Role and Responsibilities of Auditors
Discuss about the Auditing and Assurance Services for Integrated Approach Method.
The case study mentions that Impulse Pty Limited, also known as Impulse, established in the year 2005 operates as a manufacturer of entertainment systems. The case study also reflects the fact that the accounting firm King & Queen that acts as an independent accounting firm is associated to the company Impulse Pty Limited since the time of inception of the company. As stated in the case study, Impulse faced severe crisis owing to poor liquidity positions as well as levels of inventory recorded during 30th June in the year 2012. In addition to this, the case study on Impulse put forward the fact that the financial announcements of the firm did not incorporate different crucial business incidents for the corporation Impulse Pty Limited. This too referred to the manner in which different unadjusted financial events were not reflected in the financial declarations of the firm. In addition to this, the current case study also asserts the fact Easy Finance Limited also referred to as EFL simply necessarily operates as a financing business entity. This company that disburses credits to different firms for carrying out their feasible operation is also a financier of the company Impulse Limited. The decision for disbursements of loans by the firm EFL mainly depends on the financial health of the firm that are analysed by proper evaluation of the financial reports produced by different companies. The main intention of the management of Impulse Pty Limited is to detect and to counter different business issues that directed towards the down gradation of the financial condition of the firm (William Jr et al. 2016). The analysis of case study also helps in recognizing the fact that the company Impulse faced liquidation during the year 2012 as a consequence of combines effect of several associated to the liquidity condition as well as inventory levels of the business concern. Consequently, EFL also suffered as a result of the adverse business events of Impulse Pty Limited.
As per the definite roles and accountabilities of the self-governed auditors, it can be hereby mentioned that assessors have the liability to prepare as well as arrange the financial declarations. The financial announcements also need to replicate the financial conditions of the firms accurately for a particular course of time by explicitly indicating the chart of accounts (Stuart 2012). However, in case if a particular situation crops up after the declaration of the financial statements of a company, then it is imperative to incorporate the impacts of these occurrences in the reports that will be published in the upcoming period. Thus, it is vital to undertake necessary amendments for divulging severe incidents that can in turn affect the entire trustworthiness of the business concern for a specified duration of time (Spears et al. 2013). As per the case study, it can be mentioned that EFL had to bear enormous amount of losses because of indebtedness and bankruptcy of the organization Impulse Pty Limited. In addition to this, it can also be inferred that the loss of EFL occurs due to the non-revelation of precise financial suggestions of the company Impulse. Consequently, it can be inferred that the actions guided by the accounting firm King & Queen was immensely unethical according the notions as well as codes of the practices of auditing (Simnett et al. 2016). Thus, auditing firm King & Queen is accountable to the financing company EFL for the losses due to the distribution of credits to the company Impulse based on the financial announcements of the company.
Importance of Accurate Financial Reporting
An exhaustive analysis of the case study on the operations of Impulse Pty Limited reflects the fact that the auditing company King & Queen might probably not run into legal proceedings. The autonomous auditing firm might not face legal charges if the company delivered exact financial information as regards the monetary state of affairs of the company to the financing firm EFL on requisition of written explanation from EFL as regards the advice on economic situation of the corporation Impulse. In addition to this, the auditing firm King & Queen also had to offer reliable as well as trustworthiness of financial evidences to the EFL. This is because the decision of disbursement of loans by EFL to the company Impulse is primarily based on the financial reports presented by the accounting firm King & Queen. In case if EFL decided to disburse credits to the company Impulse after being aware of the actual financial condition of the firm, then EFL cannot hold the accounting firm King & Queen accountable for the displeasing consequences. However, based on the analysis of the present case, it can be hereby stated that the accounting firm have the need to undertake an integrated process of evaluation of the financial results of the entire business of Impulse as per the stipulations of the auditing standard (Auditing Standard 5) of particularly the PCAOB (Messier Jr 2016). In addition to this, there is need for preservation of internal control that in turn can help in the course of assessment and review of the financial results of the firm. As such, it is imperative for the auditing firm to maintain adherence to different regulations as well as directives for undertaking the audit activities (Louwers et al. 2013). In fact, it is very important for the auditing firm to comply with the stipulations declared by the Australian Accounting Standard Board (AASB) as well as The Corporation Act declared during 2001. The accounting firm needs to abide by the rules mentioned under section 336 of the Corporation Act for carrying out a proper process of financial assessment of the results declared by the company. The appraisals of the financial announcements also has be consistent with the directives mentioned under the ASQC 1. Together with this, the accounting firm also needs to undertake the reviewing activity as per the guidelines mentioned under the ASA 102 that talks about the ethical accountabilities of audit process as well as diverse audit engagements (Auasb.gov.au 2016). Furthermore, the King & Queen needs to follow diverse regulations cited under the section ASA 220 that refers to the directives for preservation of quality control of a particular audit procedure for correct appraisal of financial statement supplemented by other historical information chiefly the financial suggestions (Auasb.gov.au 2016). Besides this, the auditors also have to adhere to different rules as well as directives publicised under ASA240 for understanding the answerabilities of the assessors associated to recognition of diverse fraudulent actions in a specific review process (Dai and Vasarhelyi 2016). In addition to this, the entire procedure of assessment of auditing also need to take into account varied regulations as presented under the section “Australian Auditing Standard 250” for assessment of financial statements (Auasb.gov.au 2016).
Adherence to Regulations and Directives
The independence of auditing essentially indicates towards the independence of the internal assessor or else the external assessors of the financial declarations of the firm who might have financial interest in the business that is being assessed. However, the independence of the assessors also have the need for maintenance of integrity as well as an objective tactic for conduction of the audit procedure. Glover et al. (2014) opines that independence of audit involves two different features namely the perceived independence of auditing and the actual independence of auditing. However, there are several distinctions between principles of perceived independence of auditing and actual independence of auditing in terms of appearance. In addition to this, the attainment of objectives as well as aims of auditing have the necessity for understanding the concepts of both the perceived as well as the actual independence of the entire process of auditing. In addition to this, Cohen and Simnett (2014) asserts that actual independence refers to different activities of assessors that get necessarily swayed by the thinking capacities of the respective assessors of the financial reporting. Again, the actual impendence of auditing also considers the procedure of dependence of emotional state of mind of the assessors conducting the audit. In addition to this, the mental condition of the auditors also exert enormous effect on the overall exercises as well as the way of handling the process of auditing of financial declarations of firms (Carson et al. 2013).
Thus, independence in the course of arriving at business decisions can be viewed once directors of diverse corporation intends to talk over situations of specific auditors. Nevertheless, the actual independence of auditing in the course of reviewing inevitably relies on emotive mental condition of assessors. However, it is very difficult to determine the state of mind of the auditors and determine the effect of their mental condition on their task (Butcher et al. 2013) Hence, this can be very confusing to enumerate the neutrality of diverse evaluators. Nevertheless, perceived independence of auditing in the course of review as well as auditing can be observed as an explicit grey zone that subsists between the typical black and white area of assessing and is instituted mainly on views (Brown and Kohlbeck 2016)
The first independent situation refers to the activities of Bob, a self-regulated audit assistant who carries out university studies. The scenario mentions that Bob unethically reproduced important financial information of Club Casino for completing his own university task. While duplicating the important pecuniary information from the book of accounts of Club Casino, Bob also purposely erased the references to the Club Casino in a bid to maintain secrecy of the client. The analysis of this independent situation can help in ascertainment of the fact that the activities undertaken by Bob leads to prospective desecration of audit processes since Bob did not apprise Clun Casino regarding his activities. Thus, it can be mentioned that Bob being a self-governed auditor needed approval from the authorities of Club Casino regarding the implementation of different pecuniary evidences for meeting his own educational requirements and for completing his own university task. In addition to this, Bob also had to comply with specific ethical obligations mentioned under the auditing standard ASA 102 that mentions about ethical requirements before conducting the audit processes (Bell et al. 2015).
The Independence of Auditing
As mentioned in the case study, the second independent situation refers to the engagement partnership of Wendy with the business concern Ace Limited. As per the scenario, Wendy has been the engagement partner of audit for the company Ace Limited for quite a period of time. Meanwhile, the long-time company secretary of Ace Limited retired and the management of Ace required almost 6 months to get a replacement. However, on request of Ace, Wendy undertook all the secretarial duties for the particular period of time. This independent situation expounds the contribution of Wendy towards the company Ace Limited. The scenario also helps in understanding that the company Ace Limited also had the system of auditor rotation and the management of the company adhered by the principles of ASIC as regards the rotation of auditor and replacements. Thus, it can be said that it is crucial for auditor to comply with the stipulations stated under the section “ASA 220 –particularly AusA6.1” for preservation as well as maintenance of quality control as regards the auditor rotation requirements (Arens et al. 2012). Besides this, the company also had to conform to different obligatory requirements as per Corporation 2001 for rotation of auditors. This too can help in the process of solving different requirements of the auditors. Furthermore, as per the regulations and directives stipulated under the ASIC, the reviewers are also accountable for adhering to different regulations for preparation of financial announcements for diverse segments of business as well as different functionalities of the business functioning for over and above 5 years (Auasb.gov.au 2016).
The third independent situation refers to the task of Leo throughout the course of auditing of the financial declaration of the company Precision Machinery Limited. As mentioned in the case scenario, it can be hereby ascertained that Leo is the eldest son of a particular factory foreman of the company Precision Machinery Limited. Leo was assigned the task of performance of audit for the firm Precision Machinery and he was accountable for examining the entire internal control of the overall cash disbursement system of the firm. The analysis of the case study divulges the fact that there exists different factors in the process of appointment that needs to be fulfilled in order to meet the regulatory obligations and to attain a certain level of efficiency simultaneously. The third scenario can also be connected to diverse punitive processes that needs to be maintained as per the guidelines of different professional accounting entities. In addition to this, it is also very crucial to comply with different rules as well as regulations stipulated under the auditing standard ASA 220 that mentions about different directives for preservation as well as maintenance of quality control of the overall procedure of assessment of financial reports (Auasb.gov.au 2016). Moreover, the regulations under ASA also helps in assessment of the overall quality of different audit substantiation that can be used for carrying out the process. In addition to this, the regulations and directives mentioned under ASA 510 also helps in comprehending the guidelines for audit engagement in the firm Precision machinery and analyse their accurateness of the actions (A. Vasarhelyi and Romero 2014).
The last independent situation refers to the events that occurred between the auditing firm Chan & Associates and its client company corporation Classic Reproduction Pty Limited. As mentioned in the case scenario, Classic Reproduction Pty Limited have not disbursed the audit fee to the company Chan & Associates. Subsequently, the audit partner also threatened to resign for the last three years. However, the audit partner also threatened to quit in case of the non-payment of the audit fees. To avert the situation, the company Classic Reproduction Pty Limited decided to present new office furniture to the auditing firm Chan & Associates as a consideration. However, the partner consented to accept the offer of furniture in place of different outstanding fees that accounted for around 50% of the entire balance amount. Thus, the procedures also required the planning of the entire settlement process for the definite claim related to the audit fees of the accounting firm Chan & Associates. Moreover, the present case also states about the nature of connection with the company Classic Reproductions and the actions that needs to be undertaken for not fulfilling specific auditing requirements.
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