Audit and Assurance for Books of Accounts- myassignmenthelp.com

Question: Discuss about theAudit and Assurance for Books of Accounts and Documents. Answer: Introduction: Audit refers to the systematic and independent investigation of books of accounts, statutory records, documents and vouchers of an entity in order to determine how far the financial statements along with the non-financial disclosure reflect a true and fair view of the company (Mock, Ragothaman and Srivastava 2018). Auditing attempts to make sure that books of accounts are appropriately maintained by the entity under the compliance of law. The study is based on understanding the role of international ethics standard board for accountants to determine whether the auditor is affected by objectivity and independence. The study requires assessing the situations and providing safeguard measures to make sure that the principles of objectivity are followed. Role of international ethics standard board for accountants: The IESBA is regarded as the independent standard setting board that develops and issues in the interest of public. The board sets high quality ethical standards with other pronouncements for the professional accountants across the world (William, Glover and Prawitt 2016). The IESBA through its activities creates the code of ethics for professional accounts that creates ethical requirements for the professional accountants. The procedures and structures supporting the operations of IESBA are facilitated by the IFAC. IESBA plays an important role for accounts which are discussed below; IESBA establishes the ethical accounting standard for the professional accountants by taking inputs that are assembled in the public interest and uses the gathered data in formulating standard that can be applied universally (Arens et al. 2016). The role of IESBA is making contributions in the accounting profession by introducing ethical standards that stimulates accountants to act ethically and with integrity in discharge of their duties. IESBA plays an important role in reinforcing the public interest by motivating more trustworthy and accountable organizations. IESBA helps in protecting the stakeholders together with the common public from the considerable damage that might arise from breach of regulations and laws. The functions performed by the IESBA are stated below The IESBA executes the functions of maintaining the ethical requirements that is necessary in accounting environment by the professionals (Leung et al. 2014). The IESBA board lay down different standards for fighting the problems that are associated with the different ethical problems faced by the accounting professionals across the globe. Another important guidance of IESBA is issuing guidance that are related with the quality performance that can result in complete expansion of the business. The IESBA major functions includes developing principle based definition to enable the accountants across the world to adhere with the major ethical requirements such as integrity, objectivity, competency and due diligence and professional ethical behaviour. Factors influencing principles of objectivity: The definition of objectivity defines that auditing decision must not be influenced because of the undue influences from the management, conflict of interest and associated parties (Zhou, Simnett and Hoang 2016). The auditor is not required to be biased and the opinion stated by auditor must be free from the external influence. There are factors that create an influence on the factors of principle of objectivity and numerous safeguards measures for the medium size firms. Situation 1: Unwarranted financial reliant on client: A circumstances of unwarranted financial reliance on the client originates when the periodic revenue is derived by the auditor from the services that are offered to the customer does not goes past ten per cent of the auditor income. On noticing that if the auditor has obtained in excess of ten per cent of the periodic income from the customer then it results in financial reliance of auditor on client. Auditors Threat: As evident from the situation the financial dependence of the audit on the part of client is high and as a result of this the objectivity principle of auditor is jeopardize. The audit report issued by the auditor might be impaired and may hold the opinion that the fee derived from the client may not be earned if the auditor hold a qualified opinion (Gunin-Paracini, Malsch and Paill 2014). Therefore, the overall opinion of auditor may be bias. Probable Consequences: An important consequences of undue influence of financial nature for auditor can result in violation of objectivity that is regarded as one of the fundamental purpose of audit (Chan and Vasarhelyi 2018). The judgement of auditor might be influenced by the fees paid by the client that impacts the opinion of auditor and the overall procedure. Recommendations: Since the fee income is in excess of 10% the auditor is recommended from conducting auditing related work as the opinion of auditor will be bias because of unwarranted reliance on client. An internal quality control can be implemented to make sure that the opinion of auditor is free from any biasness. Situation 2: Financial Interest in the audit Client: Financial interest is usually owned by the partners through financial interest of intermediaries (Abbott et al. 2016). This results in influence in the opinion of auditor since the auditor holds financial interest in client company. Auditors Threat: The main threat related to auditor is associated to auditors judgement since the opinion of the auditor is surrounded by the financial interest in the clients firm (Sarens, Lenz and Decaux 2016). Consequently, the auditors opinion will be surrounded by biasness which will lack clear judgement from the auditor and may significantly result in audit risk. Consequences: The potential consequences from the above threat is that having an interest in the client firm will enable the auditor to ignore the elements of bookkeeping and may affect the materiality of financial transactions. Therefore, the auditors opinion on the client firm will be not be clear. Recommendations: A recommendation can be provided by stating that the auditor at the initial instance must discard the audit indulgence on the circumstances when it is noticed that the financial interest can obstruct the auditors opinion according to the Irelands provision of audit. Situation 3: Auditors indulgence in Family Ties or close relation among staff, partner or firm: The situation highlights the situation where the auditor has close indulgence in clients Family Ties or close relation among staff, partner or firm. Therefore, this may create an influence on the opinion of auditor while conducting audit. Auditors Threats: Auditors indulgence in Family Ties or close relation among staff, partner or firm give rise to the threat of material misstatement or omission of relevant information from the financial statements (Lan 2014). Additional threats such as self-interest and fundamental principle of auditor dependent may be jeopardized. Consequences: Probable consequences such as hindering the process of audit and bias opinion of the auditor may materially affect the overall procedure in the client firm. The probable threat of self-interest and may fundamentally jeopardize the auditors dependence by significantly contributing in materiality misstatement. The financial statement may not provide a true and fair view of the organization. Recommendations: A recommendation can be provided in this instance is that can be provided by stating that auditor should not engage in the audit of those clients with whom the auditor has close or personal relationship. Additionally, the client company in apply the internal control policies that would hold the auditors independence and keep the functions of audit distinct from clients influence. Situation 4: Non-Audit services to client: Non-audit service represents those services that does not has association with business. Auditors Threat: The non-audit service of auditor can result in the threat of self-interest and familiarity. There is also the self-review threat that originates when the auditor conducts the audit of clients books of accounts and reviews the same himself by providing non-audit service. Consequences: The non-audit service give rise to the consequences of manipulation of books of accounts and unwarranted self-interest in the audit (Mishra and Malhotra 2016). Consequently, the self-review of books of accounts in the clients firm will make the audit procedure ineffective since the auditor would not be disclosing the errors arising out of audit committed intentionally or unintentionally. Recommendations: In such a situation the client firm is recommended to appoint an independent auditor that does not have audit indulgence in the clients business. To ensure the quality of the firms audit is not jeopardized and the books of account provides a true and fair view. Situation 5: The firm has been the external auditor form firm for several years: A nature of familiarity is developed among the client and the auditor when the audit engagement is renewed for several years. Auditors Threat: The primary threat to auditor is the sense of familiarity among the client and the auditor may violate the principle of independence that ultimately deteriorates the audit procedure (He et al. 2017). Consequences: The external auditors engagement in client business for several years can result in development of familiarity in the audit procedure that can result in material misstatement in the financial reports. Recommendations: A recommendation can be provided by stating that client must change the auditor following the conclusion of audit procedure to eliminate the auditors familiarity with the firm. Conclusion: On a conclusive note, the analysis provides that work of audit must not be influenced from unwarranted situations, self-interest, family associations. The auditor is required to maintain the overall quality of audit by making sure that the books of accounts represents the true and fair view of the firm financial position. 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