1. The International Auditing and Assurance Standard Board designs the guidelines for auditing financial statements. Experts work on financial Audit follow guidelines set by the board. The guidelines are designed to identify number of factors that should be taken into consideration t make the risk of having misstatement as least as possible (Contessotto and Moroney 2014). The primary aspect to be considered is the gathered information and use of this information in designing the Audit. The Audit expert should be competent and capable forming right Audit structure based on financial statement and given information. Given below are the lists of subjects that a responsible Audit expert should give attention
In situation where audit expert involves in activity in addition to audit and accounting then it is required to obtain proper auditing evidences. Based on the assessor need to take decision on services of the Audit expert. In order to serve purpose of the Audit a competent, eligible and objective audit expert is needed. The competency of Auditor is required for review of accounts book externally. Before employing audit expert, field of expertise should be scrutinized. Partiality in decision and interest conflict reflects favoritism in expert selection. Anything distant from the original objective of audit or financial consideration regarded as useless.
In reference to the current scenario of DIPL, the aspects that audit expert should be taken for consideration are as follows
|
Necessary Issue |
Decision needs to be taken in audit in reference to this situation |
|
Inventory and relevant purchase of Inventory Obsolescence |
Inventory is an essential component of any business (Wild 2017). Detailed analysis reveals that incidence of inventory purchase and inventory obsolescence was in existence The inventory purchases were made a year ago. Such purchases were expected to recover a decline is valuation resulted from value shortage. The assessor need to estimate the obsolescence value of inventory. For this, the assessor need to have information on service and objective of audit expert along with the knowledge of inventory amount. |
|
Fixed asset Depreciation |
Deprecation of asset implies a reduction in assets valuation because of its uses with passes of time. Fixed assets such as machinery wears out every year (Zinkeviciene and Vaisnoraite 2014). For DIPL, the financial report presents fixed assets depreciation with fixed line method. For taking decision, estimation needs to be done for capturing asset depreciation together in line with asset wearing. This estimation is crucial for financial decision-making. For this purpose, concerned management can consider taking service from an audit expert. |
2. In Audit and accounting, materiality signifies separated factor or factors in together that give a clear presentation regarding financial statement with compliance to set standards (William, Glover and Prawitt 2016). The assessment of the given business case study, five factors can be identified having significant influence on in determining overall materiality. Misstatement in any form has considerable impact on materiality. Fraud and errors are root cause of financial misstatement. Misstatement made intentionally can be corrected by omitting the error amount with financial report disclosure. Given below are the factors having influence on preliminary figures of materiality for 2017 DIPL audit
|
2A Factors |
2B Explanation of Factors |
2C Impact on Preliminary Overall materiality |
|
Fraud Risk: The risk of fraud is an important component of materiality determination. In DIPL’s financial report, fraud risk shows an undesirable influence on materiality (Romi 2017). From the given scenario, it is evident that board highly pressurizes the operation of the DIPL. To handle this pressure the IT segment has created a new system of accounting operation. This kind of business operation make DIPL more vulnerable to fraud risk contributing to immateriality. This is how fraud risk has an adverse impact on the concerned business’s financial statement. |
The preparation of financial repot requires collection and utilization of suitable data. Errors are likely to occur in the data collection process. When different factors related to financial report are not correctly presented then then accounting projection is irrational (Bennett and Hatfield 2017). Error can also occurs in times of application of particular accounting policies such as those related to classification, valuation, disclosure or presentation of accounting information. Fraud is a wide spread concept reflecting activities leading to financial misstatement. The critical thinking skills and auditor’s view point can mitigate the risk of such misstatement. |
Risk of Fraud affecting the materiality: The administrative functions of DIPL’s IT department fail to content machinery installation process of concerned organization. The employees are highly pressurized to assess and reconcile fittings in new system. |
|
Accounting policies impacting on Materiality: The report evidenced that the organization employed average cost technique for determination of different raw materials (Khan, Serafeim and Yoon 2016). The average costing method is not a suitable technique in determining raw materials inventory. The reason for this is that in the average cost method the present paper cost is undervalued in the inventory recording. Because of undervaluation of inventory, the method seems unsuitable in the present scenario. |
In materiality determination, inherent risk is seen as an important factor. The management board of DIPL cannot act with objectivity and integrity. This shows the connection between financial condition on concerned organization and materiality. It can mislead the users by providing inaccurate information. |
Accounting policies influencing materiality: The average cost method of inventory valuation is has considered as an improper technique (Singh and Peters 2015). The inaccurate valuation affects the entire accounting mechanism. There is a possible impact on assessor and internal audit procedures. |
|
Influence of environmental factor on materiality: The analysis of financial report of DIPL shows omission of some transaction or occurrence of errors in times of recording transaction. The omitted transactions or wrongly entered transactions results in inconsistent market planning and selling (Bratten et al. 2013). DIPL is unable to identify various economic factors affecting the business activities. The environmental factors with its impact on inconsistent transaction and inefficient accounting planning influence materiality. |
The increasing pressure from Board increases fraudulent activities. This necessitates adaption of new accounting system. The new system has an influence on financial information (Edgley, Jones and Atkins 2015). Fraudulent activities are likely to have effect on company’s financial report which is appropriate for tracing materiality. |
Environmental factors affecting materiality: The business organization currently run on an inappropriate financial accounting structure. This is reflected from the company’s inability to point out micro and macro-economic factors affecting business environment. Omission of some financial transaction or misspecification of transaction clearly shows inappropriate accounting practice of the financial method. Those who rely on this financial information are misguided, as they do not get the clear picture of the financial status. This in turn affect the planning of audit and assessment of financial misstatement. Therefore, it is essential to provide right vision of account book to the users. |
|
Influence of CEO selection materiality: The procedure of CEO selection and their appointment in DIPL is not as simple. The transition from existing CEO to a new one is a complex process. The appointment and transition of CEO together involve significant risk as the CEO appointment process in not in line with requisite schemes. The appointment of new CEO was undertaken in the later date. In the meantime, the workers and the business remain to several risk. Presence of inappropriate CEO appointment mechanism in the DIPL auditing process affect the materiality. |
The complicated appointed mechanism hampers transparency of the management leading to inefficient decision taking. Hence, this an significant influence on materiality of DIPL. |
Complex appointment of CEO impacting Materiality: In DIPL, the appointment of CEO is a complex procedure. This hampers the management and affect materiality. Hence, the appointment mechanism should be transparent and efficient. |
|
Factors related in cash receipt and expenses: The recording of cash receipts is an important element of materiality. In this regard, electronic means are mostly used in accepting expenses (Unegbu 2014). This gives accountant advantages of maintain electronic cash receipt copy by downloading receipts copy from the mail. The settlement of presented and prepared cash receipts needs to be done frequent basis. This should be carried out till the end of the month. E-book marketing generates sales revenue for DIPL. Print and republication of text books have influence on materiality. |
The procedure of book keeping maintenance used by DIPL is considered as one factor affecting materiality. The valuation of raw material is determined from accounting procedures. This helps the users to rightly asses the book of accounts. |
Factors associated with the recording of the transaction in the new system: In DIPL electronic means are used for recording transaction. The inability to record transaction and statement of reconciliation reflects inefficiency of management. |
References
Bennett, G.B. and Hatfield, R.C., 2017. Do Approaching Deadlines Influence Auditors’ Materiality Assessments?. Auditing: A Journal of Practice and Theory.
Bratten, B., Gaynor, L.M., McDaniel, L., Montague, N.R. and Sierra, G.E., 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice & Theory, 32(sp1), pp.7-44.
Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness and audit risk. Accounting & Finance, 54(2), pp.393-418.
Edgley, C., Jones, M.J. and Atkins, J., 2015. The adoption of the materiality concept in social and environmental reporting assurance: A field study approach. The British Accounting Review, 47(1), pp.1-18.
Gaynor, L.M., Kelton, A.S., Mercer, M. and Yohn, T.L., 2016. Understanding the relation between financial reporting quality and audit quality. Auditing: A Journal of Practice & Theory, 35(4), pp.1-22.
Khan, M., Serafeim, G. and Yoon, A., 2016. Corporate sustainability: First evidence on materiality. The accounting review, 91(6), pp.1697-1724.
Romi, A.M., 2017. Differences in Auditor’s Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Social and Environmental Accountability Journal, 37(2), pp.149-150.
Singh, M. and Peters, S.J., 2015. Materiality: Investor Perspectives.
Unegbu, A.O., 2014. Theories of accounting: Evolution & developments, Income-determination and diversities in use. arXiv preprint arXiv:1411.4633.
Wild, T., 2017. Best practice in inventory management. Routledge.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.
Zinkeviciene, D. and Vaisnoraite, G., 2014. Factors affecting the choice of tangible fixed asset accounting methods: theoretical approach. European Scientific Journal, ESJ, 10(10).
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download