AF703 Strategic Auditing: Regulatory Environment, Risk & Account Prep

This report provides a comprehensive overview of strategic auditing, examining the impact of the regulatory environment and professional standards on auditing processes. It discusses the role of the Financial Reporting Council (FRC) in the UK and its influence on audit practices. The report also explores the importance of auditing in risk management and accounts preparation, highlighting how auditing helps in identifying and minimizing risks. Furthermore, it details the legal and professional requirements for auditing firms and auditors, emphasizing the need for independence, proficiency, and ethical conduct. The report also touches upon the application of audit concepts and principles within an organization's audit strategy, including objectivity, confidentiality, and the collection of evidence. The importance of internal controls and the auditor's responsibility in ensuring the accuracy of financial accounts are also discussed. The document concludes by reiterating the significance of auditing in providing credibility to financial statements and ensuring stakeholder confidence. Desklib offers a variety of solved assignments and past papers to aid students in their studies.

STRATEGIC AUDITING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Impact of regulatory environment and professional standards over the auditing process used by
business........................................................................................................................................3
TASK 2............................................................................................................................................8
Importance of auditing in risk management and accounts preparation.......................................8
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Strategic auditing can be described as a review or evaluation of business's strategic plan
in an objective manner. This process is designed by senior leaders and stakeholders of the
business in an attempt to meet future objectives of an organization. While conducting strategic
audit for an organization, various analytical activities are being performed which involves
resource auditing, analysis of core competencies, performance analysis, portfolio analysis and
SWOT analysis (Shemaieva and Tolok, 2020). The purpose of strategic audit is conduct in depth
review to identify whether the business is efficiently meeting its objectives and goals or not. In
addition to this, it has been examined that whether resource utilization in business is done full or
not and accordingly, it is believed that a strategic audit if carried out in successful manner, then
business would definitely get benefited as result of such audit. Audit manager or accountant
while conducting strategic audit undertakes to compare current business state with the laid out
goals and objectives of the business within their strategic plan. The present report consist of two
tasks, where in the first task the explanation pertaining to the impact of regulatory environment
and professional standards over the audit processes adopted by business will be done. Also, the
application of audit concepts and principles within the audit strategy of business will be
discussed. Furthermore, the legal and professional requirements pertaining to auditing will be
detailed in this report. In the second task of this report, the importance of auditing in the
preparation of account and risk management will be explained by including arguments with
regard to how auditing helps in the determination and minimization of risks. At last, the
importance of auditing will be explained by focusing on roles and responsibilities auditors and
directors while preparing company account. Accordingly, current developments in the field of
auditing will be identified.
MAIN BODY
TASK 1
Impact of regulatory environment and professional standards over the auditing process used by
business
There are some or the other regulations meant for regulating a body of individuals such
auditors and audit companies which can have great impact over the process of auditing adopted
within every business. Within UK, the FRC (Financial Reporting Council) is meant for
promoting integrity and transparency within every business to protect the interest public and

stakeholders. The regulation is meant for accountants, auditors and actuaries and accordingly,
FRC sets out the code known as Corporate Governance and Stewardship for businesses within
UK (Eltweri and et.al., 2018).
The auditing processes begins with the planning, notifying departments regarding
upcoming audits their purposes, opening meeting to discuss objectives and purposes of audit,
carrying out fieldwork, drafting report on the basis of fieldwork, obtaining management
responses in the form of recommendations over draft report, conducting closing meeting with the
management of each department to discuss the report and management responses, distribution of
final audit report and at last the follow-up review was performed by recognised body. All these
are the steps involved in the process of auditing carried out in businesses. There is a huge impact
of regulatory environment and professional standards meant for regulating and controlling the
behaviour of auditors and accountant over these auditing process. With regard to UK, the
following regulations are meant for controlling auditing processes used in businesses:
 FRC as a regulatory body sets standards and formal behaviour to be adopted by auditors
and guides in terms of how it could be implemented in practice. This is done to ensure
that auditors are following best practices while conducting audit in a competent and
independent manner, so that detection of omission and errors within financial statements
along with faithful reporting could be possible. Accordingly, it can be said that regulatory
body is necessarily needed for true and fair audit process within businesses.
 Regulatory environment sets framework of auditing which list out rules and legislations
to be fulfilled at the time of accomplishing auditing process which leads to appropriate
and fair reporting by businesses (Kazim, Denny and Koshiyama, 2021).
 It is necessarily required by every business within UK to have an audit of its financial
statements once in a year when auditors give their opinion over financial statements of a
business in terms of whether it is indicating true and fair view of the business wealth and
performance by complying relevant legislations. These affects auditing process of the
business which involves hiring qualified auditors and preparation of audit report in
accordance with legislative requirement, so that interest of both internal and external
stakeholders could be protected against fraudulent events.
 With the requirement of reasonable skills and care to be exercised by auditors while
carrying out auditing, better field work with regard to auditing could be performed which

ensures that each and every aspect of the business has been taken into account.
Accordingly, greater transparency of business can be ensured which attracts investment
from potential investors.
With respect to UK, there are certain legal requirements that must be fulfilled by auditing firms
as well as hiring business, such as the following:
 As per the audit regulation, those entities regarded as public interest entities must not
retain the similar auditing firm or auditor for more than the 10 years, however derogation
facilitated member states to extend the engagement of auditors up to 20 years but
retendering must be taking place at least every 10 years (Gabrini, 2021). This has been
made compulsory to ensure that there would be no longer period for which auditors are
continuously serving the same client because it leads to development of mutual
relationships and as a result of this there are greater probability of non-compliance with
laws and legislations applicable on auditing firm or individual. After the completion of
audit period by one auditing firm and a new auditor joins the business, then there are
major changes took place in auditing process and strategy which helps in ensuring that
public interest would not get hurted.
Impact of professional standards over auditing process
 With respect to professional standards applicable on auditors, it is necessary that they
possess adequate proficiency and technical training while performing audit. This affects
auditor's ability to prepare audit report and aligned the same with the management
recommendations over the audit report to ensure that all associated bodies are satisfied
with the audit work performed. Auditor's proficiency is helpful in resolving concerns and
queries raised by management which in turn makes auditing process fluent and
reasonable (Shiue, Liu and Li, 2021).
 Professional standards has made it compulsory for auditors to maintain independence in
all their conducts and matters associated with audit. This help in designing auditing
process in such a way which could identify risk inherent in the business in a better way. If
risks are identified correctly, then investor's interest could be protected along with
ensuring that whatever have been invested is safe and secure.

 Auditors are required to be honest in all their dealing with others in a consistent manner.
While working in a capacity of external or internal auditors, tax experts or financial
experts and management accountant, they must be having a common objective. This
means that duties and responsibilities must be carried out in such a manner which ensures
the highest level performance in terms of fulfilling ethical requirements for the purpose
of meeting public interest and maintenance of reputation of accounting profession
(Shemaieva and Tolok, 2020). This would be helpful in determining that whether the
business has prepared their financial statements in a manner depicting true and fair view
of the business performance and health. This is associated with application of integrity in
all business and professional relationships which auditors could ensure by adhering to
high behavioural standards while carrying out their work.
 A professional auditor is required to maintain required level of skills and knowledge in
order to ensure that the client is getting competent professional services which is based
on current developments in techniques, legislations and practices. This allows auditors to
learn continuously throughout their career in order to develop skills and keep pace with
changes and innovations taking place in the field of auditing. Professional auditor is required to maintain confidentiality with regard to information
obtained as a result of business and professional relationships and therefore, must not
disclose the same to third party without having authority to do so (Cao, Cong and Yang,
2018). When confidential information are kept secret, then there would be better
reputation of the business as well as auditing work performed by auditors and thus
indicates the quality of auditing process.
Auditing concepts and principles applied within the audit strategy of an organization
Audit strategy refers to setting out general terms which indicates how audit is to be
conducted along with stating the scope, direction and timings of the audit. The audit strategy
then act as a guidance while developing audit plan which indicates detailed responses to the risk
assessment performed by auditors.
 To ensure that the principle of objectivity which is needed for a professional person while
exercising or giving professional judgement and thus regarded as independence of mind.
To ensure this principle, arrangements must be done to ensure that adequate trainings
have been provided to staff along with empowering them to communicate any concern

with regard to issues associated with objectivity. Also, by having an overall controlled
environment which ensures professional approach with regard to matters of ethics and
quality, the principle of objectivity could be fulfilled through audit strategy.
 By setting the right audit approach which is free from unethical behaviour such as
disclosure of confidential information to third party, a principle of confidentiality in
auditing could be complied with through organizational audit strategy (Mkoba and
Marnewick, 2020).
 At times, the scope of audit could be very vast where an auditor is required to delegate
work to other people or employees working under them. However, it is necessary for an
auditor to remain continuously responsible for whatever work done by their subordinates.
Accordingly, it is must for the auditor to perform effective supervision and review of the
work performed by people working under him in order to reasonably make sure the
accuracy of work done.
 It is persistent duty of an auditor to assure that the financial accounts prepared by an
organization are accurate and also representing a true and fair view of the business
financial status. Furthermore, it is necessary for an auditor to ensure that all material
information associated with the business have been recorded in the books of accounts and
this could be ensured by testing internal control system which is considered to be of great
significance in determining the accuracy of accounting records.
 The audit strategy of an auditor must facilitate collection of reasonable amount of
evidence in order to support their own opinion given at the end. The collection of
evidences is possible through substantive and compliance procedures (Aksoy, 2020). The
evidences can be obtained from two sources that is, internal and external where evidences
obtained from the latter are considered to be highly reliable.
 Audit strategies are developed for meeting the requirements of the audit plan which helps
auditors in carrying out their work in timely and efficient manner. Audit plan are always
drawn out in a customized manner depending upon the type of organization involved,
kind of business, scope of audit and efficiency depicted by internal control systems.

TASK 2
Importance of auditing in risk management and accounts preparation
Importance of auditing in risk management:
An auditing is the most significant process that have to be follow by the business such as
Toyland’s Toy Box within their organization as it provides the credibility to a set of financial
statement as well as provide the confidence to the shareholders that accounts are true and fair.
Implementation of effective internal as well as external process within the Toyland’s toy box
company helps the owner to minimise the business risk. The auditing is important for identifying
and analysing that whether the company follow all measures or not for the safety of its
employees (Pérez-Cornejo, de Quevedo-Puente and Delgado-García, 2019). For example, the
auditing is significant to analyse that whether Toyland’s toy box company have install fire
alarms and smoke detector within the business or not for the safety of its employees.
The auditing is also plays vital role in determining the adequacy of internal control
system of business. For example, with the implementation of internal audit, the owner of
Toyland’s company ensures better internal control system of the company and also provide
reasonable assurance that company information is reliable, accurate and timely. The internal as
well as external auditing is also important to ensure that company follows all applicable rules,
regulations, contracts, policies as well as procedures of domestic country. The impact of which
the compliance risk is reduced within the business.
However, there might be chance that the audit staff perform their task carelessly and
present the inaccurate report of company financial performance. That’s why it is also important
for Toyland’s toy box owner that they should keep their eye on the audit staff during the whole
auditing process (Yen and et.al., 2018). Basically, there is no legal compulsion on the sole trader
to get their accounts audited in UK but as the transaction of business is large they can get audited
in order to reduce or eliminate the risk of financial crises as well as strategic risk. The auditing is
important for eliminating operational risk of the business because auditing helps in identifying
operational inefficiencies and waste.
Importance of auditing in the preparation of financial accounts:

The auditing basically fulfils the role of verifying the accuracy of accounts while the
accountings deals with the tracking and recording of financial transaction. As per ISA (UK) –
200, the objective of the audit is to form an independent opinion on the financial statement of the
business that whether the statements or annual reports are showing true and fair view or not. The
importance of auditing to Toyland’s toy box is such that they can assurance its stakeholders and
users of financial statement that the management has presented true and fair view of the financial
performance of company.
However, on the other hand, auditing is a costly process which might put financial burden
on Toyland’s Toy box company as they need to depends upon the third party such as value’s,
engineers and lawyers for the valuation of fixed assets and contingent liabilities of business.
Basically, it is also important for the Thomas Smith to understand that auditing is not beneficial
for the small organizations that have very limited transactions (AL-Qatamin and Salleh, 2020).
So, if the Toyland’s toy box has large number of transactions than only they should adopt
auditing process. By the way, with the help of auditing, the sole trader can identify the potential
cost savings of business.
Roles and responsibilities of directors with regards to company accounts:
 The directors of the company are responsible for keeping the proper records of the
business along with the discloser of material transactions occur after balance sheet date.
 The directors are also responsible for the selection and application of proper accounting
policies.
 They are also responsible for presenting financial information of company including
accounting policies in such a way that it looks relevant, reliable, comparable and
understandable.
 Their role is to make an assessment of the company’s going concern ability.
 They also need to provide the additional disclosure regarding compliance of IFRS,
impact of particular transactions and other events affecting financial position of business
(Latan and et.al., 2018).
Roles and responsibilities of auditors with regards to company account:

 The first role and responsibility of an auditor is to prepare audit report providing
independent opinion on truth and fairness of financial position.
 The auditor is also responsible for make enquiry about the transactions of company
accounts and also form negative opinion wherever necessary.
 The auditors also need to comply with all auditing standards of UK issued by the
government of UK.
 They are also responsible for reporting fraud they come across while performing audit
task.
 In case if the company is under the scope of investigation, then it is the responsibility of
auditors that provide assistance to the officer regarding the same.
 The auditors are also responsible for adhere code of ethics and code of professional
conducts (Alabdullah and Ahmed, 2020).
Identification of current development in auditing:
The various current development in the auditing which have to be understand by the owner of
Toyland’s Toy Box are as follows:
 The responsibility of the auditors has increased towards the third parties such as
government agencies of UK, London stock exchanges and other stock exchanges in the
current development of auditing.
 A shift in emphasis to the determination of the fairness in financial statements is also one
of the current development in auditing which should know by Thomas Smith.
 The method of auditing has also changed in the current development i.e., change of
methods to use of sampling techniques rather than detail examination of individual
transactions.
 The current development in auditing also state the implementation of internal control and
also recognise the need to effective internal control system within the business. It is
because the internal control system is work as a guide to the direction as well as amount
of testing and sampling that need to be performed within the audit process.
 The development of new auditing procedure via use of computers as an auditing tool is
current development in auditing (Abuazza, Labib and Savage, 2019).

CONCLUSION
From the above report it has been concluded that strategic auditing is helpful in meeting
desired organizational results by reviewing the strategies that are not working well. Auditor
performs the role of evaluating and assessing the financial statements of the business in order to
ensure that the financial accounts prepared by the accountant is demonstrating true and fair view
of the business financial status. In this report, strategic auditing has been discussed by reflecting
upon how professional standards and regulatory environments affect auditing processes used
within the business. Furthermore, the importance of auditing managing with the risk and
preparing financial accounts to be published for business external parties have been evaluated by
reflecting upon how auditing helps in the identification and minimization of risks. The report has
thrown special focus over the roles and responsibilities of auditors and directors with respect to
the preparation of company's account.

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