Triangulation Audit Evidence In Fraud Risk - ASA701's Importance In PMV (essay).

Accounting Plan

Discuss About The Triangulation Audit Evidence In Fraud Risk?

Auditing refers to the process of inspecting the financial statements of the business organizations in order to find any kind of material missstements in them. While carrying on the audit operations, the auditors are required to conduct different types of analytical procedures in order to obtain sufficient audit evidences for making appropriate audit opinion (William Jr, Glover and Prawitt 2016). It implies that the auditors are required to consider the key audit matters for the business organizations. This report sheds lights on the announcement of ASA701 for the effective communication of key auditing matters of the companies by the auditors. The inception of ASA701 can be seen after the occurrence of world financial crisis in the year 2008. The main motive behind the introduction of ASA701 is the disclosure of key audit issues of the business organizations in the audit reports after conducting necessary audit operations (Leung et al. 2014). For this report, Premier Investment Limited (PMV) is taken into consideration. This report discusses various aspects of ASA701 for PMV.

It is evident that the world financial crisis has its negative effects on the business operations and financial positions of almost all Australian corporations and PMV is not outside of this list. However, the Australian companies including PMV have the option to overcome the unfavorable influence of world financial crisis by implementing the mechanism of accounting reform. As per the characteristics of new auditing standards ASA701, it is necessary for the business organizations to provide necessary explanation on the key audit matters of their business organizations so that the auditors can present them in their audit reports (Carson, Fargher and Zhang 2016). According to the requirements of ASA315, the auditors of PMB have the auditing obligation to take into consideration the areas related to high risk of material misstatements so that these risks can be recognized in the financial statements (Contessotto and Moroney 2014). Apart from this, it is also the professional obligation of the auditors to take into consideration the important matters stated in paragraph 9 for the audit regulation so that they can be presented in the audit opinion. All these aspects together can be stated as the key audit matters as mentioned in the A9 paragraph to A11 paragraph and from A27 paragraph and A30 paragraph. All these auditing factors lead to major accounting reform.  

Accounting Policies

The 2016 Annual Report of PMV states the basis to prepare and present the financial statements. It can be observed that the general-purpose financial reports of the company has been developed by complying with the standards and principles of Corporations Act 2001, Australian Accounting Standard (AAS) and the other accounting regulations and requirements of Australian Accounting Standard Board (AASB) (premierinvestments.com.au 2018). PMV has prepared their financial statements based on historical cost; and financial instruments and assets have been classified and measured based on fair value. Moreover, the company has also complied with the directives of ASA570 related with the material misstatements associated with the financial statements of the company. This standard is highly helpful in order to understand the uncertainties related with the status of the company as a going concern as per the standards of ASA570 (Sanderson 2014). These aspects can be considered as the key audit matters that the auditors are required to consider for analysis the status of going concern.   

From the analysis of the annual report of PMV, it can be seen that PMV is a for profit organization limited by the shares of Australia and the company has the right to publicly trade their shares through Australian Securities Exchange (ASX) (premierinvestments.com.au 2018). It can also be seen that the financial documents have been developed by complying with the standards and principles of Australian Accounting Standard Board (AASB) and International Financial Reporting Standards (IFRS) and these are issued by International Accounting Standard Board. Apart from this, for the development of general-purpose financial statements, PMV has complied with the standards and requirements of Corporations Act 2001 and Australian Accounting Standards (AAS). All the value in the financial statements of PMV have been presented in Australian Dollars and all the values are rounded to the nearest thousand dollars (premierinvestments.com.au 2018).           

According to the standards and directives of ASA315 declared by the Auditing and Assurance Standards Board, the assessors of PMV have the authority for the analysis of business risks. These aspects refer to the origination of risks from different types of conditions, accounting events and situations that have unfavorable effects on the materiality aspect of the financial statements of the firm. In addition, all these aspects make major hindrances for the company in the achievement of the objectives and goals of the company. For all these reasons, it is essential for PMV to assess the audit risks (Vona 2012).       

Financial Statement Analysis of PMV

On the general basis, it can be said that there is a relation between the audit risks and financial statements of the business organizations. More specifically, the presence of material misstatements in the financial statements poses major audit risks for the business organizations. As mentioned under the paragraph from A105 to A108 of the directors of auditing standards under ASA315, the obligation is on the auditors of the companies to recognize and analyze audit risks in each level of financial statements (Carey 2015). Thus, the association of this aspect can be seen with material misstatements at the assertion level of the audit process for different class of transactions and various balance of account of the companies along with the firm’s disclosure of various accounting information for the smooth running of the audit operations. In this process, it is the responsibility of the assessor to make necessary evaluation of detected risk of material misstatements along with their effects on the economic report (Stanley and Marsden 2013).          

In the present business era, many high profile business frauds can be seen and these fraud cases question the responsibility of the risk evaluator in the business organizations (King 2014). In case of PMV, the auditors of the company have the auditing obligation for gathering adequate amount of audit evidences in order to measure the exposure of the firm with different business risks. In addition, this process is required for the development of effective audit strategies for removing the effects of world financial crisis. Interestingly, it needs to be mentioned in respect of the large fraud of the companies that the auditors of PMV should put more focus in the top down approach in order to acquire sufficient amount of audit evidences. Apart from this, it is required for the auditors for the assessment of business risks for the smooth running of the audit operations (Trotman and Wright 2012).        

In the aspect of the analysis of audit risks, the auditors can follow the following process:

• The auditors are required to make the recognition of major business risks that is related with the financial reporting of PMV.
• After that, the auditors are required to make the estimation of the significance of audit risks.
• Now, the auditors are required to make analysis on the probability to occur these business risks.
• Lastly, the auditors are required to make effective decisions regarding the required actions for the recognition of business risks (Johnstone, Gramling and Rittenberg 2013).

As per the directives of AUS A24.1 of the standard of ASA315, there is a necessity for the arrangements of both governance and ownership in the process of audit operations. In this context, it needs to be mentioned that the board of directors of PMV along with the other higher management members for governing the liabilities have the authority for the determination of the level of risk in the company. More specifically, it is the responsibility of the management of the business organizations to formulate, execute and supervise effective risk management system for the implementation of the strategies of the board of directors (Ashley-Smith 2013). Apart from this, the non-executive directors of PMV in the board of the company and autonomous commission have the authority for assessing different types of incentive plans of the company along with the commissions, optional bonuses, service agreements of the directors and the profit sharing aspect. Thus, it can be said that the assessment report of internal audit committee can be majorly helpful in making autonomous appraisals.

Audit Risk Assessment

As per ASA315, paragraph A36 to paragraph A41, it is the responsibility of the assessor to gain proper understanding about the segment of the industry, regulation and various external factors and applicable structure for the establishment of effective internal control. For this reason, the auditors of PMV can obtain effective insight about the diverse internal control of the organization that has major relevance with the audit operations of PMV. In most of the business organizations, it can be observed that the implementation of effective internal control system is highly associated with the process of financial reporting of the companies (Vijayakumar and Nagaraja 2012). In this aspect, it is important to be mentioned that not all types of internal controls of the companies have major association with the process of financial reporting and the audit operations of the financial statements. For this reason, according to the directives under ASA315, referring to the paragraph of A42 to A65, it is a major responsibility of the auditors under the audit ruling to examine whether there is effective control in the organization or not; and it needs to be tested before the commencement of the audit process of the organizations. After this process, the auditors become able to make constructive comments on the stability of internal control. In this process, the auditors become also able to analyze whether there is honesty and ethical conduct in the process of internal control of the companies or not (Munsif, Raghunandan and Rama 2012).  

Risk of material misstatements indicates towards the origination of risk due to the wrong omission or fraud activity in the financial statements. The auditors have the ability to assess these risks in two different levels that is the counting of inherent risks with the control risks of the organizations at the stage of assertion. In this aspect, inherent risks refer to the certain behavior of the financial statements of PMV due to misstatements caused on intentional or unintentional basis before the consideration of different internal controls (American Institute of Certified Public Accountants 2013). On the other hand, control risks refer to the risks of PMV having association with material misstatements of financial statements due to the lack of effectiveness of the internal control. The auditing standards put certain obligation on the auditors to comply with the audit standards of International Standards for the auditing standards of ISA 260. This aspect indicates towards the responsibility of the auditors to communicate important audit maters with the executive committee of the companies as per the governance issued by International Auditing Standards along with the assurance standard board (Lobo and Zhao 2013).

Relevance of Audit Risks to the Financial Statements of PMV

It is the liability of the board members of PMV for the pronouncement about the outcome of the audit risk management process along with the activities related with assurance. Essentially, these aspects help in the maintenance of internal control along with the financial control. As per the annual pronouncement of PMV, it can be seen that the directors has analyzed the budget of the firm along with the cash flows statement for the year 2016. In addition, one can gain effective insight about the overall financial position of PMV from this report. In addition, all the directors and executives of the company remain fulfill about the facts that PMV is well fitted in the going concern concept and the company will be operating by fulfilling the requirements of going concern for the development and presentation of financial statements (Dorminey et al. 2012). In particular, the process for the communication of key audit matters helps the administration of the company to make suitable judgment related with the preparation and presentation of financial documents.      

As per the principles of auditing standard ASA570, it is necessary for the business organizations for the mentioning of the process to evaluate the risks along with the undertaken actions for them. In addition, it is also required to mention the analysis of the plan of the management, the areas beyond the reach of the management, additional processes for the examination of various audit incidents and others. The standards of ASA 570 also require effective communication of key audit matters with the governing committee (Kaplan and Williams 2012). The critical analysis of the annual report of PMV states that the main motive for developing the treasury committee in the business organizations is to observe different kinds of treasury actions of the company. Apart from this, another major responsibility of this group is make it sure that there is appropriate governance in different function of the company. In particular, the main function of the audit committee of PMV is to check that whether the financial documents are developed and presented as per the Corporations Act 2001 (Carson et al. 2012).

These aspects can be related to the assessment of the financial position of PMV, assessment of the internal control schemes, the presence of relative legislation, the presence of effective governance and others. In addition, it can also be mentioned that different committees of PMV use to review different business affairs of the company in order to make sure that they are aligned with required legislative requirements of going concern concept. Apart from this, the respective authorities of PMV do the assessment of the whole process of the performance appraisal of the whole group (Carey, Kortum and Moroney 2012). Thus, it can be seen that the company has the ability to operate as a going concern for estimated future. From the above discussion, it can be observed that the disclosure of key audit matters has relation with going concern concept.  

Importance of Business Risk in Audit Planning Process of PMV

Conclusion

From the above discussion, it can observed that it is the responsibility of the auditors to develop accounting plans so that they can be implemented in the organizations for avoiding the effects of various financial crisis. For this reason, business organizations have the obligations to disclose their materiality limit of the financial statements. In order to come to effective audit opinion, it is the responsibility of the auditors to obtain sufficient audit evidences by examining and analyzing the internal control. Out of this concept, it is necessary for the auditors of PMV communicate the key audit matters with the board of the company and the auditors are required to express these audit matters in the audit report. In this context, the above discussion states that the auditors of PMV are required to implement the auditing standard of ‘ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report’ for the auditing of various financial statements of them.

References

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