Auditing Theory and Practice Auditing and Assurance Services

Question: Discuss about theAuditing Theory and Practicefor Generally Accepted Accounting Principles. Answers: Introduction The auditing is considered as a methodology that helps to verify the various accounts of an organization. As per Messier (2016), the auditors generally take the responsibility to plan and perform the auditing procedure by the process of complying the necessary rules, policies, doctrines and regulations of the GAAP (Generally Accepted Accounting Principles). According to Coad et al. (2016), the auditors usually issue two different types of audit reports and these include unqualified and qualified reports of audit after the performance of the audit procedure of a firm. The viewpoint of a qualified auditor indicates that the extent of a provided accounting as well as financial information is limited. Moreover, it can be said that the particular organization has not been compiled with the principles of the GAAP efficiently. On the other hand, it has been found that the unqualified kind of audit report presents the financial and accounting records of a firm with appropriateness. Thus, it is important for the auditors to maintain the varied factors during performance of the audit operations. At first, the auditors should uphold their simplicity at the time of evaluation of the fiscal declarations. Secondly, it is an important factor for the auditors to consider the various factors related to the monetary situation of the organization into an account. The reason behind this is that it might affect the decisions of banks regarding their investments; moreover, this might also affect the decisions of investors and financial institutions. On the basis of the case study, it can be said that the particular report on auditing was unqualified, especially after the duration 30th of June of the year 2012. The audit report of the King Queen audit firm implies that the Impulse Pty Limited had an effective operation during auditing. It has been noted that the particular firm was suffering due to extreme problem of liquidity, as the firms inventory turnover and the turnover of debtors were poor. Based on this it can be said that the particular firm had lesser amount of liquid assets (Broberg, Umans and Gerlofstig 2013). The King Queens auditor were aware of the matter but sufficient priority should also be provided to it. Therefore, effective measures have not been used for gauging accurate asset values. Additionally, the supplementary procedure that is generally required for ascertaining the inventory valuations and debtors of the firm have also not been considered here. On the basis of unqualified report of audit, the firm Easy Finance Limited (EFL) has granted huge quantity of loan to the Impulse, while the report portrays the firms effective liquidity condition. Nevertheless, it has been found that in the year 2012, the liquidity situation of the particular organization dropped down and the EFL suffers for recovering the loan amount that has been provided. This denotes the negligence of the auditors responsibility case, where the auditor failed to take the important factors regarding the fiscal situation of the firm into account; especially those provide issues in order to recover the total amount of loan. Some of the identical cases are as follows: Firstly, as per the result of the case Hedley Byrne and Co Ltd v Heller and Partners (1964) AC 465, the report of the auditors might influence the process of making decision directly. Thus, here the negligence of the auditors has been found to affect the audited party notably. Secondly, a case named Law Society vs. KPMG Peat Marwick and Others; CHD 3 NOV, 1999 has been considered and from this it has been found that the auditors of the auditing firm consider that the compensation fund as well as the community depend on the decisions of the auditors. Moreover, it has been noted that the auditors negligence delays the process of discovering the accounting malpractices and this has increased the expense. Thus, on the basis of the depicted factors, the auditors are considered responsible for ignoring their professional responsibility (Kogan et al. 2014). Therefore, based on above two cases, it can be said that negligence in the professional responsibility might be considered as a serious offence for an auditor and thus, the organization King Queen is considered as answerable to EFL. As per the rules and regulations of the Generally Accepted Accounting Principles, it has been determined that the audited party as well as the auditor requires maintaining confidentiality. Thus, as per the policy of confidentiality, an auditor is incapable to unveil any kind of information that is associated with the auditing of a firm. In addition to these, it has been found that in certain cases, the auditors are not able to disclose any kind of information that is associated with the third partys internal audit.Opined to the given case study, it can be said that there are two scopes firstly, a particular circumstance where an auditor is capable to divulge the information related to the internal audit of a third party. Moreover, the process of making decision regarding the investment is very dependent on the auditors report. Thus, the company King Queen is considered as accountable to the EFL. The reason behind this is that the earlier was trained to divulge the internal situatio n of the firm to the investors, financial institutions and banks (Porter, Simon and Hatherly 2014). In addition to this, based on the detailed study, it can be said that the given case on the firm King Queen has not revealed any type of information that is related to any financials to the third party and this has helped the firm to deduce its total quantity of liability to the EFL. The reason behind this is that it might violate the regulations and rules of GAAP regarding the disclosure of any financial information related to internal auditing. Therefore, the liability of the audit firm King Queen towards the EFL has been reduced and this has resulted into two different kinds of situations, where the answer might differ on the basis of the permission of the audited third party. According to Vasarhelyi et al. (2012), the independence of the auditor is referred to the particular independence that is provided to the external or internal auditors of the firm from the perspectives of all those parties who are associated with the businesss financial interest. The sovereignty of the companys auditor might be characterized by the help of integrity as well as objective approach to the procedures of auditing. This serves the approach of auditing to the procedure of auditing and this is featured by the help of integrity. Moreover, it can be said that the concept regarding independence needs the auditors for carrying their work in a purpose way. Authentic Independence Opined to Wang et al. (2013), the actual independence is termed as real independence. This is considered as the mind independence. Moreover, this is regarded as the ways by which the auditors deal with the particular circumstances. In addition to this, it identifies the auditors ability to consider the independent decisions when these are kept in a negotiation situation on the portion of the companys directors. Additionally, the mental attitude as well as the personal integrity of an auditor helps him to identify if the auditors are genuinely independent or not. The auditors decision regarding the fiscal declarations of the firm is priced by the method of maintaining the standard of the real independence. Distinguished Independence The auditors perception in the field of solving and tackling the issues that are related to the process of auditing is considered as the perceived independence. It can be said that the auditors might make utilization of various perceptions in order to resolve the issues that might assist to get an optimal solution. Moreover, the judgment of the apparent independence might not be done with the help of utilization of any specific procedure as the concept generally differs from one auditor to another. Therefore, it can be said that there is a high probability that might lead to cause material misstatements at the duration when the asset valuation of a particular firm is conducted (Hayes, Wallage and Gortemaker 2014). As all the arrangements are considered in a various way by which the users have various perceptions and due to this, the professional judgment requires to come to the front. Moreover, the auditors especially who face various troubles regarding the perceived independence are required to count the materiality. This is chiefly considered as the independence of the companys auditors by the third parties and from the viewpoint off the customers who participate in the arrangement of the procedure of auditing. As per the provided case study, it can be said that in the first case, Bob performs two tasks simultaneously. Therefore, at the time of studies in the University, Bob worked as an audit assistant in an organization named Club Casino. Therefore, he requires to finish the assignment of the university and during the period of conducting audit, Bob obtained various financial information that helps to serve assistance during the completion of the assignment. It has been found that in this case, Bob used the companys internal information for his personal cause. Thus, it can be said that Bob breached the principle of confidentiality. Moreover, he breached the principle of integrity and as an auditor himself; he should maintain both the confidentiality and integrity at the time of conducting the process of auditing. In addition, Bob should keep the confidentiality of the data and information, as he is an auditor and should not disclose it or utilize all the fiscal information for his persona l cause without the permission of the authority. The second case is regarding the company Ace Limited, whose audit partner is Wendy. It has been found that in the absence of company secretary, Wendy performed all the duties of a company secretary for long six months. The particular organization should run its business as per the rules and regulations, but it breached the rules of GAAP (Eilifsen et al. 2013). The reason behind this is that as per GAAP, the audit partner of a firm cannot carry out any responsibility of a member of board of directors. Thus, this act is considered as a chief offence in the profession of auditing. Thus, it can be suggested that Wendy should put his resignation from the position of company secretary. As per the third case, Leo is the eldest son of a factory labor. During vacation, he was assigned to the factory Precision Machinery Limited as an internal auditor. In addition to this, more responsibilities were assigned to him and these include payment of cash systems and internal control testing that are related to the operations of the firm (Porter, Simon and Hatherly 2014). Therefore, it can be said that this has resulted into breach of rules regarding auditing, as acquaintances of any employee of a firm cannot be assigned as an audit partner of the similar institution. However, there are mainly two measures by implementing which breach of rules can be protected. These include Leo should give resignation from the position of internal audit or his father should resign from his designation. Thus, by adopting any one of the alternatives, the particular organization will be able to comply its operations with the procedures and regulations of audit. According to the fourth case, Classic Reproduction Pty Limited has Chan Associates as auditors. Since the firm has failed in settlement with Chan Associates regarding its fees (past 3 years), the company has passed through various financial difficulties. Thus, for settling off the dues, the firm has served with various furniture i.e. value 50 % of the exceptional fees of Chan Associates. Additionally, latter obtained 25% of the total shares of unconnected listed organization for recovering the left out part of the fees from the organization Classic Reproduction Pty Limited. As per rules of auditing, auditors cannot admit bribes as a substitution of their fees and cannot accept any shares from unlisted firms and it indicates breach of principle (Arens, Elder and Beasley 2012). Thus, Chan Associates are needed to return all furniture that they have taken and also the shares achieved from Classic Reproduction Pty Limited. References Arens, A.A., Elder, R.J. and Beasley, M.S., 2012.Auditing and assurance services: an integrated approach. Prentice Hall. 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