University Auditing Principles Assignment: Solution Analysis

This assignment solution provides a detailed analysis of auditing principles. It covers auditor independence, ethical considerations, and internal control weaknesses. The solution addresses various scenarios, including breaches of auditor independence, and provides recommendations for improvement. It also explores the steps involved in accepting an audit engagement, the concept of materiality, and the importance of audit evidence. Furthermore, the assignment examines internal control weaknesses in different business contexts, such as supplier management, inventory control, and purchase order systems. The solution offers insights into how to identify and mitigate these weaknesses to improve financial reporting accuracy and reliability. The assignment also includes a case study analysis related to professional ethics in auditing, providing a comprehensive overview of key concepts and practical applications in the field of auditing.

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
Answer No 1..............................................................................................................................2
1A...........................................................................................................................................2
1B...........................................................................................................................................2
Answer No 2..............................................................................................................................4
Answer No 3..............................................................................................................................5
Answer No 4..............................................................................................................................6
Answer No 5..............................................................................................................................7
5A...........................................................................................................................................7
5B...........................................................................................................................................8
Reference....................................................................................................................................8

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Principle of Auditing
Answer No 1
1A
Auditor should be independent while giving its opinion upon the financial statements
so keep this statement or clause valid two types of auditor independence are there related to
the auditor. Auditor should not have any relation with the client or any auditor family should
also have no relation with the client than only it can perform the audit so this type of
independence is been termed as Actual Independence (Bell, Causholli and Knechel 2015).
This is because the company financial statement should be judged properly so that there is no
material misstatements in the financial statements so if the auditor have any relation with the
client than it will not able to give a proper opinion and so it will directly affect the audit
quality and so will affect the economic decision of the financial users.
The second type of the independence of the auditor is it should have a distance with
the management so that it can give a proper opinion on the financial statement so this is been
termed as perceived independence (Cameran, Prencipe and Trombetta 2016). As the auditor
should maintain a professional gap with the client that can help him to give an independent
opinion upon the financial reporting of the client but if it does not maintain a proper distance
so it will directly affect the opinion of the auditor and directly affect the financial user
decision making process in regards with the company financial statements.
1B
1. It is been laid in the professional standard that an auditor should maintain the
confidentiality of the client and should not give the information of the client to any
third party as the information is very useful and can be used as a competitive tools in
regards with the company (Donelson, Ege and McInnis 2016). In the given case the
auditor have breach the principle as it have used the sensitive information of the client

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Principle of Auditing
to some other client so it is not a professional work which is been carried by the
auditor. The auditor should stop himself in regards of the breach as it would got the
permission from the client by telling him the situation that it need it for some other
client also and then it could have used it so than it would not consider as a breach as it
have taken the permission from the client in regards of the usage of the information.
2. The duty of the auditor is to provide only auditing related service to the client and no
other additional services like law or making of the accounts (Ettredge, Fuerherm and
Li 2014). In the given case it can be seen that the auditor was providing company
secretary services to the client which is not valid as per the professional behaviour of
the auditor. So the auditor should not have given them the services of the law to the
client but can suggest a good employee who can give them the required service and as
a result it will help them to get to save the right of the auditor.
3. The auditor should always carry their auditor service of their own and should not take
any member of the owner in the process of the audit. In the given case it can be seen
that the auditor have included the owner son in to the audit process so this can affect
the audit quality and can also affect the opinion of the auditor (Griffiths 2016). The
auditor have given it to check the internal control weakness so as it is the son of the
owner so it may happen that it does not find out any weakness of the internal control
and due to these there can be material misstatement in the balance sheet of the
company. To avoid these it can be that the auditor can deploy the person in some
other audit process so it can easily do the audit process and also the auditor can able
to give a proper opinion upon the financial statement of the company (Hall 2015).
4. The auditor should not take any consideration from the client except the money which
is been due to the client of his audit services. It can be seen in the given case that the
auditor have taken consideration in form of gift from the client so this show that it has

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Principle of Auditing
got a self-interest in the company and due to these the auditor can be affected by the
management decision and can give an opinion in regards with the management. So the
auditor should not accept the gift but should only ask them to pay the money which is
due to them and also if it is unable to do than it should ask for the legal case as per the
company in regards of the money due to them (Jha and Chen 2014).
Answer No 2
As per the case study the auditor can accept the offer but after it able to clear some
matters of facts related to the case which has happen to them as it should check all the
implications regarding the law and other factor which is been treated by then company and
what are the implications which have been done by the company (Kaizuka et al., 2016). The
auditor should check how the company have implied the case in the business and whether all
the necessary transaction have been done by the company or not.
Some steps taken by the auditor:
 Previous audit company confirmation should be taken by the auditor and also it
should know the details of the process which was carried by them in regard of the
audit process in the company
 An proper analysis of the case study should be done and should come out the real
defaulter in the case
 The details of each case is been with a statutory body so it should get the details from
them and should able to know how the company have dealt with it.
 The auditor should know the industry norms and should implement them in the
process of the audit
 It should communicate all the stuff with the management so that it can clear them in
regards of the audit process which should be carried by them

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Principle of Auditing
 Auditor should also consult the legal lawyer in related to the company and also about
the case study.
So it should send the engagement letter to the client after the company complete the above
mention points. The engagement letter should comprises about the details of how the audit
process is been carried out by the auditor in the company and also other details of the scope
and the time of the audit.
Answer No 3
Weakness in the Everyday Suppliers Internal Control System
1. No proper checking of the contractor is been done and only on assumption the cash is
been given so it is consider as an internal control weakness as it should check the
background and the financial position of the contractor before giving the cash as it
may happen the company have to incur loss due to the same and it can affect the
company financial position (King 2014).
2. The company is totally depend upon the computer system with regards of the
recording of each transaction so it can be consider as internal control weakness as if
the system does not able to perform well or any system failure occurs so it will result
in error or omission of the entries and which can create a material misstatement in the
financial statement (Knechel and Salterio 2016).
3. The cashier of the company perform several job altogether so it can consider as
material misstatements as the cashier may not able to give proper time in record of the
cash and which can result in misleading information to the company and also can
create shortage of the cash so it is also consider as a material misstatement of the
company (Krarti 2016).

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Principle of Auditing
4. The cashier is not allowed to check the financial books of the company so it can be
consider as an internal control weakness as the cashier is not able to make proper
verification of the cash and as a result it can affect the financial statement of the
company (Lennox, Wu and Zhang 2014).
5. The transaction of the company is been recorded by a single person so it can be
consider as an internal control weakness as if only one person does the entry and there
is no one to identify the mistake so due to human error material misstatements can
take place in the financial statements (Lin et al., 2014)
Answer No 4
Weakness in the Retro Internal Control Weakness
1. No proper verification of the purchase order is there in the company so it can be
consider as internal control weakness as it should check all the details which are there
in the purchase order so it will able to know the need of the product and can verify
whether due to this overstock position does not occur in the financial account of the
company (Rao 2014).
2. Company system generate the purchase order so it is been consider as internal control
weakness as if the company system does not able to work properly than it will directly
affect the purchasing power of the company and also due to these wrong suppliers
may also be selected by the company (Shore and Wright 2015).
3. Verification of the stock is a primary responsibilities of the company so it can be
consider as internal control weakness in the company as the company does not verify
the count the stock which has arrived from the shipment so it can make a understock
as it may happen the ship contain less amount of the stock compare to the order stock
(Tepalagul and Lin 2015).

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Principle of Auditing
4. Supplier invoice should be verify properly by the company so it can be consider as
internal control weakness as the company should verify each amount of invoice so
that proper record of the transaction can be done by the company.
5. Each company should verify of the raw material so it can be consider as internal
control weakness as the company does not compare the price of the raw material from
the market as it will help them to reduce the cost of goods and can increase the profit
of the company so this is not done by the company.
6. The company depend upon the system in regards with the details of the suppliers so it
can be consider as internal control weakness as if the system fail it will not able to get
any details of the suppliers which will directly affect the working ability of the
company an also will stop the production unit.
7. The company should verify the transaction on a continuous basis so it is consider as
internal control weakness so this due that the assistant account does not able to verify
the transaction on a continuous basic.
Answer No 5
5A
Weakness in Mypet Internal Control System
1. The company depend upon the system in regards so the generation of the purchase
order so this is consider as internal control weakness as if there any problem in the
system than the company will not able to get proper record of the purchasing order.
2. The company stock is been recorded with the help of bar code system so it is consider
as internal control weakness as if the system does not able to perform than the
company will not able to get a proper record of the stock.

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Principle of Auditing
3. No proper checking of the demand is done by the company so it can be treated as an
internal control weakness as if the company just increase their production without
checking the demand than it will get a huge loss to the company and also it will get
them in overstock position.
4. The company is depend upon the system in regards of the stock record so it is
consider as internal control weakness as if the system does not work properly than it
will not able to record the details of the finished goods and can effect on the valuation
of the finished goods.
5. Company should check the details of the suppliers so it can be consider as internal
control weakness as the company does not check the details of the suppliers so it can
affect the quality of goods supplied by them.
6. As there is only one person authorise with the printing of invoice so it is treated as
internal control weakness as if one only person have authority than it can easily
manipulate the documents related to the company.
5B
Inventory System Testing process
o Accuracy of the accounts should be checked
o Proper checking of the events in regards of the Inventory

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Principle of Auditing
Reference
Bell, T.B., Causholli, M. and Knechel, W.R., 2015. Audit firm tenure, non‐audit services, and
internal assessments of audit quality. Journal of Accounting Research, 53(3), pp.461-509.
Cameran, M., Prencipe, A. and Trombetta, M., 2016. Mandatory audit firm rotation and audit
quality. European accounting review, 25(1), pp.35-58.
Donelson, D.C., Ege, M.S. and McInnis, J.M., 2016. Internal control weaknesses and
financial reporting fraud. Auditing: A Journal of Practice & Theory, 36(3), pp.45-69.
Ettredge, M., Fuerherm, E.E. and Li, C., 2014. Fee pressure and audit quality. Accounting,
Organizations and Society, 39(4), pp.247-263.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Hall, J.A., 2015. Information technology auditing. Cengage Learning.
Jha, A. and Chen, Y., 2014. Audit fees and social capital. The Accounting Review, 90(2),
pp.611-639.
Kaizuka, T., Morishita, H., Hama, Y., Tsukamoto, S., Matsui, T., Toyota, Y., Kodama, A.,
Ishihara, T., Mizushima, T. and Mizushima, N., 2016. An autophagic flux probe that releases
an internal control. Molecular cell, 64(4), pp.835-849.
King, N., Oracle International Corp, 2014. Audit planning. U.S. Patent 8,712,813.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Krarti, M., 2016. Energy audit of building systems: an engineering approach. CRC press.
Lennox, C.S., Wu, X. and Zhang, T., 2014. Does mandatory rotation of audit partners
improve audit quality?. The accounting review, 89(5), pp.1775-1803.

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Principle of Auditing
Lin, Y.C., Wang, Y.C., Chiou, J.R. and Huang, H.W., 2014. CEO characteristics and internal
control quality. Corporate Governance: An International Review, 22(1), pp.24-42.
Rao, T.V., 2014. HRD audit: Evaluating the human resource function for business
improvement. SAGE Publications India.
Shore, C. and Wright, S., 2015. Governing by numbers: Audit culture, rankings and the new
world order. Social Anthropology, 23(1), pp.22-28.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.