Discuss about the Auditing and Assurance Services Approach.
This study helps in analyzing the audit opinion in various cases. This majorly provides help business organization in understanding the specific material as well as immaterial errors at the same time. In this assignment, emphasis has been given on depicting the auditing opinion mentioned in the Accounting Standard (ASA 700). It helps in rendering appropriate audit opinions for the business organization in the main audit process. The current study elucidates on various scenarios for gaining relevant audit opinion (Soh and Martinov-Bennie 2015). The present study finds out the loopholes from the internal control system for Adel Company.
In accordance with ASA 700, it explains the depiction of audit requirements that are mainly utilized by companies at the time of formulation in the financial statement. ASA 450 states that this accounting standard identification of uncorrected misstated figures that poses material impact especially in the financial report of any business organization (Simnett, Carson and Vanstraelen 2016). Various requirements of ASA 700 in case of audit opinion are extracted from financial report of company are mentioned below with proper justification:
Auditors of a particular company should provide relevant opinion from the information presented in the financial report of business. Addition to that, auditors are responsible for conducting evaluation from the financial reporting framework in terms of material aspects (Redmayne 2013).
Auditors of a particular company should aim at providing reliable assurance with accurate data extracted from financial reporting. Addition to that, auditors should make ways in rendering assurance report. This should be free from material misstatement of information in minimizing any types of error or fraud. ASA 330 explains that auditors need to render accurate audit evidence. In accordance with ASA 450, it states related conclusion in finding out uncorrected material misstatements from the financial statement of a particular business organization. In the 12th to 15th paragraph, this accounting standard follows as per the accounting standard in preparation of financial report of a particular business organization (Moroney et al. 2014).
It is the responsibility of the auditors to follow relevant financial reporting framework as it involves qualitative aspects of any business organization following accounting practices.
Auditors require suggesting relevant audit opinion from various aspects gaining from financial reporting of business organization.
It is advisable to the auditors in providing relevant audit opinion based upon the accounting policies. These opinions are extracted from the information present in financial statement and used by companies in the upcoming financial year
It is necessary in viewing at the viability attributes presented in the accounting policies from the information taken from financial statements and financing reporting framework
It helps in providing reasonable approach to the management that majorly depicts necessary accounting estimates presented in the financial statement of a particular business organization (Junior, Best and Cotter 2014).
It is responsibility of the auditors to provide relevant audit opinion involving great reliability as well as comparability as presented in the financial report of any business organization. Addition to that, checking has been done based upon the classification, characterization and other aggregated attributes for future analysis purpose. Auditors requires to provide relevant disclosures for gaining proper understanding of the potential information as presented in the financial report of particular business organization.
There are various types of audit opinion mentioned in the audit report. This involves unqualified opinion, qualified opinion as well as disclaimer of opinion and adverse opinion. In this particular case, it analyzes and conducts effective control measures and identifies the punishment criteria (Hardy 2014). In the AASB accounting standard, it should be followed by the auditor so that there are no unethical measures used by business organization. On the contrary, most of the auditors make use of loopholes present in the accounting standard for increasing the personal income as well as helping business organization in inflating the balance sheet.
Unqualified opinion is one of the audit opinion types and provided to the companies in case of effective conduction of their financial reports in accordance with GAAP rules. This particular audit opinion types depicts ways for preparation of financial report in accordance with GAAP principles (Hardidge et al. 2013). It renders relevancy of activities depending upon the statutory regulations for enhancing effective disclosures of material matters presented in the financial report of business organization.
Qualified opinion is another type of audit opinion whereby auditors provide suggestions to the companies who had not maintaining books in accordance with GAAP rules. It has been noticed that there is no adverse effects present in the financial statement in any business organization (Green and Taylor 2013). This financial statement types is mentioned whereby a particular business organization has found regarding any material misstatement present in their financial report.
Adverse opinion is one of the type of audit opinion whereby auditors suggests companies who have not followed the GAAP rules as well as leads to material misstatement in their given financial report (Gramling et al. 2012). This particular audit type is provided by the auditors if they find any material misstatement and adversely affecting the financial report of a particular business organization.
Disclaimer of opinion is other type of audit opinion whereby auditors will suggest companies when they found any form of falsification or absence of adequate data. Auditors make use of this audit opinion when there is incomplete financial report or any absence of financial information (Ge, Simnett and Zhou 2016).
In this particular part, focus is mainly driven for the company named as Connor Company. It explains the audit opinion depicting Connor Company as auditors uses unqualified opinion types for this case. The underlying reason that lies for making use of unqualified audit opinion by the auditors is the financial condition of Connor Company that is presented in the cash flow statement (Carson, Fargher and Zhang 2016). This particular opinion is presented by the auditor as Connor Company has successfully presented the relevant data in the financial report in terms of performance as well as transactions for given fiscal year. Therefore, auditor’s uses unqualified opinion for Connor Company as the company renders accurate information irrespective of its present financial condition.
Audit opinion conducted for this part is depicted for the American Patent company as qualified opinion. This is because American Patent Company had maintained its financial record in accordance with GAAP rules and any kind of misrepresentation was not found in their company. This particular company does not follow LIFO method and using GAAP accounting standard (Boticaâ€ÂRedmayne 2013). In case of material aspects, it conducts in the inventory system as well as does not hamper the financial report of American Patent Company. Therefore, auditors suggest qualified opinion for the company revealing the overall financial projection in desired way.
In this particular part, focus is mainly driven for the company named as Victorian Manufacturing Company. It explains the audit opinion depicting Victorian Manufacturing Company as auditors uses adverse opinion types for solving the issues. This company was found conducting wrong valuation with their depreciation especially on face value and not on market value (Green and Taylor 2013). Therefore, auditor opinion reveals the company as involving in fraudulent practices that is not accepted under GAAP standard. Victorian Manufacturing Company does not follows the rules mentioned in the GAAP accounting standard as well as gives rise to potential misstatement in their financial report.
In this particular part, it is explained regarding weakness present in internal control for the company named as Adel Company. It is advisable to the companies in maintaining adequate efficiency present in the accounting as well as auditing procedures. It helps in conducting effective internal control action in the business organization. Addition to that, weakness identified in the internal control leads to decrease in the overall ability of any company as presented in the financial report (Green and Taylor 2013). With the help of effective internal control, external auditors can easily detect material misstatement for viewing at the operational aspects in desired way. Therefore, effective internal control system helps in monitoring as well as supervising the overall operations for any business organization.
Some of the identified loopholes present in internal control for Adel Company are as follows:
Low Auditing- Adel Company fails to support the periodic auditing of payrolls as well as turns in reducing the efficiency of payroll system. Adel Company internal control system should have been efficient in case periodic auditing has not been conducted in accordance with payroll system. Effective auditing process will help in reducing the unethical measures for any business organization. Auditing function is needed for evaluation of exact report and timely management for the workers in business organization. Addition to that, auditing cam be conducted on payroll cheque as well as delivered by the accountant as generated by Chief Accountant.
Supervision issues- Adel Company found to be highly dependent on record keeping used by the workers. This largely affects the overall productivity of Adel Company. There is no proper monitoring of workers and give rise to unethical measures that reduces the actual work time of the workers. Adel Company should use the latest technology for monitoring the exact work time of the workers.
Authorization issues- Adel Company faces issue in supervision activities as conducted in the accounts payroll system. This majorly increases the overall mistakes committed by accountants. Adel Company should use proper supervision that will help the company in promoting ethical consideration in their business operations.
With the advancement of technology, companies are finding ways for bringing improvement in their internal control system (Simnett, Carson and Vanstraelen 2016). In this particular case, companies should use effective SAP technology in improving in their overall accounting system as well as reducing any kind of unethical practices in their closest vicinity. Some of the test control that is advisable to Adel Manufacturing for using in case if identification of errors is as follows:
Pay cheque approval system- It is important to consider the fact that effective payroll approval system helps in reducing any types of errors. This is done by generating calculations especially by the accountant. Test control helps the company for reducing the generated issues as conducted by Chief Accountant. This payroll system helps in reducing error in comparison with bookkeeping entries.
Verification of calculation- It is advisable to use effective verification for calculation purpose that will help in bringing authenticity of financial information. Payroll calculations need to be verified by switching over the order that will help in error reduction at the same time. Second verification generally increases the workload of an accountant as well as time for payroll calculation (Simnett, Carson and Vanstraelen 2016). This particular control system helps in reducing the low auditing as mentioned by Adel Company.
Automated timekeeping system- It is advisable to conduct effective automated timekeeping system as it will help Adel Company in reducing the weakness for record keeping activities by the workers. This particular automated timekeeping system should be effective as mentioned in the current timesheet used by Adel Company. This particular system is used by Adel Company for reducing any kind of unethical measures as used by employees. This particular control system effectively manages with low auditing issues faced by Adel Company.
Matching the timecard to employee list- It is important to consider the fact regarding the risk generated from non-submission of timesheet. This should be effectively managed as it will reduce matching time card system. This particular system will help in identification of employee who failed in submitting the timesheet for given date. Using this system will help in bringing out the data collection by the employees working at Adel Company (Simnett, Carson and Vanstraelen 2016). Therefore, identification of late timesheet submission will help in reducing the unethical process used by employees as well as reduce wages deduction at Adel Company.
Conclusion
At the end of the study, it is concluded that proper auditing process helps business organization in authenticating their financial report by the auditors. Addition to that, Auditors opinions are of different types depending upon the case scenarios and in accordance with ASA 700 accounting standard. Auditors conduct relevant audit opinion on behalf of the companies from the information available from financial report of any business organization. Components of audit opinion are discussed above with proper justification and in relation with case companies. In other part, weakness of internal control system was mentioned identified from Adel Company audit procedures at the same time. Effective test control can identify weakness and render proper audit process for any business organization.
Reference List
Boticaâ€ÂRedmayne, N., 2013. Auditing and Assurance Services in Australia: An Integrated Approach. Pacific Accounting Review.
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research. Australian Accounting Review, 26(3), pp.226-242.
Ge, Q., Simnett, R. and Zhou, S., 2016. Ethical and Quality Control Requirements When Undertaking Assurance Engagements. Available at SSRN 2837397.
Gramling, A., Johnstone, K.M., Jubb, C. and Rittenberg, L.E., 2012. Auditing and Assurance: A Business Risk Approach. Cengage Learning Australia.
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