Independence of auditors essentially points out towards the independence of specifically the internal auditors or else the external auditor from different parties that might possibly have a financial interest in a specific business that is audited. Independence of specifically internal auditor implies independence from diverse parties whose benefits might possibly be affected by the outcomes of an audit (Duncan and Whittington 2014). However, independence of different external auditor indicates towards independence from diverse parties who specially have an interest in the outcomes issued in financial declarations of business entity. However, at the time of performance of audit, the assessors need to conform different generally accepted principles diligently to a specific objective in mind (Homb et al. 2014) In itself, the auditor needs to maintain honesty, objectivity, evade biases and present true as well as fair viewpoints.
Services delivered by the auditors to their clientele that is necessarily out of their purview of audit can be regarded as a non-audit service. However, these services might comprise of different management services, suggestions associated to management to tax, boosting the business of clientele. However, non-audit services are delivered against payment of added income or else any kind of non-pecuniary benefit (Soh and Martinov-Bennie 2015). Nevertheless, deliverance of non-audit services also direct towards the impairment of individuality of assessor in appearance. In particular, the possible influence of non-audit associated services is a vital matter of concern. Again, yet another vital issue of audit is maintenance of Quality of audit since audit processes are often criticised by stakeholders as well as regulators (Pizzini et al. 2014). However, one of the greatest threats to independence of assessor is essentially the advocacy threat that takes place when the assessor promotes business of the client or else viewpoints to a certain point where individuals might feel that objectivity is getting negotiated.
Situation 2:
Independence of an assessor is threatened in case if the assessor or else audit corporation obtains any monetary or else non-monetary advantages in any particular form that is not the fees set for audit work (Simon et al. 2014). However, this might possibly arise from availing other benefits out of different audit engagement contract.
Situation 3:
Spouse of an auditors, parental relations, and dependent as well as non-dependent ward as well as siblings are regarded as close members of the family. However, the financial concern contains assurance for debt, short or else long term securities that is possessed by the individual, together with other individuals or else through other in-between entities (Khlif and Samaha 2014). In the given case, the father of recommended accountant is essentially the financial controller of the client. Therefore, in case if Michael agrees to take the offer or being a part of the team of the audit, then it can harm the auditors’ independency.
Situation 4:
In case where there exists close associations with the client, their members of the staff as well as directors, there exists a risk of influence. Particularly, in these situations, the assessor is vulnerable to get sympathetic towards the particular client. Association with the business of the client directs towards undue trust with specific client and might also lead to inadequate representation (Pilcher et al. 2013). In this given case, there is probability that the representation of the assessor might be affected as she is aware of certain significant information of the client as she has worked previously with particularly LTH a month before. In addition to this, she was also undertaking diverse services associated to the enumerations of tax as well as preparations of specific accounting entries for the particularly period 30th June 2015. Moreover, the assessor is also not permitted to undertake assessment of own work.
Different measures that can be implemented for maintenance of independence of auditor are as follows:
Rotation of specific audit partners – Pizzini et al. (2014) opines that rotational scheme of major partners removes the risk of familiarity as well as self-benefit and this can help in promoting objectivity without substantial cost.
Establishment of Effectual audit committee– establishment of effectual audit committee can be considered to be a vital tool for maintenance of independence of auditor (Malaescu and Sutton 2014).
International consistency with independence requirement of assessor– the independence of assessor can be essentially strengthened by use of robust as well as strong ethical standards such as Auditing standards as well as different code of ethics.
Oversight of specific independent assessor – An assessor, who is necessarily independent can control, regulate and contribute substantially towards quality of audit as well as independence (Malaescu and Sutton 2014).
Handling of risk can be considered to be a vital component of management of particularly spare-parts inventory. Majority of corporations comprehend the fact that there are different risk management factors. This factor helps in analysis of risk and assumption of important steps for mitigation of risks in companies. Nevertheless, this analysis are essentially restricted to reputational risk, commercial risk as well as risk associated tom safety as well as health (Pizzini et al. 2014). In addition to this, there might be downtime risk that in turn can lead to specifically financial loss and majority of the organizations do not essentially consider process of execution of technologies associated to risk management of particularly spare management. The two different risk related to buying of spare parts as well as equipment that essentially Cramption and Hasad need to take into account whilst planning the process of audit are operational risk as well as strategic risk.
Strategic risk that is essentially involved with management of inventory of specific spare parts is essentially regarding the manner the company can manage the stock of different spare parts (Khlif and Samaha 2014). Organizations might carefully choose to be ad-hoc and this implies that expenditure of items on the purchase, usage of no strategy that are essentially formal and involve experienced managers to provide their judgement on different procedural factors.
However, operational risk is essentially not the risk that can be linked to the operational downtime. Essentially, this operational risk can be regarded as the risk that can be associated to the manner a selected approach can be implemented (Khlif and Samaha 2014). Majority of the corporations devise strategic management policies appropriately, but find it difficult to implement the same effectually. For example, corporations might implement a particular policy for the purpose of stocking for arriving at decisions linked to standardization. Corporations that cannot manage the operational risk by proper implementation of the approaches face problems in management of inventory.
As rightly indicated by Khlif and Samaha (2014), the risk that can be linked to strategic risk is essentially the inherent risk that essentially occur owing to omission or else error in different financial declarations as a consequence of facets other than control problem. This inherent risk is necessarily the risk of material misstatement in financial pronouncements and this risk stems at the time when the nature of the business transaction is intricate or else the circumstances call for the need of superior judgement for financial forecasts. Essentially, the inherent risk exerts influence on inventory balance as well as the account receivables (Simon et al. 2014). In case of certain accounts, there are business transactions that are highly related to inherent risk, for instance, the risk associated to management of the inventory of firms. In addition to this, inherent risk also influences the accounting balances based on different classes of business transaction. Again, the risks that can be linked to operational risk can be considered as the detection risk (Simon et al. 2014). However, in case of the detection risk there exists a possibility that the assessor might possibly not be able to detect material misstatement that can be related to financial declarations of corporation by means of evaluation as well as substantive test processes. However, detection risk are expected at the time when assessor does not execute accurate procedures or else processes are not utilized properly. Again, the detection risk also exerts great deal of influence on specifically accounting balance and this is essentially beyond the appraisal of the accountant. However, this can exert influence on accounting balance founded on business transaction as well as the amount involved with business transaction (Khlif and Samaha 2014). Primarily, the accounts that are more vulnerable as well as susceptible to different types of risks are essentially purchase account, revenue account, inventory and sales account.
References
Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and audit: does this equal security?. In Proceedings of the 7th International Conference on Security of Information and Networks (p. 77). ACM.
Homb, N.M., Sheybani, S., Derby, D. and Wood, K., 2014. Audit and feedback intervention: An examination of differences in chiropractic record-keeping compliance. Journal of Chiropractic Education, 28(2), pp.123-129.
Khlif, H. and Samaha, K., 2014. Internal control quality, Egyptian standards on auditing and external audit delays: Evidence from the Egyptian Stock Exchange. International Journal of Auditing, 18(2), pp.139-154.
Malaescu, I. and Sutton, S.G., 2014. The reliance of external auditors on internal audit’s use of continuous audit. Journal of Information Systems, 29(1), pp.95-114.
Pilcher, R., Gilchrist, D., Singh, H. and Singh, I., 2013. The interface between internal and external audit in the Australian public sector. Australian Accounting Review, 23(4), pp.330-340.
Pizzini, M., Lin, S. and Ziegenfuss, D.E., 2014. The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), pp.25-58.
Pizzini, M., Lin, S. and Ziegenfuss, D.E., 2014. The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), pp.25-58.
Simon, A., Yaya, L.H.P., Karapetrovic, S. and Casadesús, M., 2014. An empirical analysis of the integration of internal and external management system audits. Journal of Cleaner Production, 66, pp.499-506.
Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal, 30(1), pp.80-111.
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