Audit Assurance and Compliance of luxury travel holiday Free Samples

Question: Discuss about the Audit Assurance and Compliance CJI. Answer: CJI an audit firm led by audit partner Geoff, Michael first-year accountant, and Annette, an accountant in CJs tax advisory department has been the auditor of luxury travel holiday [LTH] a travel company from past few years. In different situations audit manager of CJI has identified and evaluated various threats each of these is discussed below. Threatsof Self-Interest And Advocacy A self-interest threat and advocacy threat may arise when the auditor is been asked to promote the organization and auditor put its personal, financial and self-interest in decision making. All this unethical behavior will influence the professional judgment and overall affect the auditor independence. As per the given situation, LTH providing self-interest and advocacy threat to CJI of reappointment only after promoting LTH business in next travel agency seminar (ACCA, RELEVANT TO ACCA QUALIFICATION PAPER P7 , 2012). Threats Of Self-Interest In Gifts And Hospitality To show sincerity towards audit firm and create long relationship in anticipation of smooth audit, Gifts and hospitality were offered by the client to a member of the audit team which gave rise to self-interest threat. There is a issue in particular circumstance because the offer of gifts influences the auditor judgment in favor of the client that might create an unethical and a bias audit observation and affect the overall auditor independence. As per the given situation of LTD, threat exists for CJI firm as its members judgment is influenced by accepting a free offer of free 14 days holiday package voucher to the Greek isles for both Geoffs and his family (ACCA, RELEVANT TO ACCA QUALIFICATION PAPER P7 , 2012). Threats of self-interest which occoured due to the personal relationship This circumstance occurs when in case there is a situation where the person related with the audit assignment or the partner of the audit firm has a personal relationship with any key personal of the company in which the auditor is working out audit assignments. This will create certain threats related to self interest factors of the auditor. As in the particular case audit team member might be more sympathetic towards the client and make a decision in accordance with the benefit close family member personal interest. As per the given situation there might be a biased auditor judgment because Michael is having close family relationship with LTH financial controller. Audit client receive non-assurance services (self review threat) When any non-audit service such as tax calculation and accounting entries performed by any auditor or by any person from the audit team influence the audit professional judgment and overall affect the audit independence as per the given situation Annette being the member of audit team helping the client in tax calculation and accounting entries affects the auditor judgment. Reviewing the self inputted transaction will affect the auditors independence as he will not try to observe errors and frauds in the work done by him or any other member of the audit team (Kaplan, 2012). Safeguard Safeguard are the various measure available to CJI being get protected. They shall be the applied against the threat faced by professional to eliminate them in an acceptable manner. CJI has identified various safeguard of each threat in given situation Safeguard against various threats CJI should not promote LTH business as it creating self-interest and advocacy threat to the company. CJI should take educated, trained and experienced employees requirements before entry into profession. CJI should make disciplinary procedures while conducting the audit in LTH. CJI should create leadership that stress on employees to act in an ethical manner. Auditor should communicate all significant deficiencies in writing to TCWG. CJI should prohibit its audit team members in accepting any valuation gifts and hospitality from its client that may results into long term relationship because it affect the auditor judgment and independence. CJI should give more interest to ethical conduct and maintain proper internal control CJI should not assume the policies and procedure of management decision Policies and procedures are timely communicate to employing organization CJI should conduct the audit in accordance with standards of auditing (ACCA, ANSWERING AUDIT RISK QUESTIONS, 2015). CJI should dismiss the individual like Michael from the engagement team who shares close relationship with the client company financial reporter. CJI should enable quality control review. More importance is given to ethical code of conduct. Job rotation is the best safeguard for close family relationship threat. Rotation of auditing partner and his term as per such interval as prescribed. CJI should obtain reasonable assurance of financial statement as a whole is free from material misstatements like fraud or error. CJI should ensure that the accounting services not performed by Annette the member of audit team. Strict action against the audit member who violates the rules and performs beyond the audit regulation. Work done should be reviewed by another professional Identify and detects unethical behavior in the organization (IRELAND, 2014). Auditor should identify and assess risk material misstatement. The right to access given to the auditor to the book of accounts and other documents. Note - If the above safeguard cannot be reduced the auditor should withdraw from the engagement Business risk associated with the current organsiation Business risks are certain hazards on happening of which might enhance the vulnerability of the enterprise. The business risk in MSL are the factors that could prevent and hinder the organizational goal and objective the ultimate business risk among the various risk faced by the organization is the risk that seizes to be a going concern. Therefore company faces various risks factors that might contribute towards business failure examples of business risk include- Loss of MSL customers when work is not done by employee as per their accordance. Increase in production cost of spares and equipmentdue to increase in labour cost, raw material cost, equipment cost etc. Cash flow problem when cash proves inadequate to meet the financial obligation of the company. Decline in product demand of MSL due uncertain event in the market. Litigation and claims face by MSL due to employeesmisbehavior in different countries remote areas. Technological obsolescence arises when technology become obsolete may no longer be competitive in the market. Increase in market competition. This risk arises when MSL face large competitors from international market. Business risk results in reduction of profitability due to uncertain market condition. Risk of facing political and economic instability. This risk arises when some political decision affect the profitability of the business. Risk of overtrading is a term in financial statement analysis. Overtrading occurs when MSL accepts work and tries to complete it, but finds that fulfillment requires more capital, cash, people and net working capital. Risk of inadequate financing involve risk of financial transaction such as company loan, and its exposure to loan default. Sometimes high financial risks might contribute to business failure. Risk of embezzlement and defalcation of cash by employees and management of MSL group. Risk of fraud and error. In the particular case study the current organsiation has its business of manufacturing and selling the equipment and spare parts which are handful in doing the mining jobs. MSL has operational centers in Perth, Newcastle, and Mt. Isa. Warehouses the equipment and spare parts and provide for sales and maintenance services. An auditor with Crampton and Hasaad has found various audit risk while auditing the financial statement of MSL (ACCA, ANSWERING AUDIT RISK QUESTIONS, 2015). Audit risk There is a great probability that the auditor associated with the business enterprise might lack in the decision making and states an inappropriate opinion towards the enterprise financial statements. Auditor will access inherent risk, control risk and accordingly find the level of audit risk materiality enables the auditor to apply procedure which can support his opinion that is higher the materiality level, higher will be materiality level, higher the need of audit evidence and lower will be the audit risk thus there is inverse relationship between audit materiality and audit risk. Also, there exists inverse relationship among risk of material misstatement and detection risk as higher the level of risk of misstatement lower will be the detection risk and vice versa. When there is lack of internal control environment in the current business establishment it will give rise to the associated inherent risk. When auditor is required to enhance its judgment skills to give an appropriate decision there can be a instance that auditor might misses out to ascertain material facts, this will give rise to the inherent risk (simplified, 2013). Control risk arises when related internal control in MSL exists but ineffective or in other words, we can say that when absence or failure in the operation of the relevant control of the entity results in amaterial misstatement in the financial statement. Assessment of control risk is higher if financial statement is prepared by individual who dont have necessary technical knowledge of accounting and finance (simplified, 2013). Situation of detection risk arise when in situation there are certain material miss-statements and auditor fails to disclose in its opinion report due to lack of determination and skills in identifying it. The auditor may apply proper policies and procedure to detect a material misstatement in financial statement arising due to omission, fraud, and error. Detection risk can be reduced or controlled by auditor if it increase the number of sample transaction for detailed (simplified, 2013). Bibliography ACCA. (2015).Answering Audit Risk Questions Retrieved April 20, 2017, from https://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/audit-risk0.html ACCA. (2012). Relevant To Acca Qualification Paper P7 . Retrieved April 20, 2017, from https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_nov12_p7_ethics.pdf IRELAND, C. (2014). Provision Of Accounting Services To An Audit Client.Example Of Threats And Safeguards. Retrieved April 20, 2017, from Certified Public Accountants: https://www.cpaireland.ie/members/technical-resource/ethics/ethical-standards-for-auditors/accounting-services-examples-of-threats-and-safeguards Kaplan. (2012). The Code of Ethics for Professional Accountants. Retrieved April 20, 2017, from https://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/The%20Code%20of%20Ethics%20for%20Professional%20Accountants.aspx simplified, A. (2013). Audit Risk Model, Inherent Risk, Control Risk Detection Risk. Retrieved April 20, 2017, from https://accounting-simplified.com/audit/risk-assessment/audit-risk.html