While analyzing the situation given in the case, it has found the threat of economic bond will hamper the independence of the auditor. This type of threat appears in the situation because the auditor is forced for presenting the financial statements of company in a seminar. This shows the undue influence on the auditor has been put for promoting the company so that the business of the organization can be increased by getting the more reliability of investors in company. Also, the auditor has been clued-up that if the auditor denies doing so then next year engagement will not be in his favor. (Edwin, 2015). The risk will be evaluated with the quantum of damage it will create to Auditor Independence in maintaining the true and fair reporting.
After considering the condition given, the threat of loss of engagement and threat of self interest are identified. These threats comes in the situation because the company has offered extra free benefits i.e. free holidays packages for audit team member and his family for two weeks. The free benefit has been offered for the coming year audit working so that audit can be done in even way. In this manner, the independence of auditor is in danger situation (Barizah, 2016). The risk in the situation will be evaluated by the level of self interest generated in the mind of audit team member. The auditor will issue the unqualified report if the company is able to create such type of interest and the extent of not reporting the error will increase automatically.
In this condition, after analysis the level of risk the threat of relationship has been identified by the Auditor. In this condition, one of the audit team members has close and cordial relationship with the Finance head of the company. Finance Controller of the company has dominance over Michael, member of audit team, as he is the father of Michael. Because of this dominant relationship, the Finance head influenced the audit team not to report certain matter or to report certain matter in manipulative manner. And this can create the situation of hiding of certain material facts. The risk in this type condition can be assess on the basis of degree of influence in the relationship and for how much time it will present during the audit tenure (UK, 2013).
After listening Annette, the risk involved in the condition under consideration is the threat of Self Review. This happens because the Annette has worked for organization for one month for areas not covered as audit services. The audit member provided the services on accounting entries and taxation matter. The member has build up very good relationship with the employees of the company with whom he has done accounting work finalization. If the audit team member has done mistake in making accounting entries, then he will not report the same in while doing the audit so that partner of audit firm will not scold him. The risk can be assess by ascertaining the quantum of work done by the Audit team member in relation to accounting and taxation matter and the facts suppressed by the her while doing such services (Parker, 2015).
Protective measures the methods which help to reduce the level of risks involved in any particular situation. In case of Audit, the auditor has to use these measures while conducting the audit to protect the independence or integrity so that the reporting done by him is true and fair in letter spirit. The protective measures which are available for auditor are laid down in different and applicable laws, regulations, rules, statutes of the country in the auditor is working. Also, the protective methods can be developed by the audit firm from its past experiences. Sometimes even the client policies lay the safeguards which the auditor will follow to save his integrity. The below are certain protective measures that are generally followed by the auditor in the situations given:
Every business is full risks or threats. And while conducting the audit, the auditor has to take into account in his audit program the risk involved in the business of the client. The risks involved in the business increases as size and complexity of the business increase. The auditor has to see these risks before the start of the audit. The below are the two risks which are involved the business given in the situation:
While conducting any audit, there are chances of risk involved in audit. The risk so involved should be taken into account by auditor while planning and doing the audit. The audit should consider these risk to given an uninfluenced opinion on the affairs of the company. The report presented by auditor is prepared after considering the risks of audit otherwise the audit report will not give an actual picture of the company. More importantly, the audit risk shall be defined in accordance with the business risks identified while planning the audit. Following are the audit risks that may be encountered by the auditor:
References
Becker E, (2015), “Audit Risk vs. Business Risk”, available at https://www.osyb.com/blog/small-business/audit-risk-vs-business-risk/ accessed on 27/04/2017.
Barizah N, (2016), “Threats to Auditor Independence”, available at https://www.academia.edu/260449/Threats_to_Auditor_Independence accessed on27/04/2017.
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 26/04/2017
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 27/04/2017.
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 26/04/2017.
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 27/04/2017.
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 27/04/2017.
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 27/04/2017.
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 26/04/2017
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