Strategic Auditing: Tesco PLC Audit Practices and Regulatory Review

This report delves into the realm of strategic auditing, examining the historical evolution and current practices within the audit and regulatory environments. It uses Tesco PLC as a case study to illustrate various audit practices, rules, and regulations. The report evaluates the history of auditing and regulatory environments, current audit practices, and the rules of professional conduct for auditors. The report also explores professional responsibility and liability, requirements for audit performance, and the connection between account preparation and auditing. Key aspects covered include the evaluation of audit practices and regulatory environments, the rules of professional conduct, and the application of these rules through case studies. The report highlights the importance of integrity, confidentiality, and competency for auditors, as well as the consequences of breaching professional conduct. The report provides insights into the evolution of auditing, the role of regulatory bodies, and the significance of true and fair views in financial reporting. Overall, the report offers a comprehensive analysis of strategic auditing, its practical application, and its significance in ensuring the reliability of financial statements.

Strategic Auditing

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
LO1..................................................................................................................................................1
1.1 Evaluation of history of auditing and regulatory environments............................................1
1.2 Evaluation of current practices of audit practice and regulatory environment.....................2
LO2 .................................................................................................................................................4
2.1 Rules of Professional Conduct..............................................................................................4
2.2 Critical evaluation of the application of the rules of professional conduct for auditors ......5
TASK 2............................................................................................................................................6
LO 3.................................................................................................................................................6
3.1: Professional responsibility and liability...............................................................................6
3.2 Requirements of performance of audit.................................................................................7
LO 6.................................................................................................................................................8
6.1 Connection among preparation of accounts and the audit conducted...................................8
6.2 Features of the link identified...............................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................11

INTRODUCTION
Strategic auditing is a process of in depth research about an organisation's financial
statements. The main aim of this process if to determine whether a company is developing their
true and fair accounting reports or not in order to protect the interest of third parties (Barton and
Bruder, 2014). In order to understand the concept of strategic auditing, a large organisation is
selected which has national coverage and has opened four new outlets in Europe named as Tesco
PLC. This is a retail company which has operates in groceries and other household products. In
this project report, various audit practices are determined along with rules and regulations which
are required to be followed by auditors. Several requirements of auditors are identified in this
report to create a link between auditors and auditing. In order to create an understanding about
the project, various examples and cases are included so that concept of strategic auditing can be
understandable. Numerous auditor reports are evaluated in this project of fair view of business
along with various accounts and accounting standards.
TASK 1
LO1
1.1 Evaluation of history of auditing and regulatory environments
Auditing is a process of investigation and checking. History of this process is derived
from ancient times as the word “Audit” has come from Latin word “Audire” which means “to
hear”. In ancient times the process of auditing was conducted by investigating oral reports from
the owners of the businesses in order to verify their operations. Auditing was first found at the
ancient civilisation of China, Egypt and Greece (Bodnar and Hopwood, 2012). Modern auditing
practices started from 1844 with Joint stock companies Act in United Kingdom. The first public
organisation of accountants was formed in 1854 and named as Society of Accountants. In order
to allocate duties and responsibilities to auditors, various board of auditing were developed in
different countries to ensure fair representation of accounting books and reports. The most
important factor which influences auditing process from ancient times is accounting as these
concepts are parallel and has a link between them. The concept of auditing came in force in 1970
when approach of audit started to change. At this time period, various analytics observed that
trend if auditing is changing from verification to relying. It is considered that before late 90's,
transactions were verified in order to only verify accounting books but after this time period,
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main aim of auditing changed to provide true and fair review of the company in order to give
audit report on which stakeholders can rely on. From various changes and amendments which
occur in history of auditing it helped in proving a strong base to the concept of auditing. In
current scenario, auditing is a well structured study which helps professional auditors to conduct
reliable audit practices. There are several rules and regulations which are developed in order to
provide a proper framework for audit practices. (History of Auditing environment, 2017)
Regulatory environment refers to the rules and regulations which are implied on the
process of auditing and on auditors. This environment was first began in 1970, when few
companies of USA decided to develop their own initiatives to prepare environmental auditing
programmes. This environment enabled managers of an organisation to comply with various
regulations such as local environmental laws and regulations, national environmental laws and
corporate policies. The most important aspect in the field of regulatory environment is US
Environment Protection Agency which was established in 1979. This agency issued a certificate
for auditors which are considered as reliable and certified as independent auditors. This agency
provided various processes which are necessary in the course of auditing, some of these activities
are collecting samples, perform analysis and report true and fair results to authorities. The world
is influenced by US when it comes to audit practice (History of Regulatory environment, 2017).
“True and fair views” in the field of auditing means financial statements which are free
from any material misstatements and providing auditing report which has no undue influence.
True and fair view of published accounts refers to the correct report of organisational accounts.
There are few measures which ensure that the audit report or opinion is correctly advised. These
measures has its own history, in year of 1844 legislations for valuation of assets were developed.
In year 1856, measures selling prices in the ordinary course of business are developed. In current
scenario, there are various boards of auditing which provides measures of auditing and
regulatory environments.
1.2 Evaluation of current practices of audit practice and regulatory environment
Organisation used to conduct auditing in order to examine a business process and analyse
the ways compliance with internal and external needs of Tesco. The another aspect of conducting
auditing is to implement continuous modification in the financial statements of the company. The
practices tend to assist auditors in analysing the correct ways of data analysis by the help of
using various financial statements of Tesco Plc. There are various current audit practises which
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are useful for the auditors while evaluating the reports of the company. some of them are
mentioned below:
Effective policies and procedure:
 Revise all the policies and process for alternation in business processes and policies. This
is basically crucial in case of setting new documents and formulate as per the demand of
Tesco (Bruynseels and Willekens, 2012).
 Communicate significant modification to all affects with personnel quickly to ensure they
are aware of various revisions to specific daily duties and responsibilities.
Safeguarding assets:
Assets are said to be one of the effective aspects of resources as a business that owns that
expected outcomes in the future can be attain properly. In order to manager the assets auditor
used to follow certain practices such as:
 Restricts access to data and other assets to a limited number of people within the internal
department of an organisation.
 Cash should be stored preferably in the fire-proof safe.
Efficiency and effectiveness:
With the efficient performance accomplishes aims and objective in accurate and timely
base of using minimal resources auditor can easily be able to manager Tesco financial
performance more safely. Like, two persons both are held accountable for executing the same
operation with a similar process, the duplication chances would be present in an organisation.
The best practices use by the auditor is to identify any processes that is having merely impacts on
the overall performance of Tesco plc. Strive to valuable procedure documents or transaction in
minimum need time to enhance the efficiency and effectiveness of the units. Creative accounting
is said to be one of the growing issues in various nations, threatening the credibility of both
accounting and functions those are performed within Tesco.
The concept of true and fair aspects from a UK perspective:
As per the company’s act, the concepts of true and fair view are implemented in British
legislation (Dall'O, 2013). This law cannot include a definition of true and fair aspects. It is
basically determining to mean as a presentation of financial statements.
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LO2
2.1 Rules of Professional Conduct
There are rules for the professional for their behaviours. As these are rules which is
followed by every one, whether its a auditor, legal or professional one. These are made in
organization to govern their decision making between right and wrong. It ensure the good
practice in organisation.
Rules of Professional conduct for Auditors -
Integrity -
Internal and external auditors are said to conduct their activities with all the integrity,
they should understand their responsibility. They should not be knowingly be a part to any illegal
activity, or engaged in any act which are not acceptable in profession of internal auditing. One
shall respect and contribute to the legal and ethical activity of the organisation.
Confidentiality-
They shall be prudent in the use and protection of information acquired in the course of
their duties. They shall not use the information for their personal gain, or in any manner that
would be contrary to the law or detrimental to the legitimate and ethical objectives of the
organisation (Kapferer, 2012).
Competency-
They must be engage in those services for which they have the necessary knowledge,
skills and experience. And they shall perform internal auditing services in accordance with the
International Standards for the Professional Practice of Internal Auditing.
Rules of Professional conduct for Legals -
As there are rules for legal professional also which is governed by the government, to
follow ethical practices. Legal one must uphold the rule of law and the proper administration of
justice. They run their business in a way that encourages equality of opportunity and respect for
diversity. It is assured that they are working with integrity and best interest of each client. This
should be assured that, clients are getting best information, both at the time of engagement and
when appropriate as their matter progress, about the overall cost of their matter.
Sanctions for breaches of Professional Conduct -
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A code of conduct is a formal document, that outlines the acceptable behaviour and
ethical decision for employees. For employees, a code of conduct offers clear guidance on what
to do and what not to do on job. And if it breaches then penalties are there for breaches.
The basic penalties,for breach of code of conduct, include a series of oral and written
warnings and reduced job privileges and responsibilities. If these warnings are not taken
seriously then strict penalties are there. Other penalties includes demotions, reduction in pay, job
transfer and termination from job (Kim, 2015). As there are legal provisions also, as if any leak
the internal information, then company can sue against that person. So breaching these conducts,
can ruin the carrier of an individual.
2.2 Critical evaluation of the application of the rules of professional conduct for auditors
Case-1
Tesco PLC that had worked with a $20 million association for several years stopped
responding to calls about an upcoming audit and questions about ownership of a new building,
the association’s chief executive officer was in a dilemma. With an upcoming Board meeting and
the deadline for an annual report looming, and with no audit scheduled.
Interpretation-
In this case, rule of integrity is applied. It is the duty of auditor to audit the book of
accounts every year of its company and its mandatory for the auditor. In this case auditors
stopped auditing for several years so its adverse impact on the company because investors will
not invest in the company without looking the audit reports of the company so its a rule which is
made by the government that its auditors responsibility to audit the book of accounts of the
company every year and if an auditor fails to do that then he will be personally liable and in the
board meetings its necessary to present the audited book of accounts.
Case- 2
Tesco PLC has found that auditors are doing fraud in the audit report and does not
provide true and fair picture to the shareholders and company is also facing lots of problems in
its business (Knechel and Salterio, 2016).
Interpretation-
This case is also related with the rule of integrity. An auditor has duty to evaluate and
present fair & accurate picture of book of accounts of the company and if an auditor finds the
error and mistakes in the book of accounts then he should inform to the company and its board of
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members and if they find that company is doing fraud in its accounts then auditor can deny for
doing audit and auditors should not provide false and incorrect judgement to the company as
well as shareholders while doing audit. If an auditor involve in the fraud and falsification of book
of accounts then he will be personally liable for that.
Like in this case auditors are doing fraud in audit report and they does not provide correct
and fair judgement to the shareholder henceforth company is facing lots of problems in the
business and if it is goes continuously then there will be a huge trouble for the company in the
future and growth of the company will decline also so an auditor does not make fraud or should
provide correct information to the company unless he will be personally responsible for the
punishment as well as penalty which can be imposed by the company or government of the
country or provision of both and he can also be terminate from its position (Lang and Wambach,
2013). For every company it is mandatory to present its audit report to the shareholders as well
as government and auditing should be done only by the auditors so there are many rules which
are applicable to professional conduct for auditors.
TASK 2
LO 3
3.1: Professional responsibility and liability.
The auditors are having effective responsibility to plan and perform the audit to obtain a
reasonable assurance regarding, whether the financial statement are any kind of material fraud or
errors. Auditors used to protect all the assets through ensuring compliance with inner control
procedure and regulations that are made by Tesco Plc. There is certain professional responsibility
of auditor such as:
 To maintain internal control system through updating audit program and recommending
new policies and procedures.
 Formulation of special audit and control reports by collecting, analysing and evaluating
operating information and trend about the Tesco.
 To develop professional and technical information by joining appropriate educational
workshops, forming individual networks within an organisation (Libman and Feld,
2013).
Liability:
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Auditor hold a duty of care to third part that relies on the financial reports of Tesco plc.
In the recent past times, the facts about, whether auditor owes a duty of care to other parties has
been subject of considerable media attention. Some of the liability of an auditor is been
mentioned below:
 Negligence: The major failure to exercise degree of professional ability and care to the
situation which is expected of auditors of Tesco plc. It is done basically because of legal
neighbours and proximity. It would also be categories under various head such as gross
negligence that mean that let-down to work out a least level of repair which is needed
without any resolved to damage any other people (Otoo, Agapitova and Behrens, 2015).
 Breach of contract: It would be occurring where a person as auditor fails to perform his
roles and responsibility in respect with the terms to set out the effective contract in the
internal department of Tesco plc. It can be based on various forms such as failing to
accomplish the engagement within the stipulated time frame. Not able to delivery
professional quality work within an organisation.
Significance of legal and professional aspects for the auditors:
Licensing: It has been found that there are various audit licensing regimes exists in
various jurisdictions. To be recognised as an auditor and to be issues with an audit license certain
professional accountant will have to meet requirements those are mentioned under section 2 of
IFAC standard.
Law and regulation in audit of financial statements and importance of auditors as per the
section 10 in ISA says that to perform particular audit process person need to identify the non-
compliance with other laws those are associated with material facts in the statements.
3.2 Requirements of performance of audit.
There are certain guidelines for the auditor who performed Auditing activity in Tesco.
Such as, performance of audit is classification of ratio and effectiveness of different program in
company with due heed to economy. Auditor have to address the issue of inputs, process, output
product and the impact of operation. They have to address the question whether the report are
prepared in the right manner and also address the the question of weather the right thing and
transaction are recorded or not. It also focus on the issues of equity and ethics when there is is a
chance for remedial measure to be encouraged. Performance audit is gives conclusion that
emerge from interpretation and may use may procedures that were used in different programs for
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evaluation and calculating. The process of audit always includes the subject that includes cutting
border content that are part of centre of administration and resolve issue in respect to the policy
shifts.
While the audit process the information should assess the implementation of the policy
through different programmes and this performance audit are always conducted with the
subjective of rising performance of public sector enterprises and their operation (Piercy, 2012).
LO 6
6.1 Connection among preparation of accounts and the audit conducted
To understand proper understanding of various financial statements of Tesco, it is essential
that every important accounting policy needed to be adopted at the time of formulating and
disclosing of accounting statement. The basic reason for the preparation of financial statements,
it is vital to make use of data from the other statements. Tesco used to follow a systematic
process of preparing statements such as income statement, balance sheets and retained earnings
records. After the amendment made by the government the International financial reporting
standards (IFRS) are specific standard issued by the IASB to deliver a common aim for business
affairs so that company accounts can easily be understandable and comparable all over the
world. There are certain aspects which are required to be taken into account while formulating
accounts of Tesco. Some of them are discussed below:
 Recognition of revenue: According to IASB and the FASB both have jointly issues a
latest revenue standard, IFRS 15 revenue from the contract with customers which would
replace the current standards. Under the new standard, a single mode for revenue
recognition from contracts with client is formed. All the activities of the licensor after
taking the license which is crucially affect the granted IP which might have certain
consequences on the timing of revenue recognition.
 Transfer pricing: It is basically a cost at which a subsidiary of a company used to buy or
sells products or services from their parent destination. It will be directly make impacts
on the income statement of the company because of dual effects during the time of
recording of data (Therivel and Paridario, 2013).
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 Treatment of intangibles: According to the IAS, 38 all the separable assets can be sold,
transferred and licensed. Goodwill of the company is acquired in a business combination
is accounted for in respect to IFRS 3.
 Depreciation: As per the AS 10, the systematic allocation of the depreciable value of an
asset over their useful life is taken into account. Gross carrying amount of an asset is
related with their cost substituted from their overall cost in the final account.
In auditing terms, it is the primary duty of auditor is to analyse financial statement those are free
from material misstatements and accurately represent the financial performance as well as
position of an enterprise. For auditors to discharge their legal and professional role and duties, it
is essential to avoid all those accounting standard those are insufficient to show a true and fair
value. This will be vital to take effective decision in accordance to make future decision for an
organisation (Wilson and Gilligan, 2012).
6.2 Features of the link identified.
From the above associated like the Auditor of Tesco. have developed accounting
statements by following standard of IFRS for current accounting year. This means that reports
and statements are free from any false information and shows the exact financial position about
company. The Auditor of Tesco have made the declaration which is described below:
 The financial statements and notes are comply with the Accounting standard and gives
the genuine and fair view of the financial position as it was represented by the result of
business activity and cash flows for financial year.
 Auditor also gives opinion which shows that tesco have reasonable grounds and the
company will be able to pay all their debts in a particular year.
 According to auditor company have sensible tract to think that the member of the
prolonged closed group that were known to financial statements. As a parties of Exploit
of transverse Assurance shall be able to meet all duty and possession which they Tesco
have to pay (Zadek, Evans and Pruzan, 2013).
CONCLUSION
In this project report, it has been concluded that auditing is important for every
organisation as it shows the fair and true value of business operation and financial position of
company. The main aim of this project is to compare and contrast historical and current audit
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practice and regulatory environment. Evaluate the rules for professional conduct and importance
of legal and professional requirements for auditor. The link between preparation of accounts and
audit declaration is discussed in this project report.
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REFERENCES
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Dall'O, G., 2013. Green Energy Audit of Buildings. Springer London.
Kapferer, J. N., 2012. The new strategic brand management: Advanced insights and strategic
thinking. Kogan page publishers.
Kim, L. S., 2015. Convergence of information technology and corporate strategy. Journal of the
Korea Convergence Society. 6(6). pp.17-26.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Lang, M. and Wambach, A., 2013. The fog of fraud–mitigating fraud by strategic
ambiguity. Games and Economic Behavior. 81. pp.255-275.
Libman, A. and Feld, L.P., 2013. Strategic Tax Collection and Fiscal Decentralization: The Case
of R ussia. German economic review. 14(4). pp.449-482.
Otoo, S., Agapitova, N. and Behrens, J., 2015. A strategic and results-oriented approach to
learning for capacity development.
Piercy, N. F., 2012. Market-led strategic change. Routledge.
Therivel, R. and Paridario, M. R., 2013. The practice of strategic environmental assessment.
Routledge.
Wilson, R. M. and Gilligan, C., 2012. Strategic marketing management. Routledge.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice
in social and ethical accounting and auditing. Routledge.
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<https://auditmonk.wordpress.com/2017/05/12/brief-history-of-auditing/>
History of Regulatory environment. 2017. [Online]. Available through:
<https://www.soas.ac.uk/cedep-demos/000_P508_EAEMS_K3736-Demo/unit1/
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