Auditing Practice: Financial Accountability Assessment Answers

Discuss about the Auditing Practice for Financial Accountability.

Introduction:

The process of an audit was relied upon for many years, but the relevant practice of auditing comes into existence for a very short period. The methods have been adopted at the time of Industrial Revolution. Now the firms became aware of the need for fraud detection, financial accountability, etc. in the business. On the other hand, Control compliance becomes a much larger problem because of an established flexible and widely applicable control structures which often entail a colossal number of checks For these reasons it may be temporarily re-parameterized which generated the need and assurance for auditing in the firm.(audit analytics looking towards future). On the other hand, Zhang et al. (2012) discussed the fact that the methods of an audit are at risk of becoming less relevant if they do not change accordingly to meet the needs of stakeholder, especially for timeliness and scope.

In this context a question rose by a very well-known author on the basis that whether the business is performing an audit or function of management if the group reviews analysis and gives their decision on the matter of the firm (Elder et al. 2013)? According to Kozlovski and Vasarhelyi (2014), large audit databases aimed about the validation of daily feeds.

In the given case, Barry and Betty have three children. Robert and Chan were holding 20% shares of the company and Jane holds 40% shares. The reason behind is that she has a degree in management moreover she is associated with the daily work of the enterprise. In the first company meeting, she has informed the shareholders about the conversion of the business. Earlier the company was governed under the partnership act but now due to conversion, it is regulated under the corporation law. For this, the company has to make certain changes in their management. This report furnishes all the necessary information regarding the relevant changes.

Nature of Auditing:

It is helpful in locating the errors of the fraud.

 It detects and rectifies the mistakes.

It boosts the morale of the staff.

It is necessary for taxation purpose.

The main aim behind this is to produce a reliable source of audit practice for smaller companies. It can be suspected that error and fraud detection has remained a paramount objective (Chandler and Edwards 2013). 

According to the queries of the shareholders of the company the audit report furnishes the following information:

Process of Auditing: 

The Proper audit process is to be done in a systemized manner so that correct view of the financial condition of the firm can be ascertained. It needs proper planning related to announcement letters, meetings, audit program, etc. As we know that planning is the foremost step in any organization. Each person should make a proper plan so that he can work on it accordingly. In any business organization, proper planning is needed so that the other members of the company can work accordingly and gets up to date information about the enterprise. Moreover, it helps the auditor to notify the needs of the client (Christensen, Glover and Wolfe 2014).

The next step is to do proper fieldwork: -proper fieldwork is required in case of preparing working papers, audit summary, etc. Working papers are those documents which includes all the relevant evidence related to the review. It is used by the management so that they can have an idea that the reports were planned and carried out correctly.

Another step is to prepare Audit report: -it includes the draft of the meeting, response of clients, comments on customers, final report, etc. The report should be completed within 30 days after the completion of fieldwork.

The last and final step is to prepare follow-up: - this includes the review and report of monitoring, audited annual report of the board, etc (Christensen, Glover and Wood 2012).

Who could be the Auditor?

As per the requirement of the act the person who makes an application to ASIC after fulfilling certain necessities. In the given case the company has to submit its registration report under the board before acting as an auditor. Hence, as per the statement, the firm can act as an auditor for the company B&B Ltd (Asic.gov.au 2016).

Would it be wise to allow a third party (the auditor) access to their confidential business information?

Yes, an auditor can do so with the permission of the client to access on their financial statements or any confidential business information. The auditor helps the company by giving true and fair views of the financial accounts.

What if they do not have the Accounts Audited?

As per Australian law, it is not mandatory for a company to furnish audit report but the directors still felt the need of maintaining audited accounts of their business (Randtke and Detweiler. 2012). They can identify their weakness in accounting system easily and can work for the improvement. It also helps in locating fraud in the company. Now the management has full report about the directors’ day-to-day workings.

Can Jane do the Audit Herself?

The section 307 of the Corporation Act 2001 defines Audit as the opinion formed by the auditor whether the financial report are prepared in accordance with this act and accounting standards. The section 307A of the act requires that if an individual auditor or audit company is conducting audit then it should be conducted in accordance with the auditing standards. The section 324CD of the Corporation Act 2001 states out the conflict of interest situations. In the section 324CD (2) of the corporation act 2001 it is clearly stated if there exists a relationship between the auditor and the audited body then it will considered as conflict of interest. The relevant relationship if the audited body is a company includes that the auditor has relationship with the company, or the auditor is a current or former director of the company, or if the person is currently or formerly involved with the management of the company. The law therefore states that if the following condition exists then the person cannot be the auditor of the company. In the given case, Jane is a shareholder and is involved in the management of the company so it can be concluded according to the relevant provisions of the companies act that Jane cannot be the auditor of the company.

Conclusion:

Being the manager of the reputed audit firm of the city after analyzing all the documents and from the details furnish by the company it can be said that the association B&B co.ltd has furnished all the answers of the queries arose by their shareholders and members in a very relevant manner as prescribed by the law. When the company pays a high dividend to their members than the irregularities of account cannot be noticed but when the revenue declines internal cost are scrutinized more diligently. Therefore, from the above mentioned definition we can understand that the term audit gives us a systemized knowledge of the subject The Company can fill the tender bid with its name after filing all the documents of the company. The company has conducted meeting regarding the conversion and the members of the board are agreed for it. The company has no criminal records or any infringement records in the past. The company has to maintain certain working papers in the future also than only the company can run its business smoothly and soundly. Hence, the company B&B can act as a corporate in the near future. 

References:

Badolato, P.G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2), pp.208-230.

Chandler, R.A. and Edwards, J.R., 2013. British Audit Practice 1884-1900 (RLE Accounting): A Case Law Perspective. Routledge

Christensen, B.E., Glover, S.M. and Wolfe, C.J., 2014. Do critical audit matter paragraphs in the audit report change nonprofessional investors' decision to invest?. Auditing: A Journal of Practice & Theory, 33(4), pp.71-93.

Christensen, B.E., Glover, S.M. and Wood, D.A., 2012. Extreme estimation uncertainty in fair value estimates Implications for audit assurance.Auditing: A Journal of Practice & Theory, 31(1), pp.127-146.

Davis, R.E., 2012. The Case for Continuous Auditing of Management Information Systems.

Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance services. McGraw-Hill.

Elder, R.J., Akresh, A.D., Glover, S.M., Higgs, J.L. and Liljegren, J., 2013. Audit sampling research: A synthesis and implications for future studies.Auditing: A Journal of Practice & Theory, 32(sp1), pp.99-129.

Erkens, D.H. and Bonner, S.E., 2012. The role of firm status in appointments of accounting financial experts to audit committees. The Accounting Review, 88(1), pp.107-136.

Guidance Statement GS 011 Third Party Access to Audit Working Papers GS 011 - 1 - Guidance Statement Issued by the Auditing and Assurance Standards Board

Messier Jr, W., 2016. Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education.

Rubric, O., 2015. The application of analytical procedures in the audit process (Doctoral dissertation, University of Pretoria.

Asic.gov.au. (2016). Applying for auditor or authorised audit company registration |Asic.gov.au. (2016). Applying for auditor or authorised audit company registration | ASIC - Australian Securities and Investments Commission. [online] Available at: https://asic.gov.au/for-finance-professionals/company-auditors/applying-for-auditor-or-authorised-audit-company-registration/ [Accessed 17 Aug. 2016].