Auditing Assurance Services and Principals

Question: Discuss about the Auditing Assurance Services and Principals. Answer: Introduction: King and Queen would be liable to any losses suffered by EFL as they granted the loan to Impulse Pty Ltd on the basis of the financial report issued by them.It is the duty of the auditor to exercise due diligence while performing its duties and responsibilities.He should obtain sufficient appropriate evidence on the basis of which conclusions are drawn and opinions are based.Balances of various accounts reflecting in Balance Sheet and transactions appearing in the Profit Loss Statement should be backed by proper evidences supporting their final amount in the form of closing balance.If the auditor is unable to perform its duties then he should be held liable for the damages.Gross neglect in the conduct of its responsibilities may impose upon him strict obligations.As the auditor holds the fiduciary position,trust and confidence of many stakeholders of the company is bestowed upon him.They rely on the auditors report for their decisions whether to invest in the company or not.On the b asis of audit report government of the country levy taxes on the company.Therefore he should exercise his responsibilities with due care and required skills.Any gross negligence can lead to misconduct in his profession.Thus any irresponsible behavior can lead to validating consequences. No, answer would remain the same even if EFL limited writes to King and Queen for their advise whether to grant loan to Impulse Pty Ltd or not.It is the auditors responsibility to analyze the financial statements and to obtain reasonable assurance whether the financial statements are free from any material misstatement risks arising due to fraud or error.In order to provide an appropriate opinion on the financial information,he needs to plan his audit in such a way that he is able to obtain appropriate audit evidence to justify the balance appearing in the financial accounts.Shareholders of the company rely on the auditors report to gain inside knowledge of the performance of the company and the standing of its financial position.Shareholders confidence rely on auditors appointed as their opinion will play a big role in determination of the dividend to be paid to them by the company.Likewise government of the country depends upon audit report to determine the taxes payable by the com pany.Similarly Financial Institutions also depend on auditors opinion on the financial standing of the company before granting any loan.Any gross negligence in the conduct of the duties can lead to losses and damages to many parties of which auditor can be liable and can be held guilty of misconduct. Actual Independence Actual independence is the real independence which enables the auditor to take independent decisions in situations of under pressure.The auditor should perform his work free from any conflicting responsibilities.It is the art of giving non biased opinions which is not influenced by anyone in anyway. The main purpose of an auditor is to express an opinion on the financial statements of the company that whether they reflect a true and fair view of the financial position of the company and whether they can be relied or not.Through this means he can reflect the objectivity of his work performed.Reliability of the stakeholders and their confidence in the audit report sets high importance to the independence of auditors work. Perceived Independence Perceived independence is the independence in appearance.It is not the true independence.It results due to auditors close relationship with key personnel of the company.In that case auditor cannot give his opinion in an independent way.There will be an conflict of interest.E.g. Auditor fiance holds 50% shares of the entity in which he is appointed as an auditor.Definitely in this case auditors opinion on financial statement will be influence by the interests of his fiance.He will not act in an independent way though he is perceived as an independent auditor. It is important to know the perceived independence enacted by the auditor as it adds credibility to the audit report.If the independence of an auditor is only in appearance then reliance cannot be made on his opinion.It is essential to know the true state of mind of an independent auditor as it helps in making judgement on the reliability of his assurance. Bob has breached Sec 140 of Confidentiality of APESB.This section says that an auditor will be guilty of misconduct if he discloses or uses any information of his client acquired in the course of his professional duties until and unless by specific authority or required by law. Alternatively Bob can use the online reference material and information which could assist him in completing his university assignment.He can take the help of popular case through online material. Wendy has breached Sec 120 of objectivity,Sec 210 of professional appointment and sec 290 of independence of APESB.Sec 120 says that an auditor should be clear of his objective to report in an independent manner to the stakeholders of the company.Sec 210 says that appointment of an auditor should be in a proper way in annual general meeting and Sec 290 talks about independence of auditor in delivering his responsibilities. Alternatively Wendy should suggest a company secretary having good reputation to take over the work of Ace Ltd.He himself cannot be appointed as company secretary.He should continue working as an engagement partner. Leo has breached Sec 290 of APESB of Independence of auditor.He has an indirect interest in Precision Machinery Limited. As his father is a foreman in that comapany.Therefore his independence is seem to be seen as perceived independence. As a matter of fact other auditor can take up the audit of Precision Machinery Ltd who doesnt have any direct interest. Chan Associates has breached Sec 240 of APESB of Fees and other types of remuneration.Fees given should be in terms already decided at the time of engagement.Any deviation from the standards is not valid. Alternatively terms of remuneration can be revised or Chan Associates can insist on payment of remuneration in monetary terms. 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