HI6026 Auditing Standards Assignment Sample

• Subject Code : HI6026
• University : Holmes Institute My Assignment Services is not sponsored or endorsed by this college or university.
• Subject Name : Audit, Assurance and Compliance

Audit, Assurance and Compliance

Contents

Answer to Question for Week 1

Answer to Question for Week 2

Answer to Question for Week 3

Answer to Question for Week 4

Answer to Question for Week 5

Reference

Answer to Question for Week 1

There are two types are assurance engagement - One is Reasonable Assurance Engagement and the second is Limited Assurance Engagement. Under reasonable assurance engagement, the practitioner can gather sufficient and appropriate evidence to provide positive assurance on the books of accounts of the company. And on the other hand, under limited assurance engagement, the practitioner could not gather sufficient and appropriate evidence to form a conclusive assurance on the books of accounts of the company. So the practitioner will provide the report in the form of negative assurance.

In the given scenario, local has not maintained its books of accounts, since it is a small scale proprietor company. But on the other hand, OEL which is going to take over local wants an assurance over the financial statement of books of Local.

The task which will be performed will be Limited level assurance engagement. Since the practitioner has access to books of accounts OEL, they will be able to gather a sufficient amount of evidence to form an opinion on the books of accounts of the company. This means that the quantity and quality of evidence gathered would be lower as compared to those in a reasonable assurance engagement since the objective here is not to cover all material respects of the financial statements. But then he will provide his report in negative form. In this case, the practitioner will state like 'nothing has come to the attention that causes us to believe that the financial statements are not prepared following applicable legislation and accounting standards'.

Answer to Question for Week 2

An auditor can be held responsible only when the third party has proved the following facts:

• The auditor should be proved that the statement which he signed was untrue. And that the financial statement of the company is not showing a true and fair view. But the auditor has given his opinion that the financial statements were showing a true and fair view.
• It should be proved that the auditor knew the fact that FS was showing incorrect data, but the auditor recklessly ignored this fact and gave an incorrect opinion on the books of accounts of the company.
• It should be proved that the statement made by the auditor was intended for the other party to act upon it.
• And the other party did act on it and ended up in financial crises.
• The third party should prove that the auditor has failed to use due care and has failed to identify the material misstatement in the books of accounts.

In the given case, Data went into heavy loss after august 2018. Wherein I have conducted an audit for the financial year ending 30th June 2018. So I can rightfully argue that my audit report holds good up to the period of 30th June 2018. And that the opinions expressed in the report are for the FY 2017-18. For additional points I will be providing them:

• The first defense point will be with the help of my audit working papers. I will provide them engagement documentation, which will contain the basis from where I had drafted my audit report.
• I will not be held guilty unless I am proved of being negligible. I will stick with my -opinion that for the FY 2017-18, Data was holding good. And that, its financial statements were showing true and fair value.
• I will prove that I have maintained and utilized my professional and technical knowledge of accounting and auditing concepts.
• I will prove that I took due diligence during the procedure of audit. And that the financial statements were fairly presented. In other words, I will prove that I have exercised all the care that a skilled professional in the field of public accounting could be expected to exercise in the conduct of the audit.
• I can also use below points to defend myself -

1. The bank's loss was not caused due to a breach of any audit engagement.
2. I have performed my duty with due diligence and professional care.
3. The bank was negligent and not my firm.

• The bank should also clearly prove that I had a duty to be negligent. That is, I had other intentions in this audit (apart from auditing the financial statements).
• The bank should prove, that their loss was due to my actions or inactions. If not proved, then I will not be held guilty. In this case, the audit which I conducted for the FY2017-18 did not result in their loss. Hence I cannot be held guilty.
• Of all the points mentioned above, Better Bank should be able to prove that I have not performed my professional duties with due care. And that I have intentionally ignored any material misstatement in the books of accounts of Data.

Answer to Question for Week 3

3. (a) Below are the key threats to Hall & Associates’ independence -

• The is the existence of a business relationship between CGL and Easymoney which is significant.
• Easy money is interested in the financial aspects of CGL.
• Easy money has the right to withdraw all the funding of CGL.

3.(b) For all the threats mentioned above, Hall and Associates should make sure, it follows the professional guidelines and conducts mentioned. They should not agree for CGL shares in place of remuneration for the audit conducted. Agreeing for such remuneration will result in a breach of the audit engagement. Also, it should make sure, CGL's actual current ratio is reflected in the audit report.

Answer to Question for Week 4

4. (i) In this scenario, there is an Inherent audit risk type involved. These are the risks that will arise due to factors excluding the control risk factors. They are usually considered to be of high value, hence they will have a huge impact on the financial statements of the company. Since the financial controller claims, that newly appointed treasurer has realized profit in yen, there is a chance of complex derivative calculation involved. Also, it should be noted that there is high human judgment involved. The financial controller is assuming that the treasurer will be realizing more profit in the long run.

(ii) In this case, there is an inherent audit risk involved. Even though the financial controller is confident in determining the accurate closing values, still there are elements of risk that are caused by factors that are out of human control. For eg, political problems, climate change, PESTLE, etc.

(iii) This scenario as well consists of inherent risk. The financial controller is planning to introduce a bonus system to increase the sales volume, but without achieving the actual target he is going to announce the bonus scheme to his employees. There is an immense level of human (financial controller's) assumption involved in this.

(iv) By installing new accounting software, there will be an element of control risk involved. These risks arise due to the lack of an internal control system of the company. If the internal control system is weak, then there are increased chances of errors or fraud in the books of accounts. Is should be ensured that work performed by one person is verified by another person.

(v) Control risk is involved in this scenario, when the company is giving all the access to data, including the rights to modify, then it means the internal control system is absent in the company. The accountant who is having access to data backup or data modification might misuse his freedom. The company should ensure that proper authorization should be given for the accountant to modify the data.

Answer to Question for Week 5

• Current Ratio - Current ratio is also called a working capital ratio. The ideal working capital ratio should be 1:2. It shows that the company will be able to meet its current liabilities which may arise this year, with the cash(liquid assets). As per the table provided, the actual result and budgeted result is slightly different. However, when compared to the current ratio of last year, the company has managed to reduced its short term liabilities.
• Quick Asset Ratio - This ratio indicates a company's capacity to pay its current liabilities without selling its assets. Higher the ratio, better for the company. The table shows, the company has been consistent in maintaining the ratio when compared to last year. But it should be noted that Nova's quick asset ration is less than industry standards. Nova should sure, higher quick asset ratio is maintained.
• Inventory Turnover Ratio - Inventory turnover ratio indicates how many times the company has purchased and sold its inventory during the given period. A good inventory turnover ratio will vary from 4 to 6. Nova's ratio has reduced when compared to last year. This means that either there is weak sales or excess inventory. Which is not a good sign for good business operations.
• Net Profit Ratio - Net profit ratio means, the ratio of income after all expenses (including financing, administration, etc) and taxes. These are the disposable income available for further investments or profit distribution. It is considered as higher the ratio, stronger the percentage. The table shows, Nova is successfully moving up in the ladder by increasing its net profit. It should also be noted that Nova's net ratio is greater than the industry average.
• Gross Margin - Gross margin is the company's revenue minus the cost of goods sold. The gross margin does not consider any other expenses apart from direct expenses (COGS, wages, carriage inward expense). A higher gross margin indicates that Nova is operating efficiently.

Reference for Audit, Assurance and Compliance

Anderson, U.L., Head, M.J., Ramamoorthy, S., Riddle, C., Salamasick, M. and Sobel, P.J., 2017. Internal auditing: Assurance & advisory services. Institute of Internal Auditors Research Foundation.

Knechel, W.R., and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

Kumor, I. and Mackowiak, E., 2018, June. Materiality in Accounting and Auditing. In Economic and Social Development (Book of Proceedings), 32nd International Scientific Conference on Economic and Social (p. 218).

Mishra, A.M., 2020. Auditors and Auditing.

Ozturk, M.S., 2019. Emerging Auditing Perspectives in the Age of the Fourth Industrial Revolution. In Organizational Auditing and Assurance in the Digital Age (pp. 172-187). IGI Global.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Auditing and Assurance Assignment Help