Discuss about the case study Audit Analysis for Government Regulations.
An audit of a company involves an overview of financial records to ensure that they are in compliance with the government regulations and that they are no cases of fraud. The purchases of products and business transactions are checked and the books of records are reviewed. The audit is carried out at a specific time and it ensures that the company is compliant with the regulations which have been set such as updating transactions and maintaining environmental laws. B & B Company would need an auditor to go through the record books and assess the transactions of the business over the past few years as the new management takes over. The auditor will reconcile the accounts and counter-check the entries into journal records. The company will also receive a written financial statement which will indicate the current financial state of the business which is an unbiased opinion of the auditor.
The financial reports from the audit will indicate the current financial position of the company and highlight areas which need attention as opposed to those which are compliant with the regulations. From the reports, the current management will have a clear understanding of the company’s financial state. Cases of errors in record keeping and fraud will be highlighted thus giving the management an opportunity to correct the issues. The audit will show the flow of internal command in the company and the procedures followed in procuring and sales of products. The management will understand the transaction chain and how business is run in the company. Since the nature of the business has changed from a partnership to a company, some of the operations will have to change significantly.
With the change in management, an audit will be crucial so as to outline the available balances in the company’s account. The shareholders need to understand the business and the amounts which are in the accounts so that they can operate efficiently. The adjustments which they will encounter in the management of the business are indicated in the audit report. The audit will analyze the accounts such as accounts receivables and accounts payable and records of inventory kept for the products. The auditor will formulate their opinion on the company from which the shareholders can take the appropriate actions regarding the operations. In case of variances in the amounts recorded, the auditor will require documentation for the transactions thus making the operations transparent as the new management takes over.
The auditor for company has to be an individual who is trained in accounting who can verify the records of business operations and provide a clear opinion of the company’s financial state. An auditor can be external or internal depending on the company’s preferences. An external auditor comes in at a specified or unspecified period to look through the records and check for compliances with laws and regulations such as labor laws. The company would also hire an internal auditor who is able to follow the day to day transactions and keep accurate records of the operations. The auditor should be able to go through journals such as sales journal and follow the transactions details to ensure that there are no errors in recording. The financial statements should be explained in clarity for the shareholders to understand. The auditor should also be certified professional by the government with ample knowledge on accounting and government regulations.
Allowing a third party to audit the company’s financial records would be of no harm since the auditors follow a strict code of ethics. The code of ethics promotes professionalism among the auditors and the records of the company are handled as confidential information. The auditor comply with regulations and standards which dictate the procedures which are followed during auditing. The International Ethics Standards Board of Accountants (IESBA) has a clear code of ethics which was issued in 2009 and auditors are required to comply with it. The auditor is to give professional judgement when reporting the financial position of the company and observe integrity in the business relationship with the company. The auditor should display knowledge and high standards of professionalism during the audit period (Reynolds, 2000).
The implications of having unaudited accounts is that the company contradicts government laws and regulations. The company fails to follow the Company’s Act and hence is liable to the courts of law. The company would risk having its license withdrawn incase the accounts are not comprehensive and audited. Having the accounts unaudited implies that the company will not prepare annual financial reports for the shareholders which is required by the law. The company will not have a clear opinion of the financial state and hence they will be limited in their business transactions. Auditing places a company at high confidence among the customers and suppliers, hence not auditing would ruin the image of the company in the business market. The new management will be hampered in their operations while conducting business since some accounts might not be settled. Jane is thus well informed for requesting an audit during the first meeting as the family business transits into a company which is under different laws and regulations.
Auditing the company will enable the shareholders to identify the specific departments which need more investment and labor input. The decisions made in the company will better informed when the accounts are audited. Jane, being a shareholder in the company, is not eligible to audit the company’s accounts. The auditor has to be independent with no financial interest in the company. The independence of the auditor, either internal or external allows him/her to operate with integrity while reconciling the accounts and writing the financial reports. Jane has a role in the management of the company and hence will not be able to operate independently and her judgement may be biased (Kinney & Martin, 1994). Having Jane audit the accounts would not give a clear opinion on the company’s financial position.
The auditing of the company requires a professional who will not be harmed by the records of the financial reports which are provided after the audit. Jane has a role as a manager to provide the required documents and journals for the auditing but is not allowed to partake in the auditing activities. The audit reports should present credible information and records to the shareholders as an honest view of the company’s financial position (Mautz & Sharaf, 1961). The independence of the auditor is crucial since they observe integrity in the analysis and follow the set standards for accounting and auditing. The auditor practices independence of mind whereby they are able to make decisions based on the analysis conducted on the company’s financial records. The company’s audit needs to be beyond question which ensures that credibility is upheld in the financial reports.
The shareholders need to understand that Jane will not be able to act independently when analyzing the records in the journals since she is interested in the company (Simunic, 1984). Auditing has to be thorough taking note of all business transactions and the available records to support the records. Having Jane do the audit would compromise the reports since she might conceal some loopholes and missing information in the journals record. This would give a misguided opinion of the company and also similarly she might give a report which outsells the company. The suppliers and customers might also lose trust in the company when the audit statements are signed by a shareholder who is involved in the business management. The standards of auditing might be compromised by having Jane audit the accounts for the company under new management.
B & B Company should consider our auditing firm for the quality of services we provide as we reconcile the books and present the written reports. The auditors have qualifications in accounting and are compliant with the standards of professionalism and quality in reporting. The auditors are keen to provide credible information on the financial position of the company. As an auditing firm, we offer our services at a cost which is affordable hence the expenses incurred are minimal during the accounting period. The audit report will provide a clear understanding to the partners on the required adjustments and need for improving in the journal records. The audit report will be crucial in making decision on the investment opportunities which the company can undertake. Hiring an auditor from our company will ensure that the compliance requirements are meet and the tax returns are indicative of all accounts (Ghose & Koliadis, 2007).
The need for an auditor for your business is crucial in order to have a clear foresight of the company and the control system for the transaction and business deals. Our auditing company provides audit services and ensures confidentiality of the accounts records. Quality and professionalism are core values in our company and we uphold the standards set by the government. Reviewing of the accounts and having unbiased opinion will enable your company to make informed plans and strategies to expand the business and improve its performance. The audit will enable the company’s management to run operations efficiently and minimize costs. The audit will guide the shareholders on the relevant sectors to boost in order to maximize production of the company.
References
Kinney Jr, W.R. and Martin, R.D., 1994. Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies. Auditing, 13(1), p.149.
Simunic, D.A., 1984. Auditing, consulting, and auditor independence. Journal of Accounting research, pp.679-702.
Mautz, R.K. and Sharaf, H.A., 1961. The philosophy of auditing (No. 6). American Accounting Association.
Ghose, A. and Koliadis, G., 2007, September. Auditing business process compliance. In International Conference on Service-Oriented Computing (pp. 169-180). Springer Berlin Heidelberg.
Reynolds, M.A., 2000. Professionalism, ethical codes and the internal auditor: A moral argument. Journal of Business Ethics, 24(2), pp.115-124.
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