johnstone Maclay, according to this case study
defendants are the team of chartered accountants f the company. The CA’s of the
company were prepared the financial report of the company as per the guideline that
was provided by the organization management team. By seeing the company financial
report of audit bank provides capital to the company but after sometime the bank saw
that the company produces it, the audit report was not true and fair. The report is
mismatched and not the same as it should be. Due to the bank would suffer a huge
amount of capital and it needs to set off this loss by receiving back from the company.
For this, the bank sued on the company regarding the loss that suffered by the bank
and it sued that these damages were to be paid by the company within the prescribed
time limit with full interest (Abdullatif, 2013). An audit report is an organizational financial
report and when it is produced in front of some it means all the information are written
on it true and fair up to the knowledge of an auditor because auditor passed this report
after analyzed the business of the clients and make this report. The key elements of the
report true and fair from the reports are missed. Due to this bank suffer a huge loss of
capital that provided to the company. The mistake, error in the report was made by
already known the fact because of representing the company report in front of the bank
true and fair but actually the fair and true part was not there. By knowing this fact and it
present it means it is misrepresentation on the part if the company management. The
bank sued the company for the purpose of paying the damages that brought a loss to
the bank. Damages are the money that one person is paid to another person who
suffers loss by the activity of the first person. Here the bank suffered a loss so it was the
liability of the company to pay the damages to the bank because there was the default
from the end of the company due to showing the wrong financial report to the company.
The company not only suffer the loss of capital is also suffer the loss of its goodwill,
because of presenting a false report to the bank and onwards no one believes on such
company financial report. It also suffers the loss of investors (Chou, 2015).
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Improvements
Here it is discussing on the improvement needed or require in below topics:
“Audit strategy”:
While starting the process of auditing by an auditor it should be mandatory for an
auditor that he should make some plans and strategy of auditing and execute such
plans and procedure according to the plans were made in earlier for the benefit of him
and company also. By doing this, it will benefit both the party an auditor and company
by the way of producing company financial report true and fair. This will assist in
showing transparency of the financial statement of the entity. Auditor also keeps on
developing audit strategy because this will also enable the users of such document that
they can take their best decision regarding the company after seeing audit report of the
company (Dănescu, et. al., 2019).
“Audit program”:
The audit program can be referred to as audit plans. An auditor should make plans for
conducting the audit within the organization and these plans should be in the interest of
the company, not self-interest. Those plans that made by the auditor should be simple
and easily understandable to both the company management as well auditor because
sometimes auditor makes plans but at the time execution, he also faces problems
reading which audit plans is executed. It is advised to the concerned company that it
should provide clear guidelines to the auditor that he should make son me plans or
ideas regarding auditing planning. It will enable the business to carry its activities
without facing any issue in future (De Villiers, et. al., 2014).
“Other improvements required within an organization”:
Here it is suggested to the company that it should use the same accounting as well as
auditing standard within the organization it will help in eliminating any issue or error
regarding the audit of the company. If this will be done in an appropriate manner then it
will be benefited to all them including company, auditor and an accountant because
when audit and accounting standard are same then audit process is done within less
time and this will directly help the company to save its time and money.
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