B01AUDT317 | Auditing | The Governance Of An Audit Client

 

2. David Little is a senor working at MYH and is part of a 3-person team working on a client’s material loan application that needs to be finished and delivered to the partner on Monday morning. The team are working all weekend to get it finished. There is a strong incentive for the team members, as a well prepared and successful application will ensure that this major client is retained within the firm and raise the standing of the team members in the firm. On Sunday morning, one of the team, John, calls in sick. The rest of the team work harder and get the job done.   When David get home exhausted on Sunday night, his flatmate says, “I saw John and his girlfriend at that new restaurant in town today, I thought he was working in your team.”

What should David do? David doesn't think that it is fair if John gets the same kudos as the rest of the team when he did not put in the same amount of effort but he is David's friend. David and John  play on the same touch football team and often spend time with each other after work and at weekends. Should David tell the partner or are there other options?

Required:

Outline the ethical issues and your decision using the American Accounting Association decision model. Use the following template to guide your answer:

American Accounting Association Model	Decision making process
1. Determine the facts	The facts are ...
2. Define the ethical issues
3. Identify the major principles, rules and values
4. Specify the alternatives
5. Compare values and alternatives
6. Assess the consequences
7. Make your decision

3. Required:

Explain the role that incorporation of auditors and a statutory cap on auditors’ liability have on the limitation of auditors’ liability.

ntify risks of material misstatements through an organization’s environment (Hoffelder, 2012). This standard emphasizes the significance of such knowledge in recognizing wherein such risks are more likely to incur. Nonetheless, ASA 300 can assist in performing preliminary engagement affairs that includes assessment of auditors’ own compliance with significant lawful necessities to document and establish an aggregate audit plan that can set the timing, scope, and direction of audit processes.

	Impact on raising audit risk	Recommendation	Reduction in audit risk because of the recommendation
Non financial risk	The non financial risks lead to alteration of the nature of the audit. There can be failure in compliance, operations, etc. Audit risk will lead to signal the fact that the financial statements are free from error but in the true sense it contains some deficiencies.	Stronger board and executive level governance	When the board and the executive level performs in n effective manner then the governance is of high standard. This leads to effective planning and ultimately the risks are curbed, as well as minimized (Apra, 2017).
Unclear accountabilities	This implies lack of ownership of major risks at the Executive Committee level. In short the risks are left unanswered and hence might create a major issue for the functioning of the company.	Accounting practices influenced by the remunerations practices	Implementation of accountability standards. Such standard are reinforced by the remuneration practices. When the standards are properly placed it leads to minimize the risk and brings in more transparency.
Complex decision making process	Complex and orthodox manner of decision making skills makes the system slow in the detection of the risks and uncertainties.	Infusing of the CBA DNA	All the dealings should be supported by the dealings and decisions on customers. This will ensure a smooth decision making process and thereby will curtail the risk level (Apra, 2017).
Immature compliance function	Operational risk management that is followed by the compliance function that is under resourced	Cultural changes to enhance the process	Challenging and striving for the best is the best remedy.  It helps in identification of the risk and leads to removal of the risk (Apra, 2017)

 

2. 

American Accounting Association Model	Decision making process
1. Determine the facts	The facts are : David is working with three other partners at MYH Client’s loan application needs to be filled and submitted The ream members will be acknowledged and provided recognition for the job Strong incentive will be provided for the team John fails to join and provided the reason of being Team members are working in full swing to get the loan application done On return, David was prompted by the flatmate that John was not sick rather was outing with girlfriend This calls for disciplinary action as other team members worked and John gave a false reason.
2. Define the ethical issues	The non presence of John is a violation of the duty and should not be considered for the incentives along with other team. As seen from the ethical point of view it can be said that the team members needs to work in hand in hand for the accomplishment of the task.  The ethical issue that is coming in front of David is that John is a good friend of him. However, the act of John signifies that he should not be eligible for the kudos. Considering the personal relation David is in a dilemma and is unable to take a call whether or not to consider John for the incentives. In the light of such situation, it is advisable for David to consult with the other team members so as to get some additional options because David is in an ethical dilemma.
3. Identify the major principles, rules and values	The major principle that comes to the forefront is that the team work should be taken in a serious manner.  In this scenario, it is of utmost importance that the team members should adhere to the decision making process of the team.  If the team calls for a meeting then the same must be abided as it is a team work. Further, it can be linked with the ethics because when the team members decide on a course of activity it must be dealt by the team jointly and should not escape the decision. The major principle of any routine course of action or routine work is that there should be proper coordination (Niemi & Sundgren, 2012).
4. Specify the alternatives	The alternatives that can be taken into consideration is to Ask John for the unethical behaviour Remove John from the particular project Show apprehension to John from removing the project Keep John in the project but should not provide any credits if the project gets selected.
5. Compare values and alternatives	When it comes to the alternatives, it can be stated that John has shown indecent behaviour. This calls for a disciplinary action and therefore the alternatives needs to be taken into consideration. John should be questioned about the leave which he took. This will provide a clear cut opinion on his exclusion and for the absence he should be questioned in an ethical manner (Niemi & Sundgren, 2012). However, the project was very critical and therefore, the need to work on Sunnday was vital. In this scenario, it needs to be noted that John should be excluded. However, this will be a harsh decision instead John must be kept in the project but should not be provided any credits owing to the absence of him on Sunday when the entire team was working.
6. Assess the consequences	It is evident that John needs to bear the consequences because he was guilty. On an important day he failed to mark his absence when the entire team was working on the loan application. John will bear the consequence and in most certainty the exclusion of him from the credits and the incentives. As John provided a false reason he is not eligible for any incentives and reward.
7. Make your decision	In all probability it is important that John should be provided strict lesson because it is a case of ethics and its violation. When other team members are working then it is proper for a member to remain absent citing a false sick reason. Hence, the decision to exclude John name from the incentives part will be a strong lesson and will helps in showing appropriate ethical standards (Wright & Charles, 2012).

 

3. It has been clearly stated under the corporation's act that the company can't be registered by an auditor. If the permission is given to the auditors in relation to the incorporation of these factors, the professional ability of the auditors may get adjusted with concerns:

It has been generally observed that the liabilities and use forms having structure partnership and based on the law of joint, consists of several liabilities. Incorporation of auditors and a cap on auditors will have a limitation on the liability of the auditors. In this type of organizations, the action of one partner is said to affect each and every partner of the organization which main subsequently become a negative aspect for the firm and may arise several financial problems within the organization (Tadros, 2017). The use of auditors in order to determine the financial statements of the organization will not only help to overcome difficulties of the financial statements but will also help to solve problems of the organization in relation to the management of large accounting partnerships. It has been observed in the past, that a number of significant changes have been made in the accounting profession so as to provide special auditing services to the organization for economic benefits. The changes consisted of:

• The improvisation of business using the natural growth and also by merging with other firms.
•   Establishment of relationship with the International accounting partnership and creating a link with accounting firms in order to deal with the capital markets and financing decisions of the organization.
• Making changes in the decision-making structure of the organization so that expansion can be made in the field of Management and advising consultancy.

Another essential factor that is influencing the size of an accounting firm is the satisfaction of its major clients. It is of general knowledge that an accounting firm will prosper if the clients business grows and becomes more profitable with the help of the professional services provided by the financers and their decisions (Elder et. al, 2010).

It has been observed that MINCO has allowed its prescribed accounting bodies to take help of auditors in order to assess the financial statements of the organization so that new administration schemes can be taken into consideration. The prescribed accounting bodies will be having the right to assign the authorized auditing companies for the task of assessment of financial statements of the organization (Baldwin, 2010). The data which will be provided by the counting bodies to the organization can be used in order to compare the company with its industry competitors which will help them to no their position and also the conduct that is being followed by them. A lot of SIM cards have been issued in order to protect the rights of clients with respect to the corporate culture that is being judged by the auditors. The major safeguards are:

• The audit companies will be working under the authorization and regulation of the counting bodies for the purpose of which they have been approved.
• Any function in relation to the audit work will be undertaken by the authorized auditing companies who are authorized by the accounting body.
• All the members and directors of the authorized auditing company should be regular and natural persons. The leader of the authorized auditing company should be a qualified and reputed person. There should be no restrictions present for the auditing company as the work is undertaken by reputed and professional auditors. All the terms and conditions of the company should be accepted with the terms and conditions of the authorized auditing company so that maintenance or specified levels of asset capitalization can be kept while performing the task of auditing (Geoffrey, Joleen & David, 2016).

The Corporation Act does allow the auditor to give a limit to their liability by contract that can be approved by the client’s shareholder. The section 534 (1) of the corporation's act gives the auditor the allowance to Limit their liability if any kind of negligence or breach of duty or trust has been noticed by him while auditing the financial accounts of the organization. This limitation is not only covered for only one or more financial year because of which a resolution should be passed and approved by the shareholders (Gay & Simnet, 2015). Also, under section 537, it has been clearly stated that the liability limitations only effective is fair and reasonable data is being provided for the particular circumstances.

References

Apra. (2017). Apra releases CBA prudential inquiry final report and accepts enforceable undertaking from CBA. Retrieved from:  https://www.apra.gov.au/media-centre/media-releases/apra-releases-cba-prudential-inquiry-final-report-accepts-eu

Baldwin, S. (2010). Doing a content audit or inventory. Pearson Press.

Elder, J. R., Beasley S. M., & Arens A. A. (2010).  Auditing and Assurance Services. Person Education, New Jersey: USA

Gay, G & Simnet, R. (2015).  Auditing and Assurance Services. McGraw Hill

Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons, 30(1), 143-156.  https://doi.org/10.2308/acch-51309

Hoffelder, K. (2012). New Audit Standard Encourages More Talking. Harvard Press.

Niemi, L., and Sundgren, S. (2012). Are modified audit opinions related to the availability of credit? Evidence from Finnish SMEs. European Accounting Review, 21(4), 767-796. https://doi.org/10.1080/09638180.2012.671465

Tadros, E. (2017).  Appalling' audit quality could lead to next Enron: ASIC's Greg Medcraft [online]. Retrieved from: https://www.afr.com/business/accounting/appalling-audit-quality-could-lead-to-next-enron-asics-greg-medcraft-20171030-gzb5q2#ixzz5BrDh3Ckohttps://www.ifac.org/global-knowledge-gateway/technology/discussion/why-accountants-must-embrace-machine-learning

Wright, M.K., & Charles, J. (2012). Auditor independence and internal information systems audit quality. Business Studies Journal. 4(2), 63-84. Retrieved from: https://scitecresearch.com/journals/index.php/jrbem/article/viewFile/284/230