Auditing and Assurance: Analysis of SBF's Audit of FFA and TRC

This report provides a comprehensive analysis of an auditing and assurance case, focusing on the responsibilities of SBF, an external auditor, in relation to their clients FFA and TRC. The report examines the audit firm's role in maintaining corporate governance and identifying material misstatements within financial statements. It delves into ethical issues, particularly concerning revenue recognition and asset misstatements, and evaluates the decision-making process using the AAA model. Furthermore, the report assesses the safeguards that could have been implemented to prevent misconduct and develops an audit report to the managing partner of SBF, addressing the firm's duties and providing an opinion on the audit quality. The analysis covers issues such as contributory negligence, questionable revenue recognition, and the failure to implement effective risk and review systems, highlighting the need for improved corporate governance and ethical practices within the audit process. The report also discusses the importance of independent directors and whistleblowers in identifying and rectifying misconduct.

Running head: AUDITING & ASSURANCE
Auditing & Assurance
Name of the student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction................................................................................................................................4
Audit responsibility towards maintain corporate governance....................................................4
Decision making depending on AAA Model.............................................................................6
Developing a reporting to managing partner of SBF.................................................................9
Introduction............................................................................................................................9
Identification and the evaluation of the issues.......................................................................9
Opinion.................................................................................................................................11
Conclusion................................................................................................................................12
References:...............................................................................................................................13

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Executive Summary
The study sheds light on the audit and audit assurance where the audit responsibility has been
analysed and evaluated. The report explains the responsibility of SBF as an external auditor.
This identifies the audit member’s responsibility towards maintain ethics into the audit report
and controlling the material misstatement into the financial statement. The report provides
idea on the FFA’s possible safeguards that could have been taken by the company to reduce
the misconduct into the audit management. Further this identifies the decision making
process depending on the AAA model which would help in reducing the material
misstatement into the financial statement. Finally the report develops an audit report to the
management partner of the SBF addressing the responsibility of the SBF towards their client
FFA and TRC and this has been supported with an opinion from the audit member to make
the audit quality better.

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Introduction
The audit responsibility refers to the identification of the auditor’s duty on
representing fair value of the company’s financial statement into the audit report. This has a
responsibility of identifying errors into the company’s financial statement and verifying
information served by the board members. An audit responsibility also reflects a auditor’s
duty to work into public and other stake holders’ interest. However the external auditor also
verifies the internal audit report. Hence, the study identifies the Audit and audit assurance
depending on the external auditor’s responsibility towards FFA. The SBF’ responsibility
towards maintaining the ethics into the organization through reducing the material
misstatement and management misconduct has been identified. Lastly, the report develops an
audit report to the managing partner of the SBF addressing the responsibility of SBF for their
client company and provides an opinion on the same.
Audit responsibility towards maintain corporate governance
The audit firm has a responsibility of reviewing the financial statement of their client
company. Therefore with the responsibility of reviewing the corporate governance, the SBF
recognises material misstatement in to the financial statement which is needed to be reviewed
by the Samantha Gabriell. However depending on the Steve Barker’s reporting this has been
recognized that there is misstatement in the revenue recognition of the cattle sales. As pert the
ASIC to make an overview of the impairment where the necessary cash flow, assumptions
and material misstatement between cash flow used and assets tested needed to be recognized
(Asic.gov.au, 2019).
To rectify the mistake of the Samantha Gabrielle few advices has been given based on
the auditor’s responsibility.

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1. Protecting the interest of the shareholder is the primary duty for an auditor. Hence
while FFA was involved in material misstatement or wrong doing the auditor needed
to ensure that whether the board members receive accurate and reliable information
(Keune & Johnstone, 2015).
2. The crisis management is also a responsibility for the external auditor at an event of
allegations of fraud and corruptions. Hence this gives a scope for the auditor to
develop good corporate governance through developing a good crisis management
skill (Moutinho & Vargas-Sanchez, 2018).
3. The audit person needed check the financial information that are being served by the
board member. In this way the company’s responsibility towards maintaining
corporate governance could have been identified (Asx.com.au, 2019).
4. With the responsibility of understanding the corporate governance the auditor person
has a responsibility of identifying the revenue recognition method followed by the
company in this was the misstatement into the cattle sales could have been
recognized.
5. The audit person needed to promote the accountability through introducing the
policies and principles designed to comply the accountability with the organization.
6. The auditor needed to ensure on the audit quality if that are being followed into the
financial reporting of the FFA.
7. Along with the current year’s financial statement Samantha Gabriell needed to review
the previous year’s financial statement so that the audit quality could have been
identified.
8. The auditor needed to review the revenue earning strategy or the recognition strategy
of the FFA as to understand, whether the corporate governance has been followed
properly while involved into business activity (Kassem & Higson, 2016).

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9. The auditor has responsibility of identifying financial information change over.
Company safeguard
1. Company needs to recognize and disclose the functions that are reserved to the board
and same has been delighted to the senior executive.
2. Company needed to disclose the company’s performance evaluation and the
performance evaluation of the senior executive.
3. The company needs to provide information based on the esurience of the publically
available information.
4. FFA needed to develop a periodic review of the company’s financial statement and
the operation so that the material misconduct can be caught.
5. FFA needs to develop strategic plan for the enhancement of the corporate governance
into the organization.
6. The majority of director into the company needed to independent.
7. Introducing a whistle blower is the best process of identifying any wrong doing into
the organization. Hence the company could have appointed a person to recognise the
management misconduct and that could have been rectified in future.
8. The FFA’s contributory negligence needed to reduce and a timely operational audit
management process needed to be developed.
Decision making depending on AAA Model
American accounting association Model Decision making process
Determining the Fact The facts are contributory negligence,
questionable revenue recognition method
followed by FFA, material misstatement in

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the financial statement of the TRC, The
inventory has been misstated and some has
been done for the net assets.
Defining the ethical issue The ethical issue which has been recognized
in material misstatement are: Asset
misstatement, TRC inventory misstatement,
method for recognising revenues on its sale
of cattle is very questionable, lower audit
quality.
Identify major principle, rules and value Marinating public interest, Representation
true value, maintains management ethics,
Conduction of the periodical review system
into the operations of the organization.
Specify the alternative Developing a risk and review framework
within the internal and external operational
audit.
Comparing values and alternatives The framework would generate a scope for
identifying the mistake through the review
team.
Assessing the consequences A periodical review system developed by the
company would help in reducing the material
misstatement.
Making an own decision The information which has been provided by

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her is wrong while auditing, therefore the
further purpose the company is
recommended to develop an internal audit
system compresses with the periodical review
system. Further the Sky martin is needed to
be removed from the board as the unethical
event or the management misconduct has
been taken place at her presence.
Table 1: Decision making
The senior auditor namely Sky Martine needed to be removed as the fact of material
misstatement in the revenue recognition for the cattle sales was known to him. The person
has supported the wrong doing since last 10 years through following an ethical process into
audit system for FFA. Therefore due to the breach o the audit responsibility and the corporate
governance the person needs to be removed from the audit community and as well as from
the broad. Furthermore, the audit quality needed to be improved where the object of the audit
report would reflects the representation of the fair value of their financial statements (Glover,
2014).
Developing a reporting to managing partner of SBF
Introduction
The report addresses the issues which have occurred in the client company’s financial
statement and accounting management system. The report addresses towards the wrong doing
into the financial management system and material misstatement into the financial statement
as a result of manipulation of the financial information by the subsidiary company TRC. The

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report identifies the breach of contract by the FFA and their subsidiary company. This
explains the material misstatement where the Auditor’s responsibility has been judged.
Furthermore the report address towards the identification of the changeover of the financial
information by the TRC company where the SBF’s reason to fail the due care has been
explained. The report also explains the SBF’s duty for the McCarran Pastoral. The report
also analyses that, whether the ASX principles and the principles for the corporate
governance have been followed by the FFA while maintain books of accounts and into the
financial statement.
Identification and the evaluation of the issues
While identifying the issues, this has been recognized that FFA did not follow the
ethical method for identifying the revenue recognition into their internal and external audit
system. However the company did not follow the accounting standard 15 mentioned into the
AASB 15 into their revenue recognition process (Aasb.gov.au. (2019). However, with the
wrong representation of the financial information helped their subsidiary company to
represent a strong balance sheet as the material misstatement has been identified into the
inventory and asset management segment of the TRC. Further the issues associated with the
audit responsibility towards TRC, FFA and McCarran Pastoral has been identified below:
This has been recognised that the audit firm has reduced with their responsibility
towards the TRC as the firm could not rectify the corporate governance of the TRC through
the development of an internal and external audit system. As a result of which TRC’s
corporate governance realises a downturn with the misstatement into the Inventory and asset
segment. With negligence into the audit responsibility the SBF failed to implement a proper
corporate governance into TRC’s financial statement. With reference to the Sky martin’s
statement, the loophole into the inventory and asset management system into the financial
statement has been identified as this refers that the material misstatement into the financial

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statement has been done for a long time and that has been supported by the senior execute of
the audit commute. Further, a questionable revenue recognition system has been identified
while the company is involved into the cattle sales. The corporate governance into the TRC
has not been evaluated and nurtured by the SBF as the firm did not check there misconduct
for a long period of time which resulted in losing the market and the realisation of loss. The
audit firm did not develop any risk and review system to create a periodic review system into
the internal audit of the company. The audit firm fails to take due care as the firm did not
report with mentioning the indication of offences. The audit committee member did not adopt
crisis management system which could have helped the FFA by straightening their position in
crisis time.
However the FFA has not felt any guilty on the material misstatement into their
financial statement and the wrong doing into the revenue recognition process as the
information has been shared ever with the company’s directors by the Auditor since a long
time, neither the audit firm has ever asked for a review of the company’s corporate
governance. However the senior executive of the SFB audit Committee knew the fact since
10 year but no rectification has been made by the auditor, neither the person has reported this
to the company’s stakeholders and board members. Hence the company did not have any idea
over the ongoing misconduct within the financial reporting. With the less amount of
involvement into the corporate governance, the company realises loss towards implementing
effective internal audit system. Further, a contributory negligence has been recognised in the
formation of a risk and review management system for the enhancement of the safeguard.
Result of which the parent company namely FFA sues the SBF for neglecting the audit
responsibility and maintain lower category of audit quality while representing financial
reporting (Tepalagul & Lin, 2015)

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The audit firm owes a duty and responsibility towards the McCarran Pastoral. As the
auditor has a responsibility of representing true and fair value of the financial information
through which the performance can be judged. This reflects the duty of the SBF towards
representing actual position of the TRC to the McCarran Pastoral. For an example when an
entity buys share of the company the auditor has a responsibility to provide actual
information depending on the fair value of t financial statement. This represents Auditor/s
responsibility towards the company’s shareholder or investors. Therefore the SBF owes a
duty of representation a fair value of the TRC’s financial statement towards the McCarran
Pastoral. However the changeover of the financial information also needs to be recognised by
audit firm and reported to the stakeholders. Hence, the overvalued inventory and net assets
also needed to be reported to the McCarran Pastoral by the SBF.
Opinion
The opinion has been made based on the requirement of the amendment of the
revenue recognition policy into the FFA and reducing the misconduct into the TRC inventory
and asset management system. The formulation of the effective corporate governance into the
FFA management system would help to enhance their profitability for the company. Further a
development of risk and review team has been suggested to create a periodic evaluation of
the company’s internal and external management system. The material misstatement into the
TRC’s financial statement needs to be reviewed and rectified. Along with that the overvalued
inventory and net assets needed to be rectified or reported by the Audit firm to the stake
holders of the FFA (Kulikova, Akhmedzyanova, & Ivanovskaya, 2016).
Conclusion
The study has provided idea on the breach of the ASX principles along with the
breach of corporate governance by the FFA and their subsidiary company. The study
identifies the audit responsibility and depending on which the Sky Martine’s responsibility in

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maintaining public interest have been identified. Further the responsibility of reviewing the
corporate governance by the audit committee member Samantha Gabrielle has been analysed.
This led the report to identify the material misstatement into TRC financial statement and the
misconduct into the FFA corporate governance. This also identifies the responsibility of
Samantha Gabrielle to maintain the audit responsibility in representing the financial
information. A safeguard by the company has been draws. Further a decision making have
been followed to draw a decision to reduce the misconduct into the Audit management
process and the material misstatement into the financial statement of the client company.
However a formal report has been developed to represent the issues support by the auditor’s
opinion to the managing partner of the SBF. This has explained the SBF’s duty towards TRC,
Samantha Gabrielle and FFA.