Audit Report: Independence, Audit Planning, and Ethical Considerations

This report delves into various aspects of auditing, including conflict of interest management, ethical threats to auditor independence, and the role of internal audit divisions in corporate governance. It analyzes safeguards for managing conflicts of interest, discusses ethical threats such as self-review, advocacy, and intimidation, and explores methods for mitigating them. The report also compares the levels of assurance provided by audit and review engagements and outlines the rights of auditors regarding appointment and resignation. Furthermore, it emphasizes the importance of audit planning, the benefits of documenting audit work, and identifies and addresses audit risks such as detection, control, and inherent risks within the context of Bakers Department Stores. The report provides a comprehensive overview of audit procedures and their significance in ensuring financial accuracy and compliance.

Audit in
Context

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK-1............................................................................................................................................1
Discuss the safeguards that Travers Watts should implement to ensure that the conflict of
interest is properly managed........................................................................................................1
Describe the ethical threats which may affect the independence of Travers Watts for the audit
of Universal Trading, and explain, for each threat, how it can be avoided.................................1
TASK-2............................................................................................................................................2
Explain how an internal audit division can assist the board of directors in fulfilling their duties
under the principles of good corporate governance.....................................................................2
Compare the level of assurance provided by an audit and a review engagement........................3
Discuss the rights of auditors in relation to the appointment and resignation from their
position. .......................................................................................................................................3
TASK-3............................................................................................................................................4
Discuss the importance of audit planning....................................................................................4
Explain the benefits of documenting audit work.........................................................................4
Describe four audit risks and explain the auditor’s response to each risk in the audit planning
of Bakers Department Stores.......................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Audit refers to the examination of books of accounts in proper manner and checking the
recording transactions properly to find out the accuracy so that profit will earn by the company
and also helps in future growth (Arfaoui, 2016). Audit can be done internally and externally so
that in future company will not get affect and the decision is to be taken on time before the
situation get worst. There are four steps in the audit that are auditors role, steps to plan audit,
compiling information and reporting. The topic covers under this report are conflict of interest is
properly managed, ethical issues, comparing the level of assurance and discussing the rights of
auditors and their importance, benefits and risk.
MAIN BODY
TASK-1
Discuss the safeguards that Travers Watts should implement to ensure that the conflict of interest
is properly managed
It helps in identifying the interest of the companies and the individual person when it is
working against the other. Basically the conflict of interest arises when the clash arises between
the interest and the profession development so the decision is to be taken in the proper manner
regarding the work. Travers watts is an auditing company as trading companies are worried that
if the audit of the companies are done by the Travers watts its lead to mislead the information
which will affect the organisation in an proper manner. There are competitors in the market and
if the audit is done by the same company it leads to mislead of the work. Because of this
situation there is arise in the conflict of interest as the the situation is raised weather the
judgement or actions are unbiased and should have legal work by which they cannot transfer the
information in an organisation and will not affect in the future. So the decisions are to be taken in
proper manner related to the future growth of the company. It is a situation where the person
conflict of an individual affect the professional interest of an individual.
Describe the ethical threats which may affect the independence of Travers Watts for the audit of
Universal Trading, and explain, for each threat, how it can be avoided
 Self-review threat: It is threat where the individual identifies that this work is done
originally and reviewed the work in an proper manner so that it can be corrected. It is
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situation where the same person is preparing the accounts and doing the audit in an
organisation. Traver watts should appoint an external auditor so that work is to be done in
the proper manner.
 Advocacy Threat: It is a threat which arise when the accountant of the company promote
the idea of the client and follow the decision made by them (Bhattacharjee, Maletta and
Moreno,2017). This could be avoided so that the company will not get affected and
should not give the power of the company to the clients by which the risk get eliminated
and the decision regarding the work is to be done in the proper manner. It is the point
where the objectivity will be compromised in an easy manner and will not affect the
organisation.
 Intimidation Threat: This threat helps in finding out the threat which is real or imagined
in which there are the chances where the risk can be arise in the future so the proper
measures are to be taken to correct them properly in an organisation and will not affect
them. This type of risk is avoided because in the future the company may suffer from the
heavy loss.
TASK-2
Explain how an internal audit division can assist the board of directors in fulfilling their duties
under the principles of good corporate governance
Internal audit helps in assisting the directors so that they can perform well in the
organisation and will helps in accomplishing the task in proper manner. Below are the various
principals of the corporate governance are described:
 Structuring the Board to add value: There should be proper balance in term of the
diversity and the skills and should be perform according to the directors according the the
duties and the size. The board of directors should observe these properly and will not
affect organisation.
 It helps in promoting the ethical relationship: It should have proper decision making so
that rules laws are to be followed in the proper manner. It helps in identifying the
unethical behaviours which affect the organisation so the decision is to be taken in proper
manner by the boar of directors.
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Compare the level of assurance provided by an audit and a review engagement
It helps in providing the assurance related to the work so the decisions are to be taken in
proper manner. It helps in providing the assurance that the work done is correct and accurate and
will not affect the company in the future. There are the two levels of assurance when the audit is
done first is reasonable and the second is assurance (El Arass, Tikito and Souissi, 2018). It helps
the auditors to express there opinion related to the work so that the task can be accomplished in
an easy manner. By doing the audit the company can easily identifies the highest level of
assurance about the work done and helps in finding out the accurate position of the company in
relation to the work. Sphire Group is doing the internal audit of the company so that the accurate
position of the company is to be identified in an proper manner. By reviewing the company we
get to know about the company financial position which is good as there is proper maintenance
of records and the transaction in the companies so that the overall position of the company can
be identified in an easy manner.
Discuss the rights of auditors in relation to the appointment and resignation from their position.
Rights of auditor in relation to appointment:
 Written consent: The auditors are required to have the written consent as an proof
related to the work under the section 141 as the person should have an full knowledge
about the work done as audit and have the written consent.
 Appointment notice: The company should provide an appointment notice to the auditor
so that the decision is to be taken in an proper manner by the auditors (Naidoo, Parham
and Pinder, 2017). The appointment notice is the right of the auditor and should be asked
by the companies when the auditing is done.
Rights of auditors in relation to resignation:
 If auditor want to resign the company should file the documents with in 30 days from the
date of resignation so that the details are provided to the company.
 The documents which are provided by the company should have the full details and the
decisions are to be taken in the proper manner.
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TASK-3
Discuss the importance of audit planning
 Audit process helps in taking the decision in the time of the urgency in the areas where
the attention are needed in an organisation. The auditors focuses more on the important
areas and less on the areas where it is not required (Gaddis, 2018). It helps in reducing
the risk in the future and the decision is to be taken care in the proper manner and will not
get affected.
 It helps in identifying the risk elements on the timely basis so the decision is to be taken
in the proper manner and helps in reducing the time and the money in an organisation.
And dressing the problem in the timely manners helps in saving the time. The additional
documents are required by the auditors so that they can taken the decisions on the timely
basis and can arrange the documents properly.
 The auditors have to organize and manage the audits properly so that the risk can be
eliminate and the decision regarding the company is to be identified in an proper manner.
The resources are to be allocate in the proper manner without wasting the time (Missaoui
and Ghodbane, 2016). It helps in planning the activities and the major auditing can be
done during the time with the effectiveness so that it will not affect in the future.
Explain the benefits of documenting audit work
 It helps in providing the evidence to the auditors about the actual performance of an
company so that the overall objectives can be achieved in an proper manner and the
benefits can be described properly in an organisation so that there is a future growth and
will not affect the company.
 It helps in providing the evidence related to the audit that it is to be done in the legal way
according to the ISA and legal requirements of the company and will not affect the
company and should be done properly and will find out the issues related to the company.
 It helps in engaging the team so that they can plan and divide the work accordingly so
that the audit can be perform in the timely manner so that the audit will be done in less
time and the individual can achieve the targets properly in an organisation.
 There should be proper supervision and reviewing of the work is to be done which helps
in identifying the team members and working in an proper manner and should have the
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proper quality of the work and the inspection is to be done in proper manner related top
the work.
Describe four audit risks and explain the auditor’s response to each risk in the audit planning of
Bakers Department Stores
Audit risk refers to the policy where the misstatement is to be done in an company and
identify its weakness so the work is to be done properly (Lowe, 2018). There are four types of
the auditor risk in the bakers department store which is described below:
 Detection risk: It helps in identifying the risk and the errors in the financial statement of
the company so the decision is to be taken care in the proper manner and would not issue
the wrong opinion regarding the bakery department store. The auditor should check the
recording transaction properly then only the risk will be identified and the decision is to
be taken. The procedure is to be followed properly and should communicate with the
management in an proper manner.
 Control risk: This risk is to be done when there is not proper control of the management
in an organisation and the decisions are to be taken on the ordinary basis. These types of
risk affect the organisation and should be control on timely basis so that the bakery store
will not get affected. The auditors should control the risk by filing the document on time
and the internal control of the company is to be managed.
 Inherent risk: These are the risk which cannot be controlled by the management or by
the company due to its uncontrollable factors and these risk are not able to identify by the
auditors during the time of audit. When there is high value of cash in an organisation
there is a high risk involved. The auditors should control the risk by doing the high
judgement and the technologies are to be taken properly by which the risk can be
avoided.
 Acceptable risk: IT helps in releasing the unqualified opinions about the risk regarding
the financial statements and the statements which are misstated are to be observed and
finding the reasons of the misstatement by the bakery store (MacTavish, 2018). The
statements should be free from misstatement the auditors should observe these in the
proper manner.
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CONCLUSION
From the above report it has been concluded that the audit helps in identifying and
observing the work in an proper manner and will not affect the organisation. The various risk are
studied in this report like the acceptable risk, inherent risk, control risk, detection risk by which
the threats can be identified easily. The benefits and the importance of the audit in an
organisation are also studied so that the decision is to be taken in an proper manner.
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REFERENCES
Books & Journals
Arfaoui, F. and et. al., 2016. Ethics education and accounting students’ level of moral
development: experimental design in Tunisian audit context. Journal of business ethics.
138(1). pp.161-173.
Bhattacharjee, S., Maletta, M. J. and Moreno, K. K., 2017. Audit reviewers' judgments in
multiple client audit environments. Behavioral Research in Accounting. 29(2). pp.1-9.
El Arass, M., Tikito, I. and Souissi, N., 2018, June. An Audit Framework for Data Lifecycles in
a Big Data context. In 2018 International Conference on Selected Topics in Mobile and
Wireless Networking (MoWNeT) (pp. 1-5). IEEE.
Gaddis, S. M. ed., 2018. Audit studies: Behind the scenes with theory, method, and nuance (Vol.
14). Springer.
Lowe, D. J. and et. al., 2018. Information technology in an audit context: Have the Big 4 lost
their advantage? Journal of information systems. 32(1). pp.87-107.
MacTavish, C., 2018. Audit negotiations. Managerial Auditing Journal.
Missaoui, A. and Ghodbane, S. B., 2016. Evaluation of the perceived audit quality: study of the
Tunisian context. African Journal of Accounting, Auditing and Finance. 5(4). pp.346-
368.
Naidoo, K., Parham, D. M. and Pinder, S. E., 2017. An audit of residual cancer burden
reproducibility in a UK context. Histopathology. 70(2). pp.217-222.
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