Auditing Protect Public Interest

Question: Discuss about the Auditing for Protect Public Interest. Answer: Part- A ASA 700 is an auditing standard that is issued and offered by the Auditing and Assurance Standard Board in order to protect public interest. This standard means forming an opinion and reporting on the financial statements of a company that are in accordance with regulatory and essential requirements together with their provisions. It is equivalent to ISA 700 and considers an auditors roles and responsibilities while establishing an opinion and reporting on the companys financial statements (Azim, 2013). The key requirements of ASA 700 are: Formation of an opinion on the financial statements Whether the companys financial reports are prepared in accordance with the statutory frameworks or not, ASA requires such opinion. Formation of opinion Here, an auditor is bound to form an opinion depicting the financial statements of the company are in compliance with GAAP and present a true and fair view. Auditors report An auditors report is often a written one and it accommodates his opinion along with the support of such opinion and other significant matters too (Roach, 2010). Inclusion of additional information in the financial reports Such inclusion of additional details come under the influence of statutory frameworks and must be included in an auditors opinion of the financial reports of the company. Different kinds of audit opinion and their reasons An audit opinion implies a certification that accompanies the companys financial statements based on an audit of the accountants opinion. It considers every financial methods, records and information that forms part of the report (Heeler, 2009). It is manifold and can be divided into four parts that are unqualified, qualified, disclaimer and adverse audit opinion. Unqualified Such an opinion arises when an auditor makes a judgement that the financial statements and records of a company are fairly and appropriately presented. This kind of opinion is generally found to be granted based on the internal control measures of a company. In order to obtain such opinion, management has to establish the effectiveness of sound information and internal control measures in the company (Hoffelder, 2012). But, it completely depends upon an auditor to investigate and evaluate the truthfulness of such effectiveness prior to providing such an opinion. Qualified Such an opinion is an auditors statement issued after the audit procedures that states the information provided by the company is limited in scope and/or proper maintenance of GAAP principles are not done. These exclusions are usually indicated by the auditor in a different paragraph (Parker et. al, 2011). Disclaimer Disclaimer implies that opinion where the audit procedures are incomplete due to lack of adequate financial information and cooperation from the companys side. Furthermore, this opinion comprises inadequate audit of the companys financial statements that do not comply with the required auditing standards (Christensen, 2011). Adverse This opinion clearly portrays the failure of compliance of GAAP principles by the company. It also assumes that the information present in the financial statements is falsified. Hence, an adverse opinion can affect the development of a company as it indicates prevalence of serious frauds (IFAC, 2015). Therefore, companies must take appropriate steps to resolve the problems in order to get a fresh opinion. Part- B Connor Company is relying on the bank overdrafts so that its outstanding debts can be paid off. As the company is encountering negative cash flows, it cannot arrange required funds and as a result, it will further face difficulties while repaying the overdraft amount. In this case, I would provide an adverse opinion, as variations in financial position and operation outcomes are not consider that make it non-compliant with GAAP (Cappelleto, 2014). In this case, I would provide an unqualified opinion to the local company as it has no reservation associated to the financial statements and these statements can present a true and fair view of the companys position in accordance with GAAP (Cappelleto, 2014). In this case, I would provide a qualified opinion to the Victorian Manufacturing Company because an invalid standpoint has been adopted by the auditor that is assuming that value of markets remained sustained since last five years. Hence, the companys financial statements deviate from GAAP principles, thereby failing to present a true and fair view (Nicolaescu, 2013). 2 Internal Control Systems Internal control problems in the Adels Company are: The hourly pay rate is written manually by the foreman for fresh recruits in the same form made for declaration of income-tax installments. No documentary proof is prevalent for the pay-rate adjustment that is verbally suggested by foreman to the payroll authorities. On the timesheet, every worker fills their arrival and time of departure along with their names with a pencil that can be easily altered if immediate variations are required (Cappelleto, 2010). The timesheets of fresh employees are kept in a box that is placed near the factory gate and it is not a safe place. Cards are distributed between two clerks in alphabetical order that results in disparate distribution. Foreman must be provided details of the cheque statement and his signature must be obtained on receipt of cheques in same copy of statement so that appropriate proof can be established. Control tests for errors in part- a For testing the first error, fresh recruits hourly-pay rate must be maintained in a different sheet in writing by the foreman and it must be dated and signed by him so that records can be maintained. For testing the second error, a same document with proper date and sign and in writing must be provided to payroll authorities by the foreman so that data can be verified. For testing the third error, pen must be used instead of pencil as it makes the records long lasting, non-manipulative and understandable (Brown et. al, 2014). For testing the fourth error, box with timesheets must be placed under the observation of a supervisory to avoid mishandling. For testing the fifth error, cards must be distributed numerically instead of alphabetically so that disparate distribution can be prevented and a record of every cheque provided to the foreman can be established (Brown et. al, 2014). References Azim, M.I 2013, Independent Auditors Report: Australian Trends from 1996 to 2010, Journal of Modern Accounting and Auditing, vol. 9, no. 3, pp. 356. Brown, L.H., Mason, S. Shelton, S 2014, The effect of reliance on third-party specialists under varying levels of internal control effectiveness on the audit of fair value measurements, Working paper, Rutgers, The State University of New Jersey. Cappelleto, G. 2010, Challenges Facing Accounting Education in Australia, AFAANZ, Melbourne Christensen, J. 2011, Good analytical research, European Accounting Review, vol. 20, no. 1, pp. 41-51 Heeler, D 2009, Audit Principles, Risk Assessment Effective Reporting, Pearson Press Hoffelder, K 2012, New Audit Standard Encourages More Talking, Harvard Press. IFAC 2015, Strengthening organizations, Advancing Economies, viewed 16 September 2016, https://www.ifac.org/auditing-assurance/clarity-center/clarified-standards. Nicolaescu, E., 2013, Understanding Risk Factors for Weaknesses in Internal Controls over Financial Reporting, Psychosociological Issues in Human Resource Management, vol. 1, no. 3, pp.38-44. Parker, L, Guthrie, J Linacre, S 2011, The relationship between academic accounting research and professional practice, Accounting, Auditing Accountability Journal, vol. 24, no. 1, pp. 5-14. Roach, L 2010, Auditor Liability: Liability Limitation Agreements, Pearson.