Auditing Principles and Internal Controls: Assignment Solution

This document presents a comprehensive solution to an auditing principles assignment. The solution addresses several key areas, including auditor independence, confidentiality, and professional ethics, providing detailed analysis of case studies. It explores scenarios where auditors face potential conflicts of interest and ethical dilemmas, offering insights into maintaining objectivity and adhering to professional standards. The assignment delves into the identification and analysis of internal control weaknesses within various business processes, such as supplier management, purchasing, and inventory control, evaluating how these weaknesses can impact financial reporting and organizational operations. The solution also examines the steps an auditor should take when accepting an audit engagement and outlines essential audit procedures. Furthermore, the assignment provides examples of internal control weaknesses and potential risks. Overall, the document serves as a valuable resource for understanding auditing principles and their practical application.

Running head: Principle of Auditing
Principle of Auditing
Name of the Student
Name of the University
Author Note

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Principle of Auditing
Table of Contents
Question No 1............................................................................................................................2
1A...........................................................................................................................................2
1B...........................................................................................................................................3
Question No 2............................................................................................................................4
Question No 3............................................................................................................................5
Question No 4............................................................................................................................6
Question No 5............................................................................................................................7
5A...........................................................................................................................................7
5B...........................................................................................................................................8
Reference....................................................................................................................................9

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Principle of Auditing
Question No 1
1A
The auditor have to give its opinion as per the professional objective and it should
comply with all the rules and regulation so to ensure that the auditor give a correct and
independent opinion upon the financial statement of the company the professional authority
of the auditor have classified the income into two heads as Independence in actual and
independence in perceived (De Simone, Ege & Stomberg 2014).
The auditor should always have a distance with the management and should behave in
professionalism while carrying the audit services in the company so this principle state the
auditor should not have any type of financial relation with the client com0any and this
principle apply to the family members also as they should also not be connected with the
company and should not have any financial interest in the company (DeFond & Zhang 2014).
As if they have any financial interest in the company than they will able not able to give a fair
opinion in regards with the financial statements and also it should happen that due to
financial interest the auditor will not able to take any opinion upon the financial statement
and it will directly affect the financial user of the company.
As per this principle is been concern as Independence in perceived means that the
auditor should have made a distance it with the management as if it get connected with the
management than it may happen the auditor will not able to give a proper opinion upon the
financial statements as a result of it the audit quality will be affected as the auditor will not
able to give a proper report to the company (Donelson, Ege & McInnis 2016).. So it is very
necessary for the auditor to make a distance with the management so that it will able to give
its opinion upon the financial statements easily and also it will able to judge the events of the
company more as per the reporting it will able to give a proper report.

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Principle of Auditing
1B
1. The audit break the confidentiality agreement which is made with the company as if
the auditor uses the information of the company in some other company audit without
taking the concern permission so this will directly impact the confidentiality concept
of the auditor as it does not take the permission for the client before taking the
information in use to other companies (Furnham & Gunter 2015). The auditor can
stop the happening of this event by asking the company about the matter as if it would
ask the company about the same that it want to use the information in its some other
audit than if the company allow him than it can use the information to different
company and also it will help him to stop the breach of the contract and also it will
help him to use the given information in the different company audit and help him to
save its audit timing.
2. The duty of the auditor is to carry the audit services in the client office and it should
only provide those services and no other services should be provided by him in
respect of the client as if provide any other service than it may happen it will lose the
professional relationship and as a result it can give the audit opinion as per the
management and may give a wrong opinion to the company financial statement so to
maintain the gap it should not provide any additional service to the client (Griffiths
2016). In the given case it can be see that the auditor have given non auditing services
to the client as it is providing company secretary service to the client which is out of
the professional criteria of the company so it can affect the opinion of the auditor in
respect of the company financial statements. So it should not provide any non-audit
service to the company as it will affect the professional service of the auditor so it
should not do the work. It can assist someone in the company who can provide the
required services in the client company so in this way it will also not break the duty

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Principle of Auditing
the service as well as it will help the company to get the required employee in the
company.
3. The auditor should carry the audit service by their own and should not have any
person related to the company in the audit process of the company as it will affect the
audit process of the company so it should not take any person in related to the
company in the audit process (Hall 2015). In the give case it can be seen that the
auditor have send the owner son LEO in the audit process of the company, also it is
doing the audit of the internal control of the company so it is not a right thing done by
the auditor as it should not appoint the owner son in the audit process of the company
as it will affect the audit process and may affect the opinion of the auditor. So avoid
these the auditor should not include the owner son in the audit but should send him to
some other audit process so that it can help him to give a proper and fair opinion in
regards of the financial statements of the company.
4. An auditor should not take any money from the company except the auditor fees it
will affect the auditor opinion if take any financial interest from the company as if it
has any financial interest than it can affect the opinion of the auditor (He, Zeadally &
Wu 2018). In the given case it can be seen that it had accept the non-cash item from
the company so it can affect the opinion of the auditor so it should not have accept the
things and in regards of the money it can go for other ways to get back the money
from the company.
Question No 2
Auditor company should accept the audit process and the auditor company should
check whether all the related entry have been passed in the company and also all the legal
matter related to the case study. It should check all the transaction which are done by the
company in regards with the case.

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Principle of Auditing
Required Steps by the auditor
 The company should take details and approval form the previous audit firm in related
to the company case
 Should overview the case study as it will help them in the audit process
 Statutory body have got all the details so it should ask them for the details
 Auditor should have knowledge about the industry in which company is doing
business
 Proper communication should be done with the management
So the company should send the letter of engagement in regards of the company as it should
maintain the audit procedure and also the scope and timing of the audit which is going to be
held by the company and should ask documents related to the audit process.
Question No 3
Internal Control Weakness of the company Everyday Suppliers
1. The company passes the order upon the assumption by the manager so it can be
consider as a weakness as if does not check the contractor details and it finance
position than it may happen the contractor is not properly strong as per the financial is
been consider so this can affect the company as they will unable to get the amount in
return and the company will incur loss in the said amount (Knechel & Salterio 2016)..
2. The company is based upon the computer system in related to the transaction so it is
consider as internal control weakness as if there is any error in the system so it will
directly affect the company and due to this omission and wrong treatment of the
transaction can also take place in the company (Kumar & Sharma 2015).
3. Company cashier have many hobs to be perform in the same time so this is consider
as a weakness as if the cashier have to perform so many job than error and

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Principle of Auditing
misstatement in the cash account can easily happen as it is not able to give full
amount of time so due to these material misstatement may occur in the cash account
and which can affect the liquidity of the company (Li et al., 2016).
4. There is a restrictions that the cashier is unable to see the book of the company so it is
consider as a weakness as the company should not stop the cashier as if the cashier
will not verify the accounts than it will not able to know the balance of the cash and as
a result the company will have to suffer from the cash misplacement which can affect
the financial position of the company (Li et al., 2014).
5. As there is only one person to record the transaction so it be treated as internal control
weakness as if the person does any error in the balance sheet of the company than it
may happen that due to single access company will not able to know the error and
which will affect the financial position of the company (Newton et al., 2015).
Question No 4
Retro Internal Control Weakness
1. The internal control weakness in the company is that it does not check the purchase
order as if there is any error in the order that will directly affect the company and it
may happen due to wrong order there can be over or under stock which can affect the
company and there can be loss in the company due to these problem (Reeves,
Culverwell & Wittman 2017).
2. The company is depend upon the purchasing order system so it can be consider as a
weakness as if the system does not work properly and there are system failure so it
will affect the company and can affect the overall business of the company (Sandvig
et al., 2014).
3. No proper entry of the stock is been done in the company so it is consider as a
weakness as if the company will not verify the stock properly than they will not able

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Principle of Auditing
to pass the required entry in the business so as a result it will affect the company and
it will not able to get a proper record of the stock (Yuan & Yu 2015).
4. No market research by the company so it can be consider as a weakness as the
company does not compare their cost of goods with the market so as a result the
company may pay high amount of the goods which can be available in low cost to the
company (Zhang, Yang & Appelbaum 2015).
5. No verification of the invoice by the company so it can be consider as a weakness as
if the company does not verify the account than it will not able to make the reconcile
statement and also it will affect the financial statement of the company
6. The weakness is that the company depend upon the system in regards of the suppliers’
bill so if the system does not run properly it may happen that the company may not
able to get the record of the suppliers and it will directly affect the company business.
7. The company does not verify each transaction so it is consider as an internal control
weakness as if the company does not verify each account properly than there is a
chance of material misstatement in the balance sheet of the company.
Question No 5
5A
Mypet Internal Control Weakness
1. The company is depend upon the accounting software so it is an internal control
weakness as if there is an error or problem in the system so it will not able to give
proper purchase order and due to error it may give over or under rated purchase order
to the company.
2. Scanning process help them to record transaction so it is a weakness as if the scanning
system does not work properly than it ,may happen that the company have to suffer

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Principle of Auditing
loss of transaction as due to error in the system it unable to get proper record of the
goods in the company
3. The company depend upon the system in related to the production so this is a
weakness as if the company system does not work well than it will not able to get the
production detail and it will affect the business of the company
4. Company is depend on the system to record the finished good so this is a weakness as
if the system does not work than it may not able to get the proper result which was
expected by the system
5. Internal control weakness is that it does not check the reputation of the suppliers so it
can affect the quality which is been send to the company by the supplier
6. There is only one person access in the printing o it is a weakness as it can easily
manipulate the accounts of the company and can affect the financial statement of the
company.
5B
Testing related to Inventory System
1. Proper verification of the inventory should be done
2. Completeness of the account should be checked by the auditor

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Principle of Auditing
Reference
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DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), 275-326.
Donelson, D. C., Ege, M. S., & McInnis, J. M. (2016). Internal control weaknesses and
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Principle of Auditing
Reeves, A., Culverwell, J., & Wittman, A. (2017). U.S. Patent No. 9,734,139. Washington,
DC: U.S. Patent and Trademark Office.
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