A.1 (a) Auditor can provide various assurance services to clients. We hire auditor just to get assured that the accounts are being maintained as per statutory compliances and all statutory compliances are being completed. Some of the auditor assurance services which we can hire are as follows:
(b) From Client perspective it is very important that there should be different auditors for Audit and non- audit purpose. If they are same then client will not be able to come across the deficiencies in each department because the one who is performing same person is judging. No results and no observation will come out in front of the eyes of the management. All the pendency and discrepancy will be dumped. If they are different, then accounts department will have fear in mind that the audit department will check their work and will present to management
So, with this the performance of the company will increase. There should be concept of Maker and Checker in every organization and these both persons should be different.
A.2 Inherent risks are as follows:
i) Foreign Exchange Fluctuations: As the company purchases its raw material outside Australia in US dollars and total sales is in Australia which will be in AUS$. So there will definitely be impact on the transactions of foreign exchange fluctuations. So, this can heavily impact the profitability of the company.
ii) Quality of imported steel: The quality of imported steel is of sub-standard quality which will surely hamper the quality of finished products. If quality of finished product is of sub-standard then definitely its sales price will be lower.
iii) Closure of one sales point: As the place where company’s sale was 40% that has closed. This has reduced the sales by 40%. This can also be point of concern of the auditor because this will hamper the future profits of the company.
iv) Outdated of Nuts & Bolts: The main finished products of company got outdated because of which there will be no sales in the company. If no sales then payment to the creditors will be there. In other words the company will be on the line of liquidation. There is risk of liquidation. The auditor may include this point in their audit report because they have to report on the going concern of the company. This will have very effect on the stakeholders.
Following are the risks of material misstatement:
(i) For Foreign exchange fluctuations: The Credit balance of importers in the books can be an account for risk for material misstatement. As the exchange rate used in valuation of importers can having great impact in the value of importers balance. There can be chances to improve the current ratio, the balance of importers are reduced.
(ii) For quality of imported steel: There can be risk that the value of closing stock is not valued correctly. It can be overvalued to show high profits. This should be checked by the auditors and if possible, they can also take declaration from the management.
(iii) Closure of one sales point: There can be risk that the segment reporting is not correct and also the audit report may not contain the qualification of the going concern of the company as almost 40% of the company sales have dropped down.
(iv) Outdated of Nuts & Bolts: The main finished products of the company got outdated. This is the main concern of the auditor as the company get into liquidation.
(C ) Following are the audit assertions of the above risk of material misstatement:
A3. Control risk is the risk that material misstatements occur in organization which is not being detected and controlled by controls applied in the organization. Following are controls risks in the charitable organization:
(B) Strengths And Weakness In Corporate Governance In Company:
Corporate governance means that everything should be transparent to the public whose amount has been invested in the company. Now a days, corporate governance is very important for running of company. If corporate governance is missing in the working of the company then the government does not allow company to continue.
Following are the strength & weakness of corporate governance:
Strengths:
Audit risk: Audit risk is that risk that an auditor will issue unqualified audit report and still there will be some detection risk. There will remain risk of material misstatement and auditor issues unqualified report. In other words there may be risk that an auditor gives an incorrect opinion on financial statements
Detection Risk: It is that risk that a risk still exists in organization and an auditor will not be able to detect that and issue unqualified report. An Auditor must apply audit procedures to detect material misstatement in financial statements whether due to fraud or error. Detection risk arises due to either misapplication of some audit techniques or omission of critical audit procedures. This can be reduced if an auditor uses in-depth sampling technique.
Control Risk: This risk is that risk which arises due to lack of internal controls in the company or if controls are there they are not being applied appropriately. An organization must have internal controls to detect risk of material misstatements. Control risk is high in that companies in which internal controls are weak or not working because if internal controls are not there no risk can be detected and there are more chances that an auditor misses some important observations.
Inherent Risk: It is that risk that is not due to any failure of controls. This risk is embedded in the functioning of the company. This is not due to any internal controls. This risk is mainly due to the high projections and estimations involved in the company.
Audit Risk= Inherent Risk* Control Risk* Detectionn Risk.
(b) Detection risk is a risk which auditor will not be able to detect which auditing. This risk should be calculated. Detection risk arises because of using of lower sampling techniques and not getting into depth of the investigation. Detection risk is risk of not detecting the error or omission. This can be reduced if an auditor goes for deep checking instead of sampling.
(C) Materiality is a professional judgement. It varies from professional to professional. Every professional has its own experience and attitude. So it is very difficult to measure in amount. As, total assets amounted to $ 10000500 which is very high, so all the assets amount are material amount.
A5. (a) Role of Audit committee is as follows:
(b) More than 51% of members of audit committee are independent. In other words majority of members are independent.
(C) Name of the company is QBE group insurance ltd and its financial year ends on 31st December. Price Water house Coopers are their external auditors.
(D) The partner who has signed Audit report is R.J Clark and the date of signing of report is 24 th feb, 2017. The opinion of auditor is that the financial statements of company give true and fair view of the Group’s financial position as at 31st December, 2016 and its financial performance for the year ended and also complied up with the Australian Accounting Standards and Corporations Regulations 2001.
(E) An Auditor discussed about Corporations Act, 2001 and Accounting Professional and Ethical Standard Board ‘s APES 110
(F) Expectation gap is the gap between the expectations of the public from the auditor that an auditor should also perform such activities. In other words difference between what the public and the financial statements users believe auditors are responsible for and what auditors believe they are responsible for.
An auditor should define its responsibilities which are mentioned in the corporations act and the code of ethics of auditor. General public should be made aware of the responsibilities of an auditor.
References
EY, Audit Services & Assurance, viewed 26 April 2017, https://www.ey.com/in/en/services/assurance.
Accounting Simplified.com, Audit Risk Model, Inherent risk, Control risk, & Detection risk, viewed 27 April 2017,https://accounting-simplified.com/audit/risk-assessment/audit-risk.html.
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