Junior et al. (2014) opines that the chief objective of audit is to provide specialised along with independent opinion concerning annual accounts of the business concern to essentially shareholders of the firm. However, viewpoints of the assessor have the need to reflect true as well as fair view regarding financial position of the firm. Therefore, independence can be considered as the primary way through a specific auditor can undertake the activity in an objective manner. As rightly indicated by Soltani (2012), an assessor have the need to be independent from necessarily the client firm, in a bid to make it certain that the audit opinion does not get affected by any kind of relation in between the client and the auditor. Essentially, the auditor are expected to deliver a particular unbiased along with reliable opinion on diverse financial declarations to corresponding stakeholders.
As rightly put forward by Cohen and Simnett (2014), services provided by different assessors of the audit firm that is essentially not within ambit of audit can be witnessed as non-audit service. However, non-audit service essentially comprises of diverse Management service, commendations related to tax supervision, suggestions for improvement of the complete business (Bell and Griffin 2012). Principally, non-audit services are assumed against definite amount of remuneration that are essentially added income otherwise non-economic advantage. Accordingly, provision of this kind of non-audit service might possibly damage the uniqueness as well as independency of the assessor. Another crucial concern of audit is safeguarding of quality of the whole procedure of audit together with diverse dealings of assessment that are frequently assessed as well as censured by varied stakeholders alongside controllers. Other than this, a new threat to mainly the independency of the assessor is the risk associated to advocacy (O’Dwyer et al. 2011). This might possibly follow after the assessor boosts and promotes the client’s business and set forth viewpoints that can raise questions regarding objectivity of the whole exercise (Kinney Jr 2012).
Independency of the Auditors necessarily gets threatened at the time when the evaluator of any particular accounting firm accepts any type of monetary alongside non-monetary advantages that is not necessarily the fees for audit work that they have carried out (Arens 2011). Nonetheless, the reception of benefits that is not within the contract for engagement for the process of audit can certainly affect the overall independency of the evaluator.
Relatives of assessors including parents alongside spouse and wards are regarded as the close affiliates of family. By itself, pecuniary concerns involves declaration about debt, numerous securities of both short and long term with varied entities, with varied other units otherwise by means of different intermediate linked units (Lindeberg 2011). Largely, in line with the current case study, father of the suggested accountant holds the position of financial controller in the company of the client. Thus, at the time when Michael delivers consensus regarding accepting the offer or else decide to be a part of a team of evaluators, specifically at that time it can assuredly hamper the individuality as well as independency of the evaluator.
Simnett and Nugent (2011) opined that risks arise when there exists close linkages between auditor and diverse workforces, directors along with among other members of the company of the client. Specifically, in this kind of circumstances, the auditor might possibly have emotional involvement and unfairness with the client because of private connection with specific company of the client. However, in this particular case, individual association with essentially the clients leads to unwarrantable faith on the specific client of the accounting firm. By itself, this might possibly be the cause for improper illustration. Moreover, there is likelihood that inappropriate representation by the accountant might plausibly be affected since the evaluator remains acquainted with significant information on especially the business (Hass et al. 2016). The individual has operated with LTH before that is approximately a month ago and she is very much mindful of specific information concerning the client firm. Fundamentally, she was carrying out different services that can be linked to tax enumeration and arrangement of important accounting entries precisely as on time period 30th June, 2015. Fundamentally, the auditor need not appraise the tasks that they themselves have carried out.
Varied dimension that can be assumed for safeguarding independency of auditor and for overcoming the threats to essentially the procedure of evaluation are hereby stated below:
Change of diverse audit partners– Roebuck et al. (2011) asserts that the arrangement of alternation and rotation of different partners of audit help in the procedure of extermination of risk of familiarity alongside self-advantage. In particular, this can aid the entire process of safeguarding objectivity without even bearing substantial amount of cost.
Institution of proficient committee for carrying out the work of audit– Foundation of proficient committee for carrying out the work of audit can be regarded to be a crucial instrument that can help the procedure of preservation of independency of evaluators. Essentially, the recognised committee for assessment can also assist in mitigation of audit threats (Elliott et al. 2011).
Maintenance of International consistency in consort with obligation for maintenance of independency– Messier (2011) opines that independency of process of can be certainly protected by execution of dynamic as well as ethical principles explicitly, auditing theories and regulations, rules, directives along with specific ethical codes.
Oversight of different autonomous auditor –Assessor, who is incontestably independent can aid in retention of audit quality, control, adjust and contribute towards preservation of excellence as well as independence of audit (Elliott et al. 2011)
Risk Management is essentially an important element of Management of primarily inventory of spare-parts. However, in the present situation, it can be hereby mentioned that almost all of the business concerns consider different facets of risk management. Elliott et al. (2011) asserts that diverse facets of proper handling of risk assist the procedure of assessment of risk and helps in supposition of vigorous steps for alleviation of risks in various firms. Nevertheless, this procedure of assessment essentially includes different risk of reputation, diverse threats that can be linked to safety and well-being of particularly health alongside definite commercial risk (Lindeberg 2011). Other than this, there are diverse downtime risk that might possibly happen and this can lead to considerable financial impairment. Basically, majority of business sections do not really allow for specific mechanism of engagement of technologies associated to control of risk of certain spare parts. Nonetheless, there are essentially two diverse risk that can be related to buying of spare parts as well as equipment. Fundamentally, these risks that can be considered by Cramption and Hasad precisely during a certain planning period of audit are basically the operational risk and strategic risk.
As rightly indicated by Simnett and Nugent (2011), strategic risk can be associated to proper organization as well as handling of inventory of spare parts. In actuality, the strategic risk essentially covers the way a business uses for handling of obtainable stock of diverse spare parts properties. Again, Management of specific business units might possibly choose to become ad-hoc. Also, this reflects the outlay on certain items, for example purchasing of diverse items, application of no official policy for administration of spare parts and informed managers for delivery of appropriate judgement on varied procedural arrangements (Roebuck et al. 2011).
Nevertheless, operational risk of a firm cannot be related to functional downtime. In essence operational risk can be observed as a particular risk that is connected to a specific manner a particular process can be executed. Nevertheless, majority of the business concerns formulate and cultivate regulations for strategic management appropriately, but management of the business concerns might possibly find it challenging to execute the strategy effectually (Kinney Jr 2012). For example, trades might possibly execute an appropriate policy for drawing inferences associated to standardization. Mainly, business segments that cannot fittingly handle operational risk by apposite application of varied methods encounter complications in the process of inventory management.
As rightly put forward by Soltani (2012), risks that can be related to specific strategic risk are basically inherent risk. In essence, this risk arises from material misstatements in diverse financial pronouncements of the corporation, imprecisions, errors as well as omission in different financial proclamations. Predominantly, this specific risks accordingly occurs owing to the outcome of various facets except definite control concerns. However, inherent risk occurs necessarily on account of material misstatement in varied financial pronouncements. In effect this threat stems the moment the nature of different business deal is complex. Varied corporate circumstances require the application of superior judgement for assorted financial projections together with approximations. So, insufficiency of appropriate procedure of judgement can lead to development of inherent risk. Principally, inherent risk influences account balance of specifically inventory, receivables of a specific business entity (Bell and Griffin 2012). Other than this, this inherent risk also impacts definite accounting balances counting on diverse trade of a specific business.
Similarly, risks connected to precise operational risk of a business can be witnessed as detection risk. Nonetheless, for detection risk, possibility remains that an evaluator might come across failure in essentially the procedure of recognition of material misstatement in diverse financial assertions (Arens 2011). Yet, detection risk are essentially predictable as soon as assessor does not implement appropriate measurements and while measures cannot be not appropriately applied. Additionally, this detection risk also exerts impact on accurate accounting balance and this sequentially, is not all the time evaluated by auditor. Primarily, the accounts that are prone to get affected by various arrangements as well as classifications of risks are certain accounts namely, purchase account, sales revenue as well as account of inventory.
Arens, A.A., 2011. Auditing and other assurance services. Pearson Prentice Hall.
Bell, T.B. and Griffin, J.B., 2012. Commentary on auditing high-uncertainty fair value estimates. Auditing: A Journal of Practice & Theory, 31(1), pp.147-155.
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), pp.59-74.
Elliott, M., Dawson, R. and Edwards, J., 2011. An improved process model for internal auditing. Managerial Auditing Journal, 22(6), pp.552-565.
Hass, S., Abdolmohammadi, M.J. and Burnaby, P., 2016. The Americas literature review on internal auditing. Managerial Auditing Journal, 21(8), pp.835-844.
Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: a historical analysis on a world-wide phenomenon. Journal of Business Ethics, 120(1), pp.1-11.
Kinney Jr, W.R., 2012. Research opportunities in internal control quality and quality assurance. Auditing: A Journal of Practice & Theory, 19(s-1), pp.83-90.
Lindeberg, T., 2011. The ambiguous identity of auditing. Financial Accountability & Management, 23(3), pp.337-350.
Messier, W.F., JR.,(2011). Auditing & Assurance Services, System Approach.
O’Dwyer, B., Owen, D. and Unerman, J., 2011. Seeking legitimacy for new assurance forms: The case of assurance on sustainability reporting. Accounting, Organizations and Society, 36(1), pp.31-52.
Roebuck, P., Simnett, R. and Ho, H.L., 2011. Understanding assurance services reports: A user perspective. Accounting & Finance, 40(3), pp.211-232.
Simnett, R. and Nugent, M., 2011. Developing an assurance standard for carbon emissions disclosures. Australian Accounting Review, 17(42), pp.37-47.
Soltani, B., 2012. An introduction to auditing and assurance. Auditing: An international approach, 1, pp.1-26.
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