Auditing And Assurance Essay: Confusion Of Market Transactions.

Financial Crisis and Auditors’ Liability

Discuss about the Auditing and Assurance Confusion of Market Transactions.

This particular report mainly highlights on various issues that are related to the auditors’ responsibility, particularly during the period when the global financial crisis took place and affected the whole society. At the time of global financial crisis, it had been found that the financial auditors were incapable to serve rational reassurance to the fiscal declarations of the firm that it was not spoiled. Moreover, they failed to provide rationale reassurance to the organizations regarding the fiscal declarations that it does not contain any material errors. The Auditing Standards of Australia imply that most of the users depend on the firms’ fiscal statements as the main source of data (William, Glover and Prawitt, 2016). The reason behind this is that the fiscal information users are unable to attain any kind of additional data that are required for meeting the need of any particular information. This report has been prepared for providing information to the Chartered Accounting organization’s partner i.e. Sally Smith in order to illustrate the liability of the auditors during financial crisis (global) for expanding the entire auditing system. It can also be said that the aim of preparing this report is to scrutinize the impact of the crisis and the fluctuations in the macro economy on the auditors’ liability within a authoritarian environment.

This portion of the report deals with detailed study of global financial crisis and is related to the auditor’s liability. It has been found that the fiscal volatility comprehends the concept of this crisis. Nonetheless, various troubles were manifested from the side of social, economic and political environment. This period shows duration of disorder, tension and critical testing in society (Redmayne, 2013). Thus, financial crisis took place due to various state of affairs of various financial actions, an alteration and a break that exemplified the stagnation, slowdown and declination in the financial actions. As a result, financial crisis is considered to reflect on the mistrust in the whole monetary system across the world and decline in the prices of the share prices and commodities in the stock exchange.

However, as per Eilifsen et al. (2013), this global crisis is considered as an opportunity to repair various factors of monetary system, particularly the shortcomings that lead to monetary downturn. The international institutions and government can beat all the negative impacts of the crisis by guiding the international fiscal reform system accurately. As this helps in maintaining transparency, accurate regulations of market, development of rules regarding securities account and maintenance of integrity among fiscal markets that strengthens the cooperation between monetary institutions across the world. Moreover, the improvement of various monetary firms become more complex due to identification of price and increases the investors’ risks. Additionally, accurate risk assessment and determination of its origin help in regulation augmentation and administration of economic system.    

Continuance of the Association of Client

As per ASA 700 i.e. Accounting Standard of Australia, there is a differentiation in “Responsibilities of Auditors in Fiscal Declarations” and it can be found in “Para 37 to 40 ASA 700” (Louwers et al., 2013). Opined to the regulation, an auditor’s responsibilities include fiscal declaration presentation and he is also responsible for providing compliance statement. The auditors are also liable for addressing financial reporting and other reporting accountabilities like “Report on Other Legal and Regulatory Requirements”. Therefore, an auditor is responsible for financial declarations and also examines if the regulations of the firm comply with the financial reporting framework.   

It has been found that the evaluators are responsible for opinion issuance on fiscal declarations of an organization. During auditing, the evaluators are highly responsible for audit engagement and kind of rendered fiscal services. The evaluator also develops various missions for determining fiscal reports along with report structure (Cohen and Simnett, 2014). Additionally, the auditor practices professional skepticism during nature identification, duration and extent of auditing process. Furthermore, evaluation of audit evidences takes place for recognizing whether the fiscal declaration is free of material misstatement or not. 

Opined to Arens (2016), the auditors are liable for reviewing quality of monetary reporting. Auditing helps in controlling the quality through competition of the audit programs, dating and signing of the documents. Additionally, analysis, synthesis of various balance elements and profit and loss also helps in the process. The auditors are liable for detecting risk that occurs due to fraudulent activities and error and for maintaining internal control. In addition, error detection includes incorrect statistical calculations determination, misinterpretation regarding various factors and misapplication of accounting policies (Grant and Wilson, 2013). Nevertheless, fraudulent activities detection is considered as liability for the evaluators with the aim to determine the thefts of various properties and diversions. Moreover, it helps in omitting various impacts of monetary transactions on fiscal statements and misapplication of various strategies of accounting that usually result into misinterpretation of the users regarding economic data.

It can also be said that the present financial status is affected adversely through the global crisis of economy as it leads to impact of both regional budgets of government and organizations. During the particular period, the main motivators of growth required to send at home the staff members of various corporations and the facilities of investing also decreased. Therefore, during the global financial crisis, most of the evaluators undertook several challenging works for handling the uncertainty and also the unsteady condition. Consequently, it has been found that the liability of the auditors of most of the organizations is significantly amplified in various financial circumstances (Arens, Elder and Beasley, 2014). Therefore, the auditors of the firms were required to deal with high risk and were presented by complex financial environment or else uncertain environment through the maintenance of continuous affiliation with the customers. Additionally, the connections were maintained through communications especially with those who oversight the accountability for fiscal declarations and along with it the communiqué with the management department. Furthermore, the evaluators were required to consider various accounts regarding planning of the strategies of auditing, going concern, understanding the operations of the organization and its environment (Claessens and Van Horen, 2015). It also includes audit of various fair value inventories, superannuation plans, consideration of audits for various fiscal statements, opinions of auditors and reveal of financial reporting.

Communications with the Individuals having Knowledge about the Procedure of Financial Reporting

It has been found that during the occurrence of financial crisis, the management department for internal controls and segregating the business practices changed the business practices of most of the organizations. Therefore, these can help in imitating the lack of integrity. Moreover, the indications are comprised of certain substances, which result an evaluator to lift questions about the correctness of the engagement of audit (William, Glover and Prawitt, 2016). At this particular situation, the auditors of the firm require to consider all the regulatory and legal compulsions with the aim to withdraw or continue the customer association.            

As per Simnett, Carson and Vanstraelen (2016), the organization, equivalent governance and the Board of Directors are considered for various oversight functions of the firm. These are liable for governance that is in line with the listing regulations of ASX that develops audit committee and can play the function critically in the economic reporting. However, this particular role became more serious during global financial crisis. The reason behind this is that it includes overseeing of the established process and the maintenance of internal controls regards reliability of fiscal declarations of various organizational concerns. Moreover, the amplification of global financial crisis results into auditors’ liability. Thus, the evaluator along with the people of governing units counts the risks that are faced by a specified organization. However, this makes it certain about the committee that considers the account and influences the ore-existing and new risks on oversight of the accountability for the processes of fiscal reporting. This process involves reconfirmation with the firm’s management about the reporting system and internal control system (Grant and Wilson, 2013). Moreover, the organization also faces troubles regarding high liquidity risk and also contains material improbability. As a result, the appraiser is required to appraise the firms’ capability regarding keeping the organization in a going concern situation. Additionally, the management’s judgment should be understood by the auditor for differentiating the illiquid assets’ value and supporting the varied information.

The auditor’s liability calls for requirement of the preservation of standard communication along with the firm’s governing units. During financial crisis, significance of this is considered as more vital to resolve various problems on a timely basis. Thus, the auditors can be conscious regarding the material weaknesses in the internal control procedure, which should result into development of probable material misstatement in the fiscal declarations. Moreover, the auditors of the firm put spotlight on understanding of the business operations and its external and internal environment (Kunz et al., 2014). Therefore, the auditors require assessing various factors. The auditor’s liability directs towards the evaluation procedure of the risk that is concerned with the material misstatement in the fiscal declarations that are owned to fraud. In addition to these, the auditors should also determine and respond to various risks that are related to fraudulent activities of business operations and this involves specific risks about fraud that are understood by the management department of the firm.  

Opined to Barnard et al. (2014), generally the auditors of the organization require using various assumptions of going concern concept accurately in order to prepare several fiscal declarations. In addition to these, the auditors should consider the material uncertainties that are related to the business capability in order to persist as a going concern. Moreover, during global financial crisis, credit availability got reduced and at similar moment illiquidity took place for short run (Cohen and Simnett, 2014). Therefore, this implies that various potential issues might affect the procedure of prolongation of the operation of an organization as a going concern.      

It has been found that the global financial crisis puts direction towards the requirement for development of strategy particularly for the preparation of economic audit report. An auditor’s responsibility includes amendments and up gradation of various data that are obtained through auditing. The accounting policy highlights the types and as per that allocate the resources, as these can be used for specific audit zones, materiality and timing of various processes that are included within the process of auditing. Moreover, the auditors should consider the asset impairment computations, measurement of fair value, legal issues about regulations and contracts, tax asset write-downs, fraud risk factors, superannuation fund enumeration and factors that upset the capacity of the enterprises as a going concern (Knechel and Salterio, 2016).     

It is important for the auditors to have perfect understanding regarding the operations of a firm and its environment. They should also focus on particular regions of fiscal declarations in order to identify the material misstatements (Junior, Best and Cotter, 2014). In addition to these, the auditors of an organization should consider various regions of fiscal reporting, particularly those involve the impairments of several recorded asset value, adjustments in accounting, arrangements of debt among many and changes in the total capital of share.  

According to the Accounting Standard of Australia that is ASA 230, it can be stated that the auditor of an organization should maintain all the documents (Simnett, Zhou and Hoang, 2016). The reason behind making documentation is that it helps in making the matter certain about an auditor and this include he has an accurate and enough record of data and information regarding the performance of the firm with the aim to sustain the conclusion.

It has been found that the collapse of the American Investment Bank i.e. Lehman Brothers leads to the worst global financial crisis at the period of Great Depression. According to the financial experts, it is difficult to forecast the government activities in future. Moreover, they were unable to identify defaults regarding subprime mortgages that were liable for collapse of the firm. It has been found that the particular firm had insufficient liquidity, though it has huge asset base. Therefore, during the period, the other banks started to worry regarding the unsound condition of economy and thus, they shifted to other motive of protecting their interest and also to begin withdrawal of line credits. Moreover, Lehman was entirely exposed to U.S. market of real estate. It has been found that the firm put a huge quantity of $ 60 billion in the commercial market and thus it was counted as huge subprime mortgage (Junior, Best and Cotter, 2014). Therefore, collapse of Lehman is considered as the official triggering of financial downfall as it brought monetary recession in the society. It can be said that this collapse and the recession created a huge shock to both the international and domestic markets and remained as the largest filling of the bankruptcy. The fundamental issues of Lehman Brothers were developed for many years and were not revisited, whereas, the fraudulent activities of fiscal declarations that are incorporated by the organization itself aimed to cover up the key issues apparently. Moreover, it intended to “buy time” only for the pledge that was neglected and unappreciated by the firm’s auditor over an enhanced period of time. Thus, it can be said that the collapse of the particular Bank is considered as a vital lesson for the auditors of all organizations. Moreover, this particular incident puts direction towards the auditor’s liability for scrutinizing the fiscal declarations that are represented by the management department of the firms. Additionally, an auditor’s responsibility is to judge a factor regarding the preparation and presentation of the fiscal statements fairly as per the principles of accounting that is the Australian Accounting Standards Board (Arens et al., 2015).          

Conclusion

It can be concluded that the auditors of all organizations should prepare new strategies for gathering evidence regarding upholding the myriad fiscal statements of the management and to examine whether these statements have any corrective assertions within the limitations of materiality. Thus, in order to express any opinion, an auditor should scrutinize all the obtainable evidences for concluding and sustaining the material monetary statements. However, it has been found that the professional skepticism is able to drive the auditors’ judgment regarding the confirmations that are needed to obtain the particular state. Moreover, the accounting principles are perfunctory and prescriptive in nature. The auditing rules require behavioral nature as the mechanisms and tests are considered as much descriptive and more dependent on the auditors’ judgment. Therefore, the auditors are counted to be sovereign in their appearances and facts. Moreover, a greater descriptive reasoning is required to incorporate for concluding the standard has been met or not. As a result, the auditors should put importance on the review of the audit evidences, however, due care can also be implemented in the procedure of auditing.

References

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Arens, A.A., 2016. Auditing and Assurance Services: Student Value Edition. Prentice Hall.

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Claessens, S. and Van Horen, N., 2015. The impact of the global financial crisis on banking globalization. IMF Economic Review, 63(4), pp.868-918.

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Grant, W. and Wilson, G.K., 2013. Consequences of the Global Financial Crisis (p. 287). Oxford University Press.

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Knechel, W.R. and Salterio, S.E., 2016. Auditing: assurance and risk. Routledge.

Kunz, R., Josset, D., Scholtz, H., Motholo, V., O'Reilly, G., Penning, G. and Rudman, R., 2014. Auditing & Assurance: Principles & Practice. OUP Catalogue.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2013. Auditing and assurance services. New York, NY: McGraw-Hill/Irwin.

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Simnett, R., Zhou, S. and Hoang, H., 2016. Assurance and other credibility enhancing mechanisms for integrated reporting. In Integrated Reporting (pp. 269-286). Palgrave Macmillan UK.

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