HI6026 Audit, Assurance, and Compliance: Tutorial Questions Analysis

This document presents a comprehensive solution to tutorial questions from a HI6026 Audit, Assurance, and Compliance course, addressing topics from weeks 1 to 5. The assignment explores various aspects of auditing, including different types of engagements and assurance levels, vendor due diligence, purchase price adjustments, and auditor responsibilities in the context of unmodified audit reports and subsequent events. It delves into ethical considerations, specifically the threats to auditor integrity under APES-110, such as self-interest, self-review, advocacy, familiarity, and intimidation. The solution analyzes risks and threats faced by auditors and suggests courses of action to ensure compliance. Furthermore, the assignment examines inherent risks associated with specific scenarios, like foreign currency speculation, bonus structures, and software implementations. Finally, it provides explanations of financial ratios, such as current ratio, investment turnover, and net profit margin, and their implications for assessing overstatement risk. The document incorporates relevant references to support the analysis.

Audit Assurance and
Compliance

Contents
MAIN BODY...................................................................................................................................3
Weak 1.............................................................................................................................................3
Week 2.............................................................................................................................................3
Week 3.............................................................................................................................................4
Weak 4.............................................................................................................................................5
Weak 5.............................................................................................................................................6
REFERENCES................................................................................................................................7

MAIN BODY
Weak 1
A form of engagement which is most probably to take place and assurance level to be given for
each provided task:
a. In case where management accounts are audited for the year ending 30 June 2017:
This is regarded an audit engagement in which an auditor should review all the details he obtains
for the Local Pty Ltd. and see whether balance reported by the organization are right or not, for
instance: Accounts payables, Equity, Trade account receivables, Order book, Tax calculations,
Fixed assets. These are material items and generally chances of fraud under these items are high.
Consideration of such item can minimise the risk of material misstatement and other related
risks. Also, by this auditor ensure that the enterprise is adequately followed accounting standards
in preparation of financial statements and that any changes to fair values are needed (Elijah,
2017).
b. While conducting audit. auditor, required to consider” Vendor due diligence," in attempt to
ensure that transactions are done until settlement date. Vendor due diligence is an alternative
term for the due diligence on the selling side. It's close to purchases-side due diligence however
is seller's roots. Therefore, this is most often named due diligence on the sale side. Ultimately, it
is thorough and unbiased analysis of a corporation before it becomes up for selling. In past this
was achieved separately by each purchaser. It'll reassure Local in its business and legalities,
particularly where there are legal defaults, certain tax lawsuits / allegations that are unresolved
directly, indirectly and other unpaid obligations, Profit/revenue forecasts by examining order
book etc.
c. While doing audit, an auditor needs to compile a report regarding the Purchase
price Adjustment (PPA) and prepare the financial acquisition audit report by Jun 30, 2018. A
system employed by purchasers in individual basis M&A transactions to validate target firm or
corporation interest at closure. In M&A transactions, buyer's offered purchasing price is partially
determined on target corporation or business' latest prepared financial statements (generally the
end of latest quarter or financial year). Buyers utilize purchase price changes to shield
themselves from any deterioration in target company's value (or reduction in working capital)

over period between date a target company or corporation was originally purchased and closing
date. These reports shall provide an overlap in purchasing prices and any necessary fair value
changes in the measurement of goodwill sum and intangibles obtained in the business. That
report shall also assess whether or not there are certain changes to working capitals or contingent
factor.
Week 2
In the provided case situation at issue auditor's report for year ended 20, Jun 2018 is unmodified
so that financial statements are giving true as well as fair view. Under this case, audit was
performed on 30June 2018. In August, data company raised capital, which auditor was not aware
of at time when audit report was signed. In addition, this is not specified whether there were any
contents for raising loan at or before audit report was signed. Thus, the strategies of defences
which the auditing firm should take in its favour are as follows:
 Primary responsibility of true and fair view of financial statement is of management and
management is responsible for preparing financial statements as per standards with
proper disclosures. Although auditor is responsible for making biased opinion but he does
not obtain absolute assurance, he obtains only reasonable assurance that financial
statements are free from material misstatement.
 Auditor has acted in biased manner and he was not aware of any fact and information
which lead to such event.
 The suspected event occurred after the signing of report thus auditor is not responsible
(Zhang, D., 2019).
 The auditor is responsible for preparing and conducting the audit to provide fair
confirmation as to whether financial records are free from material mistake, whether due
to omission or fraud. Due to the extreme quality of the audit proof and fraud features, the
auditor may achieve fair, but not utter, certainty that factual misstatements are found.
The auditing personnel has a duty to prepare and carry out the audit in order to achieve
fair certainty that irregularities, whether triggered by errors or frauds, are found which are
not relevant to financial statements.
 Financial Reports are the duty of the board. The duty of auditor is to give an view on the
Financial Reports. Management is liable for implementing sound accounting practices
and for developing and retaining internal controls that can execute, register, track and

monitor transactions (and also incidents and conditions) in accordance with the claims of
management expressed in the financial reports, among other issues. Transactions of the
company and the related properties, liabilities, and equity fall under the management's
exclusive experience and power. Awareness of these subjects by auditor and quality
management is restricted to that which is gained during the audit.
Week 3
The following risks/threats the emerge to compromise the integrity of auditor under the
requirements of APES-110 Code-of-Ethics for Qualified Accountants:
 Self-interest threat: the risk/threat of an improper effect on the decision or actions of the
Member through fiscal or other interests;
 Self-review threat: the risk/threat of if Member not being properly evaluated by the
outcomes of the prior judgement or services performed by a Member or through a person
within the Member's Corporation or hiring agency on which Member may depend
in form of a present service, whenever Member makes a decision;
 Advocacy threat: The threat/risk of a Member endorsing the interest of a customer or an
employer to a degree that it undermines the objectiveness of the Member;
 Familiarity threat: Threat whether a delegate would be too sensitive to his or her needs or
support their job due to his or her lengthy or close association with a customer or
employer;
Intimidation threat: The threat/risk of member's objectively being dissuaded from behaving
because of real or potential coercion, including efforts to manipulate member unduly (Islam,
Deegan and Gray, 2018).
Key threats that auditor faces:
Self-Review Threat: Since Hall & Associates has built only accounting software-related internal
control framework to make sure that data is safe as well as stable. so now firm has to check that
same internal controls framework that they built last year, including internal controls. The risk of
self-examination or review can emerge when they evaluate their internal work in past service
to consumer.
Intimidation threat: In view of industrial actions to keep the products imported from outside
the country on their revenues, Board has told CGL of its 0.9:1 quick-asset ratios presently below
the 1:1. The board requested auditor to disregard this short term loan covenant violation,

outlining that the CGL is a sustainable and fiscally responsible corporation, and that ratio will
come back to positive level on industrial dispute settlement. Board claimed that revealing this
unnecessarily in audit report would cause it to rethink its intentions to use accounting firm
of auditor for the other engagements, thus there is an intimidation threat.
Self-interest threat: Due to the existing challenges in the CGL's cash flow, its Board has asked
Hall & Associate firm to pay its Audit Fee through CGL shares in the 2013. Board has
suggested that value of stock's market is equal to the Hall & Associates' auditing fee. If auditor
accept this proposal then there would be risk of self-interest in auditing process.
The course of action Hall & Associates needs to take to ensure compliance with APES 11:
 To avoid self-review interest: Hall & Associates should not specially rely on the software
based internal control system. Here firm should thoroughly review the authorisation
controls in IT system and perform an IT control audit.
 For dealing with Intimidation risk auditor should not agree with the board’s statement
regarding breach of loan requirements. Auditor should determine that whether there is
any possibility of material misstatement exists and if management put pressure to not
report such matter then auditor should withdraw from audit engagement and report the
seriousness of matter to higher relevant authorities.
 To eliminate the risk of self-interest auditor should not accept the prorposal of board to
get shares as against the audit fee as by getting shares of CGL, auditor’s independence
will be affected.
Weak 4
(i). Inherent risk has been enhanced. In the foreign currency, the treasurer speculates that may
contribute to foreign-currency exchanges losses. However, foreign-currency accounting
sophistication raises the risks of errors. Although appointment of treasurer may mitigate control
risk through increased internal-control, there's no evidences that appointment reduces audit risk.
When financial controller as well as treasurer correctly delegate the duties, which put pressure
on overworked financial controller, controller has the potential to minimize the burden of
supervision and minimize audit risk.
(ii). Inherent risk has been enhanced. Financial controller would be obligated to subjectively
estimate closure provision.

(iii). Inherent risk has been increased. Binding bonuses to registered sales raises the risks of
fictitious transactions being handled by transactions workers, allowing sales to uncreditable
buyers or manipulating selling between times to raise their bonuses (Lobwo, Davis and Anthony,
2020).
(iv). Inherent risk has been increased. The firm is employing a newer software kit for general
ledger. As minimal mess was used to convert to new system. Since it is a common computer kit,
only small changes are required. The controller is comfortable with this new software as
administration accounts are conveniently processed and allow precise comparisons throughout
product ranges and geographical regions with forecasts and pre-period figures.
(v). Inherent risk has been increased as the multiple tasks and control authorisation are provided
to new position i.e. system administration.
Weak 5
Possible explanations in respect to provided ratios are, as follows:
 The current ratio of organisation has been slightly increased from previous year, with a
steady quick-asset ratio which implies that inventory level has been grown
indicating Over-statement risk. Will focus on the existence as well as evaluations and
assumptions of allocation.
 Investment turnover has been declined as compare to previous year, which means that the
company keeps its inventory higher than the periods of time. The calculation of the
amount of time before a business sells its stock is pointed as inventory turnover ratio and
this increase is showing risk of overstatement of profits.
 Organisations net profits are substantially increased form previous year and currently
above the industry’s average net-profit margin which is also indicating risk of
overstatement (Chudnova, Oleinik and Melnikov, 2020).
 Also, gross profit percent level is also increased with a large gape and now it is above the
industry’s average gross margin level reflecting overstatement risk.
REFERENCES
Books and Journals:
Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and
audit: does this equal security?. In Proceedings of the 7th International Conference on
Security of Information and Networks (pp. 77-84).

Elijah, M.S., 2017. Leveraging on University Audit Models for improving Quality Assurance
and Compliance for Value of Money in Kenya. IOSR Journal Of Humanities And Social
Science (IOSR-JHSS), 22(8), pp.51-60.
Zhang, D., 2019. Audit assurance and tax enforcement. Journal of Accounting in Emerging
Economies.
Islam, M.A., Deegan, C. and Gray, R., 2018. Social compliance audits and multinational
corporation supply chain: evidence from a study of the rituals of social
audits. Accounting and Business Research, 48(2), pp.190-224.
Lobwo, S.K., Davis, J. and Anthony, V.D., 2020. AUDIT AND ASSURANCE: SOME
EMERGING ISSUES. Studies in Indian Place Names, 40(29), pp.317-326.
Chudnova, O.A., Oleinik, E.A. and Melnikov, P.A., 2020, January. Dairy products quality
assurance at the consumer market in compliance with EEC requirements. In IOP
Conference Series: Earth and Environmental Science (Vol. 422, No. 1, p. 012041). IOP
Publishing.