Professional Standards, Internal Controls, And Auditing Practices - Answers From TSC Essay.

Develop the ability to understand and interact with the nature of the professional standards & internal control in reality.

Develop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.

Develop basic ICT skills such as using the internet & e-library resources.

Use the annual report to answer the following questions.

1-What do you understand by public accountings firms? Describe the different categories of public accounting firms. Also name the external auditor of TSC. Give some introduction on the Functions of external auditor and provide reference from report.

2-Reliable accounting and financial reporting aid society in allocating resources in an efficient manner. Explain why audits are demanded by society? Support your answer from the Annual report of 2015 of TSC.

3-Write the summary of audit committee report on the audit procedure in accordance with the standards.

4-What do you understand by material misstatement? Does TSC have strong internal control over financial reporting to overcome the material misstatement?

5-Elaborate briefly the principle of assurance and provide the details of assurance from Annual report of TSC.

6-What is the external audit report on the presentation of financial statement of TSC? Name the different Financial statements that audited by external auditor         

7-Are auditors responsible for frauds? Discuss the auditor responsibility for the detection of errors and frauds? Support your answer from the Annual report of TSC.    

8-Explain the term ‘Audit Risk’ and ‘Audit evidence’. How auditors can reduce audit risk, support your answer from annual report of TSC.

Understanding Professional Standards and Internal Control

The public accounting firms are the bodies involved in the practice of providing accounting services to other company such as auditing, tax consulting and accounting, bookkeeping, management consulting, and forensics accounting. It is mandatory for such firms to get it registered with the Public Accounting Oversight Board. The Sarbanes- Oxley Act (2002) also prohibits any company to engage in practice of preparing, reviewing or participating in auditing of public company which are not registered (Salinger, 2013). In view of Fletcher and Plette (2008), the public accounting firms have been classified into three categories; large firms, medium sized “second tier firms” and small regional and local firms, depending upon the size of firms, revenue, number of offices, amount of work it handles. On the basis of functions it is classified as; full service accounting firms, tax accounting firms, auditing firms, risk firms, outsourced accounting firms, forensics accounting firms and bookkeeping firms (Big 4 accounting firms, 2017).  

The auditing of TFC is currently handled by two external auditors, which are; ‘Al-Waha Auditing Office’ which is a member of Nexia International and another is RSM Albazie & Co. As mentioned in the annual report of 2015 of TFC regarding auditor’s responsibility, the functions of external auditor includes collecting evidences in support of data and information provided in financial statements to ensure that these statements are not materially misstated, planning and performing audit according to level of internal control of entity, checking the appropriateness and reasonability of accounting policies and estimates used and made by management. Auditors have to comply with International Standards on Auditing during its audit programme.

In view of Salome and Rotimi, (2012), reliability in accounting and reporting of financial information is very important in assuring the society that the economic resources are efficiently utilised by the organisation. Auditing is a key to certify that assurance.  The auditing of financials is of utmost importance and is highly demanded by society. The society constitutes various parties who are interested in working and reporting of organisations’ operations. For instance, the investors have to make decisions about buying and selling the securities of company, banks have to examine the reason behind loan requirement and performance of organisation in order to approve a loan, and the government wants to know the true profit of business in order to ascertain actual tax liability. There are high chances of manipulation in reporting by management itself thus reporting by third party is considered more reliable which calls for need of auditing. Auditing also detects any unwilling mistake by management in accounting. As can be examined through annual report of TSC, the auditors assures that firm has followed the accounting policies and standards appropriately and disclosed all the material and relevant information and thus making the financial statement reliable.    

Developing Communication and ICT Skills

Audit Committee report on Audit procedure:

The auditors have responsibility to conduct audit in line with International Standards on Auditing and give an opinion whether financial statements shows true and fair view of companies’ financial position. The auditors plan and perform audit after making a risk assessment on the basis of internal control existing in entity in respect preparation and presentation of financial statements which they have reviewed in order to determine strength of such internal control. The audit procedure involves collecting sufficient and appropriate audit evidences, the quantum of which were decided according to risk of existence of material misstatement in the accounts. The audit procedure also involves assessing the appropriateness, reasonability of accounting policies and estimates.

Material Misstatements are the errors in the information presented in financial statement that could materially affect the decisions of users of such statements. Such error can occur either accidentally or deliberately. Strong internal control over financial disclosure and reporting requires that the management has followed all the International Financial Reporting Standards applicable to firm while preparing the final accounts, the proper adoption of standards makes sure that the statements on financial information are free from material statements (Johnstone, Gramling & Rittenberg 2015). TSC have that level of control as can be assured by auditors’ opinion on truthfulness and fairness of consolidated financial statements of year 2015 which were prepared following appropriately the IFRS. Some of the standards which were although issued but were not effective till date were not applied by the organisation in preparing the financial statements and it is quite reasonable reason for not adopting such standard and thus not questionable.  

The principle of assurance require that the auditor through his audit programme attain reasonable assurance that the financial statements are true and fair in all material respect, that is, there is no material misstatement caused because of errors of fraud in accounting data. Reasonable assurance can be defined as an understanding that there will be least possibility of material misstatement being undetected during audit. It is a high level of assurance rather than absolute assurance.  It might not be possible of an auditor to obtain absolute assurance because of physiognomies of fraud and nature of audit evidences rather he is responsible to apply due professional care and attain high level of assurance that the statement on financials are exempted from material misstatements as a reason of fraud and error (IFAC 2009). In the annual report of TSC, the auditors has provided such assurance by collecting sufficient and appropriate audit evidences on which there opinion was based.

Public Accounting Firms and External Auditor

The external auditors of TSC audited its consolidated financial statements of parent and its subsidiaries; this included the consolidated statement of financial position as on 31^st December 2015, consolidated profit & loss statement, cash flow statement, changes in equity, summary of important accounting policies and other notes to accounts. The report of external auditor expressed their opinion that the financial statements were true and fair in all material respects and it was in consistent with International Financial Reporting Standards. Further the reports state that the statements fulfilled the entire disclosure requirement as per the Company Laws No. 1 (2016) and Executive Regulations of Law No. 25 (2012), the books of accounts were kept in a proper way and physical examination of stock was being carried out.

The Annual Report of TSC explains the auditors’ responsibility to acquire reasonable assurance that financial statements of company are not materially misstated either due to fraud or error. It further states that it depends upon the auditors’ judgment to assess the risk of material misstatement and can plan the audit procedure accordingly after reviewing the possible area of misconduct. Full detection of fraud cannot be guaranteed as auditor does not examine each and every transaction and event (Johnson 2010). ISA 240 clarifies that it is primary responsibility of Management and those charge with governance to prevent and detect fraud however auditor also have secondary responsibility to apply professional scepticism and get reasonable assurance that financial statements are not materially misstated either due to error or fraud. As per ISA 200, professional scepticism means an approach of having inquiring mind and alertness towards each condition pointing out any possible misstatement due to error of fraud (ACCA 2017). e lity to f TSC explains the auditors'ts.cial statement that could materialy ds makes sure that the  the International

Audit risk is the risk of existence of material misstatement in financial statements either because of errors or fraud which auditor failed to detect through his audit procedure. Audit evidences are the information used by auditor in expressing the audit opinion on the financial statements of the firm being audited. Audit evidences are obtained to determine the effectiveness of accounting control, completeness of accounting details and disclosure of information. Audit risk can be reduced by auditor by designing an effective audit programme and collecting sufficient and appropriate audit evidences. The nature, timing and extent of audit programme are designed by considering both level of audit risk and materiality (Knechel & Salterio 2016). In order to reduce the audit risk the auditors of The Sultan Centre examine the internal control prevailing in entity, whether it is strong or week. Auditors assess the possible risk of material misstatement, on that basis they design the audit procedure and quantum of audit evidences required.

References:

ACCA, 2017, ISA 240 (Redrafted)- Auditors and Fraud, viewed 1^st August 2017, from https://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/isa-240.html

Fletcher, W. H. & Plette, T. N. (ed.), 2008, The Sarbanes- Oxley Act: Implementation, Significance, and Impact, Nova Publishers, New York.

IFAC, 2009, International Standards on Auditing 200: Overall objectives of the independent auditor and the conduct of as audit in accordance with IFRS, viewed 2^nd August 2017, from https://www.ifac.org/system/files/downloads/a008-2010-iaasb-handbook-isa-200.pdf

Johnson, S., 2010, What is the auditor’s role in finding fraud?, CFO, viewed 1^st August 2017, from https://ww2.cfo.com/accounting-tax/2010/04/what-is-the-auditors-role-in-finding-fraud/

Johnstone, K., Gramling, A. & Rittenberg, L. E., 2015, Auditing: A Risk Based- Approach to Conducting a Quality Audit, 10^th edn., Cengage Learning.

Knechel, W. R. & Salterio, S. E., 2016, Auditing: Assurance and Risk, 4^th edn., Routledge, NY.

Salinger, L. M. (ed.), 2013, Encyclopaedia of White-Collar and Corporate Crime, 2^nd edn., SAGE Publication, UK.

Salome, E. N., 2012, Auditing as a tool for accountability for efficient and effective school administration, Arabian Journal of Business and Management Review, 2(5), 48-55.

The Big 4 Accounting Firms, 2017, The different types of accounting and auditing firms, viewed 1 August 2017, from https://big4accountingfirms.org/different-types-of-accounting-firms/