The circumstance which has been detailed in the case study depicts that there exists the threat of promotion. The existence of this type of threat has been evidenced by the condition given by CEO of the company to the partner of the audit firm in the way that if he is able to promote the company in the travel agency seminar conducted by the industry in relation to the products and services offered by the company to its customers. Otherwise the audit firm will be terminated from the engagement of the auditor ship of the next period.
The evaluation of this type of threat is done by evaluating the extent to which the auditor accepts the offer of the CEO of the company (Edwin, 2015).
The circumstance which has been detailed in the case study depicts that there exists the threat of self interest. Self interest includes both the financial as well as the non financial interest. The existence of this type of threat has been evidenced by the offer that the CEO of the company has given to the audit firm (Barizah, 2016). He has offered the fourteen days family package tours will all the luxuries which are totally free of cost. Further the offer has been extended to the members of the audit team.
The evaluation of this type of threat depends upon the nature of interest and how far the auditor overlooks the flaws or discrepancies noticed during the audit only because of the interest created by Chris.
The circumstance which has been detailed in the case study represents the clear indication of presence of the threat of mutual trust. The presence of this type of threat has been evidenced by the fact that the Finance Controller of the Company is related to one of the member of the Audit Team. This interprets that if there is any apparent mistake in the financial statements the audit team member will not report the same in the Management Report.
The threat in this situation will be evaluated on the basis of nature and extent of mistake that has been corrected by Audit Team Member in conjunction with his Father who is the Finance Controller of the Company. Also, the threat will be evaluated on the basis of the nature and type of the relationship the audit team member has with the officers and directors of the Company (UK, 2013).
The circumstance is in this case is that one of the Audit Team members has already been worked in the company for the one full month for the matters not covered under Audit i.e. related to Taxation and Accounting work. The situation evidenced that the threat of self review is present in the given situation in complete manner. There may be high chances of getting the flaws cleared at the lower level without informing the audit partner. This is so because the audit member has already done all the work and is in the process of self reviewing and will always deny accepting her flaws (Parker, 2015).
The evaluation of this type of threat will be made on the basis of the extent of materiality of the flaws or discrepancy so rectified by the audit team member.
Safeguards or Precautions are the methods which are employed by the Auditor to reduce the threats identified in any audit situations. The precautions help the auditor to plan and perform the audit in effective and efficient manner and give reporting on financial statements in true and fair manner. The precaution which has to be taken by auditor has been led as follows:
The threats in the identified circumstances can be prevented by following the different precautionary methods available to auditor. The precautions are as follows:
Before planning and form of audit, the auditor has to prepare the audit plan along with the audit checklist which will help the audit partner and the audit team to conduct the audit in an efficient and effective manner. To prepare the audit plan and the checklist the audit firm has not only to look after the compliance with the auditing and accounting standards but also have to consider the business risks that the company is facing and how the same will affect the financial position and performance of the company if the same has been incurred. Following are the business risks that have been identified in relation to the purchase of equipment by Mining Supplies Limited:
Basis of Purchase – Loss in Transit – Mining Supplies Limited purchases the equipment from the overseas suppliers who are located across United Kingdom, United States of America and China. The company has been dealing with these companies form the inception of the company. While making the purchases, as per the procedure given in the case study, the company has not specified to the supplier that who will be responsible for the stock loss in case the loss has been incurred in the period from the equipments shipped from outside Australia and till it reaches the custom barriers of the Australia and enters into its territorial waters. Therefore, as per the concept of prudence, in case of absence of information the auditor shall consider that the loss will be borne by the company and not the suppliers and the same shall be included in the audit plan of the year under audit and the auditor shall modify his check list accordingly (Imrie, 2011).
Manufacturing Defect – Risk of replacement– The second most important risk that will be faced by the company will be the risk of replacement of the main equipment. The need of analyzing this type of risk has originated from the very fact that in case the manufacturing defect or any other defect related to the main equipment is noticed by the customers then the same cannot be replaced with Mining Supplies Limited. It is because company is not providing the replacement of the main equipment rather only providing the warranty for two years for the spare parts and one year free maintenance service. Therefore, the auditor shall consider the same while defining the audit plan as it may hurt the going concern assumption of the company (EY, 2016).
After examining the business risk that is being faced or will be faced by the company, the next step for every auditor is to plan for the audit risk as defined by the auditing and assurance standards and only after defining the same in the audit plan and the audit checklist the audit shall be started. Along with the defined audit risk the account balances which can be easily affected by the risk shall be identified and included in the audit plan and the audit checklist. Following are the identified audit risk in relation to each business risk:
Due to this form of inherent risk, many account balances may hamper. One of such account balances is stock in hand and stock in transit. The valuation will also be hampered as the loss of stock will have to account for in the books at purchase cost plus the cost of duties and paid taxes.
The account balances that may be affected are the Provisions, Accounts Payables and Accounts Receivables and its valuation.
References
Becker E, (2015), “Audit Risk vs. Business Risk”, available at https://www.osyb.com/blog/small-business/audit-risk-vs-business-risk/ accessed on 28/04/2017
Barizah N, (2016), “Threats to Auditor Independence”, available at https://www.academia.edu/260449/Threats_to_Auditor_Independence accessed on 28/04/2017
Edwin M, (2015), “Analysis of Threats to Auditor Independence and Available Safeguards against those threats”, available at https://www.academia.edu/9406967/THREATS_TO_AUDITORS_INDEPENDENCE accessed on 28/04/2017
EY, (2016), “Top 10 Business Risks”, available at https://www.ey.com/Publication/vwLUAssets/EY-business-risks-in-mining-and-metals-2016-2017/%24FILE/EY-business-risks-in-mining-and-metals-2016-2017.pdf accessed on 28/04/2017
Imrie B, (2011), “Business Risks facing the Mining Industry”, available at https://www.in.kpmg.com/SecureData/ACI/Files/Top_20_Risks_the_Mining_Industry.pdf accessed at 28/04/2017
Livine G, (2015), “Threats to Auditor Independence and Possible Remedies”, available on https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full accessed on 28/04/2017
Long G, (2015), “Audit Risk and Business Risk”, available at https://www.cpaireland.ie/docs/default-source/Students/Study-Support/P2-Audit-Practice-Assurance-Services/audit-risk-and-business-risk.pdf?sfvrsn=0 accessed on 28/04/2017
Parker A, (2015), “6 Key Threat to Auditor Independence”, available on https://www.intheblack.com/articles/2015/01/06/6-key-threats-to-auditor-independence accessed on 28/04/2017 Essay.” Available at https://www.uniassignment.com/essay-samples/accounting/threat-to-auditor-independence-accounting-essay.php?cref=1 Accessed on 28/04/2017
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