The main responsibility of an auditor is to abide by the generally accepted standards of auditing when any company comes to them for getting their audit done. In that way, auditor independence dedicates towards the independence of either internal auditor or external auditor who have the initial financial interest in trade activities where they need to audit the financial statement of companies by using fair means of auditing standards. Here, independence is all about integrity and objectivity while dealing with the audit process for business organization. Auditors should be working independently for the client company and decide the best audit opinion without getting emotionally attached with the company or any other parties. Auditors should be providing unbiased and honest professional audit opinion as the company trust them and expect proper solution to the problem faced. The auditors conduct audit for the client company after studying the financial statement of that business and explaining it to the shareholders as well.
The first situation deals with non-audit services that need to be rectified on urgent basis. Here, the services are offered to the auditor by the firm that is not acceptable as the auditor can only take their fees and nothing else from the client. There are different categories of audit services that are named as tax related services, client promotion and management services. In that case, the auditor is offered these non-audit services and that act as an additional income or non-monetary advantage for them. Auditors should not be involved in taking non-audit services from the client as that will result in independence impairment at the time of providing services to the client.
The second situation deals with monetary and non-monetary benefits. In that case, it is noted that independence of an auditor gets threatened by use of monetary and non-monetary benefits. It is because these benefits are unethical and auditors should not take it by any means. The reason behind that is the above-mentioned benefits are in addition to the prescribed fees that are initially paid to the auditor when they are start auditing for the given business firm. In most of the cases, it has been noted that some auditors are taking up benefits that are not mentioned in the audit agreements or engagement ad this hugely affect the independence of an auditor. As far as the current situation is concerned, the client actually offered a holiday package benefits and gave to the members of the audit team. In that case, if the members of the audit team plans for accepting the offer, then it leads to auditor independence because the auditor will be then using the extra non-monetary benefits from the clients. In addition, it becomes a case of threat to independency of an auditor as the auditor takes the extra benefits and makes a change in audit opinion in favor of the client.
The third situation deals with identifying the close family members of the auditor. Here, it known that auditors spouse, dependent, parent are termed as close family members. Furthermore, fiscal interest includes debt assurance, long-term securities or short-term securities and possession that are owned by the person that connects with the persons through intermediary. In other words, when an individual comes up to participate or supervise in actions at the time of undertaking investment decisions so it has a control over the intermediary. In that case, the father of the proposed accounting can be the financial controller of trade activities. Nevertheless, if Michael accepts the offer that he will be part of the audit team, them it will give rise to auditor independency.
The forth situation deals with maintaining cordial relationship with the client, employees, officers and directors. These person associated will be getting influenced by the risk pertaining in business environment where the potential client undertakes the viable actions as and when required. It is required for the auditor to remain patient and sympathetic while working with the client. It is needed to maintain positive relationship between the clients so that they can build high level of trust as well as involve in data representation. It is the auditor who have the necessary information as they had already worked with the previous client and bee a part of LTH.
It is necessary to note the fact that there are several forbidden services that are offered by the clients to the auditor who gets the services and that leads to compromising over their independence largely. In that case, there are wide varieties of reasons that need to be taken into consideration at the time of enhancing the independence of an auditor.
Rotation of audit partners can be termed as one of the major measure that is applied as and when required. It is the case when auditor needs to engage in activities after minimizing the danger that caused over knowledge as well as sincerity. This act will be a reason where auditor may be losing up their courage for acting independently without much of substantial cost. Furthermore, it is required in gaining the knowledge on several attributes like historical cost as well as institutional cost as it is needed for the audit team members for getting clear indication of maintaining high quality of audit.
It is necessary to have an effective audit committee in business so that they will be maintaining high level of transparency at the time of offering audit opinion. In that case, this action will be considered as a popular tool where the audit independence cannot be hindered by any chance. Business organization need experienced and qualified auditors who can provide best audit opinion with usage of adequate resources that is available and obtainable to the public.
An auditor should be able to work in a regulated environment where they can easily try to maintain high quality audit in their audit opinion. An auditor should not be involved in any of the political affairs or act biasness in their audit opinion. An auditors needs to be transparent and represent true and fair audit opinion to the probable client. They should maintain confidentiality of data that are shared by the business organization while conducting the audit.
An auditor has to abide by the ethical standards that are mentioned in the Auditing Standards and Code of Ethics. They have to follow the International set of high quality independence as well as the given auditing ethical standards in order to reduce the level of complexity that are present in a given audit process.
Risk needs to be managed that arises from spare-parts inventory. It is needed to manage the stock as it is otherwise poorly taken care of and require urgent attention by the business organization. Furthermore, business firm should be taking care of business matters that connects with the risk management factors and undertake important steps where the risk can be minimized as far as possible. The business organization identifies various risks that include health and safety risks, commercial risk and reputation risk. As far as downtime risk is concerned, it takes into account the risk that is present from financial loss when the business fails to adopt any of the innovative technologies. It is needed to purchase spare-parts as well as equipment that come under two main types of business risk that should be maintained at the time of conducting audit plan and process.
Strategic is the first risk that is mentioned and is not connected with the strategies that are adopted by business firm. The risk undertaken actually takes into account the scenario where it need to decide upon the correct procedures of what is right or wrong. This particular risk takes into account managing of the spare-parts in the best possible way. It is thus significant to assess the different policy so that the trade association can evade the prospect credible losses and guide to smooth performance of trade project. It is renowned that the trade activity decides on the ad-hoc services where the activity spend on the objects so that they can buy and there is no specific official strategy that can be used or apply in this given situation. It is important for any association to employ knowledgeable supervisor who can give accurate decision on each day issues that takes place at workplace. Furthermore, spare parts stock need to be managed by the association through spending more on monetary organization behavior. Therefore, it is necessary for any trade association for spend in funding for managing the stock that share to probable loss. It is the downtime loss should be taken into contemplation the gets connected to the way for treatment the risk during use of large quantities purchase for future analysis purpose. It is the role of business organization to apply the ad-hoc approach where they can execute the requisite policy at the accurate time.
Operational risk is the second risk that is mentioned and directly connects with the operational downtime where the risk is dedicated to the implementation of given approach at an executive level. It is the business organization who needs to plan for proper strategic management approach and ways to execute it as and when applicable. The business organization or management should plan for innovative policies ad plans so that they can stock up the inventory and there is no shortage or excess of inventory situation faced in any case. It is actually impossible to avoid risk in a business; rather efforts can only be made for reducing it to the extreme.
There are several risks associate in the audit process and termed as inherent risk. Inherent risk can take place when there is any omission or error that can be identified in the financial statement of any business organization. This give rise to various factors that needs to be taken into account after making comparison for controlling over the failure. Transaction made in the process are pretty much complex when it comes for implementing due to its nature of transaction as it need high level of judgment at the time of making the financial projections. Risk are associated that links with the impact that has on the balance that happen between the account receivables amount. It happens that account receivable indicates transactions that get linked with the inherent risk in relation with control over the inventory management. It is essential for the management to take into account all the accounting balanced that depends upon the transaction classes.
Contrasting to inherent risk, there is other risk that is detection risk which is taken into account by business organization. In some situation, it is noted that auditor makes mistakes and skip out some figures or figures are misstated in that case as mentioned in the financial statements. It is the business organization who involves in performing the examination as well as conducts substantive test process that help in the operational activities for future analysis purpose. It is detection risk where the auditor fails to find any type of errors while conducting the audit report. It is responsibility of the auditor to view at the risk after making the examination of accounting balances as well as informing the accountant during the audit. All the activities thereby largely affect the balances that are present in the accounting transactions. There are several risk associated to susceptibility that connects with some of the accounts like purchase, sales, inventory and revenue.
Reference List
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