1. As per the principles of International Auditing and Assurance Standard Board, there are certain guidelines for using the work of an expert in the process of auditing of financial statements. Thus, this board has mentioned about certain dimensions and the auditors are needed to take into consideration these aspects before identifying the material mistreatments in the financial reports of the business organizations (Pitt, 2014). In this situation, one of the major aspects is that the use of acquired information in the audit process. The auditors are required to use obtained financial information at the time of planning the audit process. In order to use the obtained information optimally, the auditors are required to possess three major traits; they are competence, capability and objectivity (Johnstone, Gramling & Rittenberg, 2013). It needs to be mentioned that there are certain aspects that are auditors are required to take into consideration. They are discussed below:
First, at the time of planning the audit procedures, there is a need for the determination of requirement of the audit experts along with the specialized expertise of the audit experts for obtaining sufficient audit evidence.
Second, it is the responsibility of the auditors to examine the organizational issues related to taxation and compliance (Owen, 2013).
Third, the auditors are required to express their expert opinion at the time of the valuation of organizational assets like plant, machinery, equipment and others. In addition, they are also required to assess the liabilities of the companies.
Fourth, auditors are also required to assess the organizational liabilities having their association with insurance and employee benefits.
There is a legal obligation on the audit experts for the derivation of sufficient audit evidences when they are auditing the non-accounting. In addition, it is the responsibility of the assessor to ascertain that whether or not the service of an audit expert is required. For this reason, the auditors should be capable, competent and objective in case their service is required for the companies (Byrnes et al., 2015). For the external auditors, it is necessary for them to possess competence, as it is necessary to determine the degree and nature of audit expertise. In addition, the audit experts should have the ability to recognize the audit problems in different disciplines. The objectivity principle states that some of the major factors like favoritism, interest conflicts, influence and others can affect the audit opinion. In case the auditors express their opining in the matters other than subject matters, their point of view will be considered as useless.
In case of the DIPL, the following situations require the work of an audit expert:
|
Issues |
Required Revision for Audit |
|
Inventory and Purchase of Inventory obsolescence |
After the analysis of the case of DIPL, the inventory and purchase of inventory obsolescence was presented from the previous year so that expected decline in the value of inventory can be covered along with the shortage of value. Hence, it is essential for DIPL to use the work of an audit expert in order to determine the value of inventory (Chambers, 2014). |
|
Depreciation of Fixed Assets |
The analysis of the case study of DIPL shows that the company uses to charge depreciation on the fixed assets on straight-line method. In this process, it is required for the company to calculate the amount of impairment. Thus, in order to achieve the objective of determining depreciation along with impairment value, it is essential for DIPL to undertake the expertise of an audit expert. Auditor’s opinion will help DIPL to ascertain the correct amount of deprecation along with impairment (Vasarhelyi et al., 2012). |
2. Materiality is considered as a major factor for the companies as it has the ability to affect the fair representation of the financial statements by complying with all the required accounting standards either separately or together. After the analysis of the financial statements and the case study of DIPL, it can be observed that there are five major factors in the financial statement of the companies that have the ability to affect the overall materiality of the company. In addition, all these five factors can influence the preliminary number of overall materiality of the company. In general, the occurrence of material misstatement can be seen from different kinds of errors and frauds in the financial statements of the companies. It needs to be mentioned that either the errors are done by mistake or they are done on deliberate basis.
Following discussion shows the discussion about five major factors having effect on the overall materiality of DIPL:
|
a. Factors |
b. Explanation |
c. Description |
|
Fraud Risk: In case of DIPL. The risk of fraud can be considered as a major factor having effect on the materiality of the company. The case study of DIPL shades light on the fact that the board of DIPL created immense pressure on the company’s business operations and this happened around the installation of new accounting system with the help of IT department (Asare & Wright, 2012). This whole process has exposed to DIPL with different fraud risks that can lead to immateriality. Thus, it can be seen that fraud risk can affect the materiality. |
The occurrence of different errors can be seen at the time of the collection of financial information for preparing various financial statements. Thus, the origination of irrational accounting projections can be seen from miss-representation of accounting factors. In addition, at the time of the application of different types of accounting policies related to valuation, classification and other methods, various accounting errors take place (William Jr, Glover & Prawitt, 2016). Thus, fraud refers to different flatulent activities that lead to material misstatements. In this case, considering the viewpoint of an audit expert can ease the companies in taking appropriate actions against frauds. |
In case of DIPL, mismatch can be seen among the administration of IT department and the installation of new accounting system. Earlier discussion indicates immense amount of pressure on the employees regarding reconciling and assessing the adequacy of new system. |
|
Risk related to Accounting Policies: The case study of DIPL shades light on the fact that the company uses average cost method for the determination of the value of raw materials and the method of average costs cannot be considered as appropriate method for DIPL. This method is not appropriate with the accounting system of DIPL. The main reason is that the undervaluation of the current cost of paper can be seen under average cost method (Toy & Hay, 2014). Thus, negative influence can be observed on the inventory of the company and an assertion of audit expert can be brought by stating the ineffectiveness of current used method. |
Inherent risk factors are considered as the major factors for the materiality of the companies. In case of the management of DIPL, lack of integrity and objectivity can be seen. For this reason, the financial position of the company can be impacted by material misstatements and may provide the users with misleading financial information. |
The process of inventory valuation with average cost method is considered as inappropriate. Hence, the overall accounting process of DIPL can be affected with inappropriate accounting assumptions or inappropriate valuation mechanism. Thus, this whole process can affect the process of auditing in the company (Nuijten, Twist & Steen, 2015). |
|
Environment Factor Risk: at the time of the preparation of financial statement of DIPL, the management of the company omitted some of the transactions either deliberately or by mistake (Moroney & Trotman, 2016). This particular aspect leads to the inconsistent planning process of the company related to marketing and selling activities. In addition, the management of DIPL failed to take into consideration the effects of various macro as well as micro economic factors on their business like poetical, social or economic factors. Thus, these environmental factors create major influence on the materiality of DIPL as it can lead to inconsistent and inappropriate financial planning. |
From the side of the employees, various fraud activities can be noticed due to the growing pressure from the board for the implementation and execution of the new accounting system. This aspect can create impact on the financial information of the company. As a result of this, the financial reports of the company can be affected along with materiality (Knechel & Salterio, 2016). |
The incorrect method of financial reporting in DIPL can be seen from the inability of the company’s management to consider major macro and micro economic factors along with the missing of major financial transactions in financial reporting. Due to this, the users of the financial statements will not be able to judge the true and fair picture about the financial health of DIPL. This whole aspect can affect the materiality of the company along with audit planning process. The auditors will be helpful in their audit planning process in case they are provided with true and fair financial information. |
|
Process to Appoint the CEO: In DIPL, the process of appointing CEO in DIPL is a complicated process. It needs to be mentioned that the process of appointing the new CEO along with the transition of the old CEO by William Jackson has not been done by complying with requisite schemes. The process of appointing the CEO has been done after the due date and this particular aspect exposed the employees of DIPL to certain risks. Most importantly, this inappropriate appointment of CEO can affect the audit planning process of the external auditors (Hayes, Wallage & Gortemaker, 2014). |
It needs to be mentioned that the lengthy process to appoint the CEO jeopardizes the transparency of the company and this aspect has negative effect on the organizational decision-making process. Thus, it results in material misstatement for the organization. |
Earlier discussion shows that the complex as well as lengthy process of appointing the CEO creates negative impact on the materiality of the company. In addition, this aspect also exposes the employees of DIPL to certain business risks. Thus, the company is required to make effective strategies to avoid this situation (Engel, 2014). |
|
Process to Record Cash Receipts and Expenses: One major factor related with the materiality of DIPL is the process of recording cash receipts along with the expenses. The case study of DIPL shows the fact that the company accepts a large portion of their expenses with the help of electronic system. With the help of this system, the accountants of DIPL was able to book keep the cash receipts by downloading them from the mails (Coetzee et al., 2014). In this context, it needs to be mentioned that there is a need for consistency so that the recording process can be done on frequent basis and can be executed at the end of the month. Apart from this, revenue derivation by DIPL from e-book marketing, republishing and printing can create influence on the overall materiality of the company. |
The case study of DIPL states the fact that the adopted bookkeeping process for the valuation of raw materials can affect the materiality of the company. On the other hand, the adopted accounting process by DIPL for determining the value of raw materials helps the users in comprehending the true and fair financial picture of the company can also influence the materiality of the company. In addition, the inability of the management to integrate the major environmental factors with the financial factors can be considered as major factors for overall materiality of the company. All these factors can influence the auditing process of DIPL. |
The process of maintaining the expenses with the help of electronic system can have major influence on the accounting transactions of the company along with the presentation of the statement of reconciliation. Thus, the inability of the management of DIPL to consider the major environmental factors can become a major factor for the collapse of the whole accounting system. Thus, this aspect can influence the overall presentation of financial statements of the companies. For this reason, this aspect can affect the overall materiality of the company. In this context, the auditors may not be able to express their audit opinion correctly (Arens et al., 2016). |
References
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2016). Auditing and assurance services. Pearson.
Asare, S. K., & Wright, A. M. (2012). Investors’, auditors’, and lenders’ understanding of the message conveyed by the standard audit report on the financial statements. Accounting Horizons, 26(2), 193-217.
Byrnes, P. E., Al-Awadhi, C. A., Gullvist, B., Brown-Liburd, H., Teeter, C. R., Warren Jr, J. D., & Vasarhelyi, M. (2015). Evolution of auditing: from the traditional approach to the future audit. Audit Analytics, 71.
Coetzee, G. P., Du Bruyn, R., Fourie, H., & Plant, K. (2014). Internal auditing: an introduction. LexisNexis.
D. Chambers, A. (2014). New guidance on internal audit–an analysis and appraisal of recent developments. Managerial Auditing Journal, 29(2), 196-218.
Engel, C. J. (2014). A Primer on the Condition of the Accounting and Auditing Profession. International Journal, 2(2), 129-133.
Hayes, R., Wallage, P., &Gortemaker, H. (2014). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.
Johnstone, K., Gramling, A., & Rittenberg, L. E. (2013). Auditing: a risk-based approach to conducting a quality audit. Cengage learning.
Knechel, W. R., &Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
Moroney, R., & Trotman, K. T. (2016). Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research, 33(2), 551-575.
Nuijten, A., Twist, M., & Steen, M. (2015). Auditing interactive complexity: Challenges for the internal audit profession. International Journal of Auditing, 19(3), 195-205.
Owen, G. (2013). Integrated reporting: A review of developments and their implications for the accounting curriculum. Accounting Education, 22(4), 340-356.
Pitt, S. A. (2014). International standards for the professional practice of internal auditing.
Toy, A., & Hay, D. C. (2014). Privacy auditing standards. Auditing: A Journal of Practice & Theory, 34(3), 181-199.
Vasarhelyi, M. A., Alles, M., Kuenkaikaew, S., & Littley, J. (2012). The acceptance and adoption of continuous auditing by internal auditors: A micro analysis. International Journal of Accounting Information Systems, 13(3), 267-281.
William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic approach. McGraw-Hill Education.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download