In this particular assignment, proper emphasis has been given on highlighting various issues that are faced by the auditors at the time of carrying out their liabilities as well as responsibilities during Global Financial Crisis (William Jr, Glover and Prawitt, 2016). This crisis had devastating effect on all the companies and it become difficult for the auditors to find solution to the reasonable amount of assurance at the time of preparing financial reports and linking it with the exclusion of material misstatement or errors. The current segment highlights the consequences of the Standards of auditing that gives proper insight where the financial users have a reliance on the financial announcements of the auditing firms and they are not able to meet the basic sources of information. This study has been prepared for examining the influence of financial crisis as well as other attributes that prevails in a company (Whittington and Pany, 2016). In other words, the standards of auditing links mainly with the Communication of key audit matters that are explained in the study in relation with the collapse of the Lehman Brothers
The Collapse of the Lehman Brothers and the liability of auditors
The main reason for downfall of Lehman Brothers (America Investment Bank) was the Great Depression as it is one of the worst financial crises (Stuart, 2012). The collapse of Lehman Brothers made the auditors and other Business Corporation realize their fault and they were ready to take responsibility to communicate with the management as well as other concerned authorities. It is the responsibility of the auditors to present a true as well as fair account in accordance with the standards of auditing. The auditors should use relevant policies of auditing as mentioned by different regulatory authorities like Australian Accounting Standards Board in the most appropriate way (Simnett, Vanstraelen and Chua, 2016).
Financial crisis and the liability of the auditors
There is a direct relationship noted between the financial crisis as well as the accountability of the auditors as they are responsible to undertake the audit process (Ricchiute, 2013). It is important for the auditor in gaining proper understanding as well as comprehending with the main notions on matters relating to financial instability for the business enterprise. To explain the situation as per the present case, Lehman Brothers was a company who faced numerous challenges that relates with external factors such as economic environment, social environment and political environment in an effective way (Louwers et al. 2013). Lehman Brothers even faced worst situations such as economic slowdown, decline and stagnation that were needed proper attention by the auditors. Lehman Brothers faced the crisis and due to this reason there was significant decline and downgrading of the transactions as shown in the stock exchange that aligns with the creation of a disorderly market transitions (Manetti and Becatti, 2014).
Financial crisis was one of the crises that are treated as an occasion where it kept diverse aspects of financial system. Addition to that, it is important to consider the inadequacies that head towards the slowdown or decline in the economic conditions (Knechel and Salterio, 2016). Furthermore, the international institutions as well as government who need to conquer over the conditions that have poor effects and results due the economic crisis that guides the system on matters relating to clearness, related ruling of markets as well as development of regulations and safeguarding of integrity of financial markets for integrating the overall collaboration between the financial conglomerates in and across the world (Hasan et al. 2015).
It depends upon the system that looks into the matter of financial as well as transactions that need an increased amount of clarity as well as lucidity that covers up aspects for the business enterprise (Arens, Elder and Mark, 2012). In other words, the main role of financial markets is to mediate the reporting activities that need to be made. It is important to abide by the regulations as well as policies those results in the process that diminishes the fluctuations that worsens the market conditions. Therefore, increase in the financial instruments in the finance is complicated in nature that plays major role for comprehending prices that is a risky affair especially for the investors (Gay and Simnett, 2013).
As mentioned in the Auditing Standard ASA 701, it states the criteria “Communicating Key Audit Matters in the Independent Auditors Report”. This particular auditing standard explains the obligation as well as responsibility of the auditors for communicating the audit matters that is significant in the financial report of the auditors (Garner, 2014). Addition to that, the Standard expresses the judgment of the auditors on matters relating to the nature of the proceedings. It is required to communicate the report with the management value of the content that is present in the communicate report. In that case, it is understood that main objective of the communication process is to enhance the value of the report that prepares the audit report as it render quality and clarity on the performance of audit (Arens, Elder and Mark, 2012). It is the communication that matters the most as it render proper guidance on the facts and information to the financial users of the financial reports in the specified period. Proper communication helps the financial users for additional engagements that align with the management that charges the governance on matters relating to entity of the managerial terms (Elliott, 2015).
It is the responsibility of the auditor to issue an opinion on the financial statement of business entities that align with the audit performance where the auditor need to engage in the audit terms in an overall manner (Elliott and Pallais, 2016). Auditor are liable to meet the terms of audit engagement when they sign the engagement letter where they sign the engagement letter for carrying as well as executing the terms of the auditors. It is essential for the auditor to carry out the mission and compliance of the audit standard. It is noted that the mission objectives explains comprehending diverse financial reports for assessing the structure of the financial coverage (Eilifsen et al. 2013).
The auditor need to abide by the obligation for executing the art of professional skepticism at the time of identifying the nature, extent and time of the audit procedures that mainly investigates the audit evidences and concerned results (Cohen and Simnett, 2014). The audit needs to look at the materially misstated figures so that there is no discrepancies present in any form. Conducting proper audit guides the way for maintaining high quality if the report is correctly signed as it combines the different segments of the profit & loss as well as balance sheet. It is essential for the auditor to maintain the internal controls as well as detecting the risk that takes place because of errors and fraud within the business entity (Boynton and Johnson, 2016). Addition to that, auditor need to detect the error so that they can calculate the misrepresented facts and information that are present in the financial statement of given business organization
The fraud detection referred to the liabilities of the assessors who need to recognize the specified areas and removal of omissions for dealing the financial transactions (Bierstaker, 2012). It is needed to handle the misapplications by the auditor as it misleads the financial users for gaining information of the financial in a given business organization. It is further noted that economy has bad affect on finances as well a crisis in the economics that majorly affect the business and the budget prepared by the government (William Jr, Glover and Prawitt, 2016). During Financial Crisis, it is noted that the company Lehman Brothers faced numerous challenges for handling the hurdles and unstable cases that prevails in the economy. Auditors are accountable for enhancing or offering high audit opinion after close observation of fluctuations that are present within the economic conditions (Arens, Elder and Mark, 2012).
Auditors need to look at the huge liabilities as well as are responsible for dealing with the huge risks that prevails in a given business enterprise (Arens et al. 2015). The auditor needs to deal with toughest situations in relation to economic environment that aims at communicating proper relationship with the clients. The auditors need to communicate well with the persons who add responsibility for working together for financial reporting as well as communicating well with the business organization. It is essential for the assessor for understanding the going concern concept where they need to forecast the strategy of audit for given financial assertion plans of superannuation. They need to deal with the audit reports that explain the audit opinion in the most appropriate way (Arens, 2016).
Communication with those who need awareness on matters relating to financial reporting activities
The Board of Directors is accountable for taking the responsibility and render strategic decisions for smooth operations in relation to the business entities. It is the responsible bodies who aim at governing with the compliance with the Listing Rule of Australian Stock Exchange as well as Regulations (William Jr, Glover and Prawitt, 2016). The regulatory bodies need to maintain commitment for auditing purpose that operates towards the process of business entity.
On analysis, it is noted that there are so many amplification present in the liability as well as auditors are accountable especially for the incident Global Financial Crisis (Arens, Elder and Mark, 2012). Here, it is needed for the assessors for taking important steps of congruence that governs with the key units for considering the risks associated with the business activities. The Audit Committee needs to take the essential steps for minimizing the risks that already exist for viewing at the financial reporting activities. It is thereby important for the auditor to confirm with the reporting standard that controls the internal system as a whole. It is noted that the assessor liability gets included with the assurance for carrying out the operations as well as function where the company need to handle the consequences in their toughest times (Whittington and Pany, 2016).
It is stated that the business entities faces risks that arises from liquidity as well as uncertainty that are of material nature where the auditor need to evaluate with the capacity to follow the going concern aspect. In that case, the opinion of the management depends upon the values of illiquid assets that support wide range of facts and information. It is the responsibility of the assessor for looking at the liabilities that arises from financial crisis as well as contains the assurance on matters relating to tactical approach. Therefore, the mentioned liabilities need to be addressed properly by conducting proper analysis for coping with the situations. They need record the data and document it in the most appropriate way (William Jr, Glover and Prawitt, 2016).
Communication with the management as well as governing units
The increase in the liabilities as well as accountability of the auditors had made it compulsory to maintain effective communication with the governing units that prevails in an organization (Arens, Elder and Mark, 2012). After looking at the economic situations, it is necessary for conducting regularity in the communication process as it augments ways for resolving the issues within the stipulated time. Auditors should be more cautious as well as aware of effective communication with the management that aligns or links with the Governance. It is all about proper evaluation of the process where the auditor need to strongly convince the situation so that they asses the risks that are associated with the financial reports as well as other material misstatements that owes to fraudulent activities (William Jr, Glover and Prawitt, 2016).
Considerations on matters relating to going concern
It is the responsibility of the auditor to take into account the matters relating to appropriateness as well as correctness for the employment (Arens, Elder and Mark, 2012). This includes different suppositions at the time of preparing different financial declarations. It is needed for an auditor for considering the material as well as substantial suspicions that connects with the ability of the business unit so that they are treated as going concern organization. Going concern is an organization where they will continue their operations by solving the problems in the best possible ways (Whittington and Pany, 2016). It is necessary for an auditor to look at the material misstated figures that are mentioned in the financial statement of the company In some of the situation, it is noted that credit accessibility are taken into account that links with the illiquidity for a short period of time frame. It is necessary for an auditor to look at every single perspective and they should be capable of solving the issue so that their business comes under going concern (William Jr, Glover and Prawitt, 2016).
Planning of the overall audit policy
After the occurrence of Global Financial Crisis, business organization and authority found it necessary for implementing specific policy and report as mentioned in the financial audit (Arens, Elder and Mark, 2012). In addition, the assessor is responsible for looking at the progression as well as modifications that reveals information that can be easily obtainable from the audit process. The policy actually comes under classes as well as allotting the possessions as t has the ability for getting exploited from the particular audit activities on matters relating to audit and materiality. In that case, the auditor has to give proper attention on the fair value measurement, superannuation fund as well as calculating impairment assets and tax assets write-ups.
Understanding the business entity as well as business environment
It is responsibility of the auditor to understand the aspects of business entity in well-designed format. In other words, the auditor has to concentrate on specific regions of financial reporting that uncovers material misstatements (Arens, Elder and Mark, 2012). Furthermore, it is needed for an examiner for taking into account the extraordinary contemplation for specific areas of financial reporting. Some of the areas that need proper adjustments in accounting are modified share capital as well as debt arrangements and impairment of diverse track value of an asset.
As mentioned in the Auditing Standard ASA 230, it explains the “Audit Documentation” where the auditor are responsible for preserving the records where they can create certainty on matters relating to records of the auditor as well as performance for supporting the conclusions (William Jr, Glover and Prawitt, 2016).
Recommendations and Conclusion
At the end of the study, it is noted that auditors need to plan as well as create policies and strategies for collecting of proofs and evidences. Furthermore, the evidences guide maintaining a large number of financial declarations as well as assertions that are present by the management for checking the materiality and going concern. Lehman Brothers failed to maintain adequate documentations as well as effective communication and due to this reason they faced the huge collapse. It is the responsibility of the auditor to predict ways to be free from the clients in information and nature. The auditors need to show evidences for maintaining professional skepticism.
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