Auditor Independence and Possible Remedies †Myassignmenthelp.com

Question: Discuss about the Auditor Independence and Possible Remedies. Answer: S.NO. ISSUES ASSERTIONS TO AUDITORS INDEPENDENCE AUDIT OBJECTIVES AUDIT PROCEDURES FOLLOWED TO SAFE THE INDEPENDENCE 1 Promotion of LTH Company Business in a travel industry seminar Affirmation of Advocacy in relation to independence of the audit firm is present in the given issue under consideration. (Edwin, 2015). The audit objective as defined in the given situation is that the auditor has to do endorsement of the business of the company at a public platform apart from the stakeholders of the company. The Chief Executive Officer Chris made a board statement to the auditor that if does not advertise the company then the companys board has to think for his engagement in the next year. This statement puts the pressure on the auditor mind about losing financial revenue if does not do such act which hampers the objectivity of the auditor in accomplishments of the fair audit and reporting in true spirit. The basis of audit object of making fair representation about the affairs of the company is violated if auditor promotes the company at the public platform. The assertions can be assessed in the given situation by the level misstatement not reported by the auditor in fair manner. While doing the audit of the client in this type issue the following procedures need to follow by the auditor: i. The implementation of due professional care and judgment while analyzing the financial information of the client ii. The standard operating procedures in relation to ethical principles as laid down in Australian Auditing standardard needs to follow by the auditor. iii. The auditor should maintain its objectivity while performing his duties and responsibilities during audit tenure (Livine, 2005). 2 Free Vouchers given to Auditor for himself and his family member by LTH Company Contention of Self Interest has been present in the case under study in order of providing any extra benefit of auditor. (Barizah, 2016). The primary audit objective in respect of presentation of the trading results in form Profit and Loss account and financial position in form of Balance sheet is violated with the assertions given under the situation. The Chief Executive Officer Chris wants give extra benefit to main audit team member Geoff for having even audit of the next year. The Client thinks that if they provide the extra benefit to the audit team member then the audit team member will over look any errors frauds and misstatements comes under his notice while reporting about the affairs of the company to give favor in return of free gift availed by the auditor. The assertions in this situation can be assessed by the level of financial and non financial interest of the auditor by not providing true and fair reporting on the operating results of the company and on financial performance of the company. Audit procedures that the auditor should follow during the audit in Self interest threat are as follows: i. The rotation of audit staff is major audit procedures which are to be followed by the auditor as per the provisions of the Australian Auditing and Ethical Standards 110. ii. The audit team member should refuse to accept the extra benefit if given by the client to main its integrity in order to have independence in reporting. iii. The auditor should inform to the regulatory board if the client puts pressure on the auditor to resign from audit engagement because the audit member is not accepting the extra benefit (Livine, 2005). 3 Finance Controller of LTH Company is associate party with the team member Micheal Question of trust and Affirmation of the familiarity is involved in the given situation of LTH Company (UK, 2013) The secondary audit objective of detection of frauds and error by the auditor is avoided here in by the audit team member. Since the Finance Controller of the company who responsible for preparation of the financial accounts of the company is associated with Michael audit team member, the auditor may not apply all the compliance and substantive procedures in finding frauds and errors done by the accounting staff of the company. Also, if the audit team member is able to find any frauds and error then this can rectified at the accounting level before reporting the same in the audit report by the audit team member as he may hide the mistakes of his father due his personal and long lasting relationship. Further, the finance head of the company can also create the dominance on his son Michael (audit team member) to tell me the audit findings before reporting and he can rectify the same before reporting leading the work of audit team as futile. The affirmation in this situation can be meas ure by the level of leakage in the information both from the auditor and the company staff. Following audit practices need to be followed by the auditor in case of family relationship and lose of trust by the audit team member: i. The disclosure of personal interest at the time engagement by the audit team member to his audit partner before joining the audit team. ii. The continuous change of audit staff during the period of the audit is requiring remaining safe from this type of assertion. iii. The peer review of the work of related audit staff by the senior audit partner (Livine, 2005). 4 Providing Audit and Non Audit Services by the same member Annette in LTH Company Self review and self interest assertions are present in the situation under consideration of LTH Company (Parker, 2015). The primary objective of verification and vouching is violated in the given situation where the same person from audit team has to do audit and non audit services like accounting and taxation services. The audit team member has done one month ago the accounting entries and tax calculation for LTH company and the same person has to check the same accounting entries and taxation calculations by applying the vouching and verification methods. The person might think of not applying all the substantive procedures as he thinks the work done by him just few weeks ago is free from errors. The risks in this situation can evaluate by the level of assumptions made in relation to the correctness of the work done by the audit team member. The auditor has to follow the following methods to make himself and his reporting clean from the assertions present in the situation: i. The auditor should take the advice from the independent third party with the audit firm or outside the firm relation to consultancy services provided by the audit team members. ii. The audit team member and accounting team member are different personnel. iii. Discussion with board members of the company about the scope of audit and non audit services and their fees structure at the time of initial engagement. a) The auditor should gain knowledge about the basis source data for accounting by the client so that he can identified the lag in the procedures followed and can reduce the risk of the self review (Livine, 2005). S. No. ISSUES ASSERTIONS BUSINESS RISK AND AUDIT RISK AUDIT OBJECTIVES AUDIT PROCEDURE AFFECTED ACCOUNT BALANCES 1 Purchases made by MSL Mining Supply Limited from the supplier from different counties of the world The Foreign Currency Fluctuation Risk derived as the business risk in the given situation along with Inherent Risk that the auditor has to take into consideration while planning the audit in this situation. The inherent risk is the risk which present in any company due to the mistake at the financial statement level by the accounting personnel of the company. These risks occurred when the nature of transactions are very complex like foreign currency transactions and involves high level of accounting estimates and accounting judgments. (Imrie, 2011). The audit objective involved in the particular situations are: i. Verification and validation of the foreign currency transactions ii. Checking the calculation of the foreign currency and their conversion per the transitional provisions iii. Compliance of all statutory requirements of different countries iv. Detection of errors in taking the wrong exchange rate by the auditor. The audit practices involve in this situation are: i. Understanding the business the procedures adopted by the company while doing the purchase transaction. The purchases are done by the company from the suppliers from United States, United Kingdom and China. The payments made to them according to their respective country currency but the company has booked all this transactions in Australian dollar to show them in its financial statements. ii. Reassessment of exchange rate at the particular date of transaction by auditor iii. Compliance Procedures in relation to the checking of the transitional provisions as defined by the Australian regularity bodies and adopted by the company. i. Overseas Purchases ii. Overseas Creditors iii. Foreign Current Fluctuation Account iv. Foreign Exchange Reserve 2. Transportation of Raw Material from purchased from supplier located in different parts of the world and supply the same to customers located other different parts of the parts of the world by MSL Mining Supply Limited The loss of goods in transit is the major assertion in relation to the business is present in the given situation. Also, the auditor as consider the level of the of detection risk present in the given situation of the MSL company in respect of transportation of goods. The detection risk is defined as situation of danger present in an organization due to the inherent limitations of the company. These risks are generally present as default in the business practices of the company from its inception as non clear agreement with the supplier and customers about loss of goods is goods example of high degree of the detection risk .(Long, 2015) . The audit objectives involved in this type of the issue of the company are: i. Valuation of inventory by applying the principles of valuation of inventory that is cost or net market price whichever is lower ii. Calculation of the loss of value of inventory if inventory is value at net realizable value. iii. Assessment of internal control system of the company in handling of inventory and minimizing the loss of inventory iv. Detection of frauds in relation to valuation of inventory and its loss. v. True and fair value of inventory is reflected in the operating results and financial position of the company. The auditor has to follow the following audit procedures in terms of the issue related loss of goods in transit: i. Gaining the knowledge about the price of equipments and spare parts which are imported from the suppliers is on FOB basis and CIF basis. If the clear instruction about the this not given by the supplier then the procedures of booking the inventory has to be understand by the auditor. ii. Substantive procedures in relation to valuation of inventory have to follow by the auditor. iii. Recalculation of Abnormal loss by the auditor is required to be done in this situation. iv. Professional due and care in assuming the correctness of the judgment made by the accounting personnel of the company about the percentage of inventory lost in transit. i. Inventory ii. Accounts Payables iii. Purchases iv. Sales v. Accounts Receivables vi. Abnormal Loss vii. General Reserve References Barizah N, (2016), Threats to Auditor Independence, available at https://www.academia.edu/260449/Threats_to_Auditor_Independence accessed on 02/05/2017 Edwin M, (2015), Analysis of Threats to Auditor Independence and Available Safeguards against those threats, available at https://www.academia.edu/9406967/THREATS_TO_AUDITORS_INDEPENDENCE accessed on 02/05/2017 EY, (2016), Top 10 Business Risks, available at https://www.ey.com/Publication/vwLUAssets/EY-business-risks-in-mining-and metals-2016-2017/%24FILE/EY-business-risks-in-mining-and-metals-2016-2017.pdf accessed on 02/05/2017 Imrie B, (2011), Business Risks facing the Mining Industry, available at https://www.in.kpmg.com/SecureData/ACI/Files/Top_20_Risks_the_Mining_Industry.pdf accessed at 02/05/2017 Livine G, (2015), Threats to Auditor Independence and Possible Remedies, available on https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full accessed on 02/05/2017 Long G, (2015), Audit Risk and Business Risk, available at https://www.cpaireland.ie/docs/default-source/Students/Study Support/P2-Audit-Practice-Assurance-Services/audit-risk-and-business-risk.pdf?sfvrsn=0 accessed on 02/05/2017 Parker A, (2015), 6 Key Threat to Auditor Independence, available on https://www.intheblack.com/articles/2015/01/06/6-key Threats-to-auditor-independence accessed on 02/05/2017 UK Essays, (2013), Threat To Auditor Independence Accounting Essay. Available at https://www.uniassignment.com/essay samples/accounting/threat-to-auditor-independence-accounting-essay.php?cref=1 Accessed on 02/05/2017