Auditing Report: Ethical Standards, Internal Control, and Independence

This report delves into the critical aspects of auditing, focusing on auditor independence, internal audit controls, and ethical considerations. It begins with an executive summary highlighting the importance of auditor independence and internal control within a company's audit policies and procedures...Read More

Running head: AUDITING
Auditing
Nam of the student
Name of the university
Authors note

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Executive summary:
The study report deals with the independence of the auditors and the internal audit
control which is associated with the audit policy and procedures within the company.
However the auditor’s independence is an important aspect of audit techniques and it is
important that the auditors do follow these techniques within the company.

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Table of Contents
Answer to question 1:.............................................................................................................3
Part a...........................................................................................................................................3
Actual independence..............................................................................................................3
Perceived independence.........................................................................................................3
Part b..........................................................................................................................................4
Answer to question 2:.............................................................................................................5
Answer to question 3..............................................................................................................7
Answer to question 4:.............................................................................................................8
Answer to question 5:.............................................................................................................9
Internal audit control testing:...........................................................................................10
Conclusion................................................................................................................................11
References:...............................................................................................................................12

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Answer to question 1:
The topic deals with the impact of actual and perceived independence and the
professional standards and regulations related to the aspect. Apart from this topic also tells
about the ethical, legal and other factors related to the auditing. The internal control is an
important aspect of the auditing. Hence the study also discusses about the weakness of the
internal control system. The measurements of the internal control system are also been
discussed in this in order to implement them within the company successfully. Lastly the
audit testing process has been described in this segment with a suitable conclusion at the end
to support this topic.
Part a
Actual independence
Hence this concept point out the interest from parties of which the results are harmed
by the company auditors. Specific internal management issue inadequate risk management,
inadequate internal control, and poor governance. Hence the charter of audit and the reporting
to an audit committee generally provides the independence of the management, the code of
ethics of the company helps them to provide the guidance relating to the independence from
the suppliers, clients, third parties etc (Chang et al .,2014).
Perceived independence
These are essential to achieve the goals of independence. More specifically it depict
the mind of the auditor is in and how the auditor acts and deals with any specific situation
(Khlif and Samaha 2014).
Importance: The primary purpose of actual and perceived independence is to provide the
company shareholders with an expert, independent opinion as to whether the annual accounts
of the company reflect the true and fair view of the financial position of the company. And

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whether they can perform the objective task (Pizzini , Lin, and Ziegenfuss 2014.). Hence the
auditor needs to be independent from the client company, so that the audit option can be
fulfilled by any relationships between them. The auditors are expected to give an unbiased
and honest professional opinion on the company financial statements. Considering an
example of Enron Company and the relationships with the auditors the company had received
$27 million for non-profit services and $25 million for audit services. However after the
demise of this company the accounting firm had been accused of not acting independently
and suggestions were made that they were gone along with the accounting practises to retain
their work. Thus the auditor independence plays an import role in the business prospective
(Choi et al., 2013).
Part b
a. Since Bob is an audit person in an university hence it is his responsibility to conduct
the audit of the financial statements presented to him at the end of each financial year
and prepare a quality report on the outcomes he had received by cross checking all
then values of the audit report. But instead of doing the audit work independently the
person copied the report from somewhere else and pest the same. This is an illegal
action taken by the auditor and he could have been penalized by the authority. In this
case bob have breached the professional standards .
b. Since Wendy was an engagement partner of ace audit limited for the past six years.
since the long standing company secretory had retired and Wendy had to step into that
shoe hence it is not considered as independent because in this case she had to manage
both of the jobs at the same time .Perhaps the company could have given Wendy
some more time to get ready for it. Here Wendy did not breech any professional
stranded.

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c. Since Leo is the son of the firms one of the leading audit worker, and he is assigned to
audit an important valuation of a machinery, hence it is up to him to conduct the audit
work properly. Thus the audit independency is a major prospect to follow in this case.
Here no independency have been followed up and hence the professional standard
have been breached by the person as per the company act.
d. Since the company did not paid the appropriate audit fee to Company for the past
months and the auditor of the company had threatened to resign. Hence the company
had tried to bribe the auditor by providing him 25% share of the company, hence it
goes against the auditor independence and it is actually against the company rules and
regulations (Alzeban and Gwilliam2014.). Thus the professional standards have not
been made properly.
Answer to question 2:
The auditors must follow guidelines promoting ethical standards. For the financial
statement auditors have established the code of conduct which is commonly known as the
code of ethics. Hence these have two sections namely professional and legal. These standards
are as follows-
1. Responsibilities: In carrying out the professional standards the games limited should
exercise the moral judgements relating to all the activities.
2. Public interest: the company should act in the way that they will serve the public
interest, honour the public trust and demonstrate commitment to professionalism.
3. Objectivity: it is important that the company maintains the objectivity and be free of
conflicts of interest in the performance of the professionalisms while providing the
auditing and assurance services.
4. Due care: the games limited while doing the auditing for the company must know
about all the technical and mechanical know how’s , strive continually to improve

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competence and the quality of services , discharge the professional standards to the
best of their ability.
5. Integrity: in order to maintain and improving the public confidence, the company
needs to perform their professional duties with the highest sense of priority.
Steps to appoint auditors: when a person other than a retiring auditor is proposed to be
appointed as an auditor of a particular company or where it is proposed that the retiring
auditor will not be reappointed, in those cases a special notice is provided to the as per
section 115 of the companies act 2013 by proposing a given resolution which would be
moved in the next annual general meeting of the company. Hence the purpose of the special
notice of the company are as follows-
1. If the auditor makes a representation in writing to the company ad request for a
notification to the members, the company shall-
a. State the fact that the representation in any notice regarding the resolution.
b. The copy of the representation has to be sent to those members by the company in
meeting is sent, whether before or after representation.
c. Such representation should be in a reasonable length and not too long.
d. The special notice should not be received by the company to read out the
representation in the meeting if it is so notified to the members due to being late
and because of companies default. Thus if the tribunal is satisfied that the rights
are being abused by the auditor based on the application on either of the company
and any other aggrieved person then the copy of the representation maybe sent
and the representation need to be read out in the company meeting. Hence it is
important that the games limited company utilizes all these procedures related to
the auditing techniques and implement the same in their own business also in

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order to fulfil the company requirements. Hence the audit partner should accept
the appointment since it is appointed by law. (Abbott et al., 2016).
Answer to question 3
Strong internal controls are critical in order to help to the risk reduction in a business which
will fall victim to the fraudulence and abuse.. Hence the internal control weaknesses expose a
business to any number of preventive risks. Hence the auditing risks it as an internal controll
and they did not take to reduce the risk to a level where they can be easily detected by the
employees performing the daily assigned tasks. While the weakness in the internal control in
the cash receipts and book keeping are very serious cause.
1. Evaluation of the cash handling techniques: evaluation of the operating procedure
to see that whether the business have clearly defined the procedures. For example the
distinctive separate cash handling duties. It is not enough to simply create an overall
cash handling policy even if it is published and distribute a copy of every employee.
Hence proper cash handling techniques can include appointing one employee to
prepare daily task bank deposits or approve the payment of invoices or another
reconcile end of the month statements or write pay checks . Look to see whether the
documents and such as receipts, blank cheques and purchase pre orders are numbered
in the proper order (Arya and Glover 2014).
2. Review the oversight control: review manual and oversight control designed t
safeguard the financial information and help to maintain the accuracy and integrity of
the cash receipts and disbursement data. Look to see that the authorized to make the
disbursement from the petty cash book and whether the disbursement slips and require
the signature of the department supervisor. Hence computer accounting system and
program permissions should grant access to the users based on the users are required
to perform. Hence the programmes are required to allow unlimited access to anyone

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needing to create a cash receipt or dint require to enter into user notification for
internal control.
3. Apart from this the look for supportive documentation requirement is also an
important aspect for the company perspective and hence it can be termed as the
internal control weakness for everyday suppliers limited.
4. Reviewing the steps for securing the cash related data are also another important
factor and it is also been considered as the internal control weakness.
5. The company sales are not coded on the cash register types and lack of sales
registration personnel who have an access over the cash receipts and those who make
entries into the accounts receivable errors (Gul, Wu and Yang 2013).
Answer to question 4:
Internal control weakness of purchasing and accounts payable system:
1. Not independency checked with stock against the purchase registration which may
result to overstocking.
2. Sequence of the orders is not accounted to the cancelled orders and not on order
which my result to the misplaced orders and not to purchase any transaction occurs.
3. Suppliers are selected based on the past reputation and not on other important factors
such as prices, terms and delivery date.
4. All incoming goods including the fixed assets not cleared through the goods, inwards
md receiving department.
5. Any discrepancy between the order and the delivery docket approved by the goods
inward manager. Hence there is no authorised approval to the absence of the market.
6. No independent check while purchasing and ordering. However in order to conduct
the internal audit procedures there is no comparisons between he receiving records

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and the inspections report to no guarantee that all the items received were in good
condition or not.
Accounts payable system:
1. One major trade creditor reconciles with the balance of $2000a re approved by the
accounts manager.
2. Not regularly compared only twice a year and the creditor’s ledger and control
accounts which could not showcase proper results for a long time without detection.
3. Not accounted in the department the sequence and cancelled dockets are resulted to
no guarantee that all the deliveries have been received and accounts for and over or
understanding the recordings of the creditor ledger. Hence the same process could be
implemented by Retro pty limited in order to check and maintain the internal control
weakness and accounting process.
Answer to question 5:
Strong internal controls are critical in order to help to the risk reduction in a business
which will fall victim to the workplace fraud, waste and abuse. Hence the internal control
weaknesses expose a business to any number of preventive risks. Hence the auditing risks
defines the material control weakness as the internal control and they did not take to reduce
the risk to a level where they can be easily detected by the employees performing the daily
assigned tasks. Hence the ethical managerial and other factors of independence could play a
major role in business.(Badara and Saidin 2013).
1. Evaluation of the cash handling techniques: evaluation of the operating procedure
to see that whether the business have clearly defined the procedures. For example the
distinctive separate cash handling duties. It is not enough to simply create an overall
cash handling policy even if it is published and distribute a copy of every employee

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(Newton et al., 2015). Hence proper cash handling techniques can include appointing
one employee to prepare daily task bank deposits or approve the payment of invoices
or another reconcile end of the month statements or write pay checks . Look to see
whether the documents and such as receipts, blank cheques and purchase pre orders
are numbered in the proper order.
2. Review the oversight control: review manual and oversight control designed t
safeguard the financial information and help to maintain the accuracy and integrity of
the cash receipts and disbursement data. Look to see that the authorized to make the
disbursement from the petty cash book and whether the disbursement slips and require
the signature of the department supervisor. Hence computer accounting system and
program permissions should grant access to the users based on the users are required
to perform. Hence the programmes are required to allow unlimited access to anyone
needing to create a cash receipt or dint require to enter into user notification for
internal control.
3. Apart from this the look for supportive documentation requirement is also an
important aspect for the company perspective and hence it can be termed as the
internal control weakness for everyday suppliers limited.
4. Reviewing the steps for securing the cash related data are also another important
factor and it is also been considered as the internal control weakness.
5. The company sales are not coded on the cash register types and lack of sales
registration personnel who have an access over the cash receipts and those who make
entries into the accounts receivable errors.
Internal audit control testing:
1. Separation of duties
2. Accounting system access control.

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Similarly the company could also utilise then same audit control techniques within the
company to maintain a perfect a perfect balance between the companies accounting and
auditing procedures (Vovchenkoet al.,2017).
Conclusion
This it can be concluded that the accounting and audit procedures which are been
implemented by the company in accounts payment department and the sales department are
very crucial to the company. However the internal audit controls techniques assures better
improvement to the company in future and promises a true and fair audit procedure. However
it is important that the auditors independently perform the audit the audit works and generates
outcome to the senior managers. This is the key for the audit company to survive as well as to
maintain the profitability in the future. In this way they could operate the business quite well.

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References:
Badara, M.A.S. and Saidin, S.Z., 2013. Impact of the effective internal control system on the
internal audit effectiveness at local government level. Journal of Social and Development
Sciences, 4(1), pp.16-23.
Newton, N.J., Persellin, J.S., Wang, D. and Wilkins, M.S., 2015. Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), pp.603-623.
Vovchenko, N.G., Holina, G.M., Orobinskiy, A.S. and Sichev, R.A., 2017. Ensuring financial
stability of companies on the basis of international experience in construction of risks maps,
internal control and audit. European Research Studies Journal, 20(1), pp.350-368.
Khlif, H. and Samaha, K., 2014. Internal Control Quality, E gyptian Standards on Auditing
and External Audit Delays: Evidence from the E gyptian Stock Exchange. International
Journal of Auditing, 18(2), pp.139-154.
Pizzini, M., Lin, S. and Ziegenfuss, D.E., 2014. The impact of internal audit function quality
and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), pp.25-58.
Lisic, L.L., Neal, T.L., Zhang, I.X. and Zhang, Y., 2016. CEO power, internal control quality,
and audit committee effectiveness in substance versus in form. Contemporary Accounting
Research, 33(3), pp.1199-1237.
Choi, J.H., Choi, S., Hogan, C.E. and Lee, J., 2013. The effect of human resource investment
in internal control on the disclosure of internal control weaknesses. Auditing: A Journal of
Practice & Theory, 32(4), pp.169-199.
Alzeban, A. and Gwilliam, D., 2014. Factors affecting the internal audit effectiveness: A
survey of the Saudi public sector. Journal of International Accounting, Auditing and
Taxation, 23(2), pp.74-86.

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Chang, S.I., Yen, D.C., Chang, I.C. and Jan, D., 2014. Internal control framework for a
compliant ERP system. Information & Management, 51(2), pp.187-205.
Rich, K.T. and Zhang, J.X., 2014. Does audit committee monitoring matter in the
government sector? Evidence from municipal internal control quality. Journal of
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Fiolleau, K., Hoang, K., Jamal, K. and Sunder, S., 2013. How do regulatory reforms to
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Abbott, L.J., Daugherty, B., Parker, S. and Peters, G.F., 2016. Internal audit quality and
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Accounting Research, 54(1), pp.3-40.
Abbott, L.J., Daugherty, B., Parker, S. and Peters, G.F., 2016. Internal audit quality and
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Gul, F.A., Wu, D. and Yang, Z., 2013. Do individual auditors affect audit quality? Evidence
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Gunny, K.A. and Zhang, T.C., 2013. PCAOB inspection reports and audit quality. Journal of
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Kwon, S.Y., Lim, Y. and Simnett, R., 2014. The effect of mandatory audit firm rotation on
audit quality and audit fees: Empirical evidence from the Korean audit market. Auditing: A
Journal of Practice & Theory, 33(4), pp.167-196.

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DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), pp.275-326.
Alzeban, A. and Gwilliam, D., 2014. Factors affecting the internal audit effectiveness: A
survey of the Saudi public sector. Journal of International Accounting, Auditing and
Taxation, 23(2), pp.74-86.
Arya, A. and Glover, J., 2014. Auditor independence revisited. Journal of accounting,
auditing & finance, 29(2), pp.188-198.