Audit Of A Financial Statement Samples

The auditing standard ASA 240 is associated with the responsibilities of the auditor associated to fraud in audit of a financial statement. Particularly, the scope of auditing standard expands on ASA 315 and ASA 330 in respect to risk of misstatement because of fraud. Misstatement in financial statement might arise either because of fraud or error (Aicpa 2017). The distinctive factor amid the fraud and error is whether there is underlying action which lead to misstatement of the financial statement is deliberate or not deliberate. According to the Australian auditing standard fraud is regarded as the wider concept. The auditor is generally concerned with the fraud which causes material misstatement in the financial statement. Even though auditor might suspect or in rare circumstances recognize fraud the auditor does not make the lawful determination of whether the fraud has eventually happened. The primary accountability for preventing and detecting fraud relies on those that are charged with the governance and management of organization (Li, Simunic and Ye 2017). It is vital for the management to place a high stress on reducing the opportunities of reducing fraud and deterring fraud that may persuade an invidious to commit fraud due to the probability of detecting and punishing. The auditor enters much expanded ground to detect the fraud. An auditor performing the work of audit in compliance with the ASA is accountable for attaining sufficient reassurance that the financial statement that are taken as the whole is free from material misstatement originating from fraud or error (Bozkurt 2014). Because of the inherent disadvantages of audit there are risks that are unavoidable since some of the material misstatement of financial statement should not be detected, even though the audit is sufficiently planned and executed in compliance with Australian auditing standards. The auditor is responsible for assessing the correctness of the accounting policies used and appropriateness of the accounting estimations disclosures that are made by the directors. The auditor is accountable for identifying and evaluating the risk of material misstatement relating to the financial statement due to error and fraud and conduct an audit procedure that are responsive to the risk. The auditor is accountable for assessing the overall demonstration, construction and content of the financial report along with the disclosure whether the financial statement provides an underlying evidence of transactions that attains fair presentation (Shah 2017). At the time of obtaining the reasonable assurance the auditor accountable for upholding professional skepticism during the audit. The auditor is responsible for communicating with the directors concerning the matters, prearranged scope and timing of audit with significant findings from audit. This comprises of identifying the significant deficiencies in the internal control which the auditor is required to identify during the audit.   Ã‚   In context of the current case study of ABC learning an evidence of overstatement of revenues were noticed. In context of the revenues it is held that the auditor of ABC has failed to derive sufficient and appropriate audit evidence for numerous fee revenue (Kassem and Higson 2016). This ultimately resulted in significant amount of material overstatement of the ABC revenue. Furthermore, the items originating from the provision of childcare services were erroneously categorized since the revenues resulted in overstatement of the ABC revenues. The audit report of ABC learning suggests that there was incorrect treatment of the development revenues. The ASIC notes that the revenues transaction was not considered as revenue derived through the provision of childcare services (Ma’Ayan and Carmeli 2016). On classifying the normal revenues as the transaction the users of the monetary reports enabled them to consider developer’s fees as the recurring revenues that originated from the provision of child care services. Therefore, any kind of attempt made to value the childcare centres were useless. Evidences from the audit report suggest that the revenues were not disclosed in a manner which clearly indicated that were recurring and resulting from the provision of child care services. The critical assessment suggested that payment formed the part of scheme that was artificially designed to inflate the profits (Fazli et al. 2014). The auditor was unsuccessful in obtaining the adequate audit evidences in respect of the accurate bookkeeping treatment for numerous fees which resulted in significant amount of material misstatement of the ABC proceeds. Among the other auditing issues surrounded the ABC learning was that the auditor has failed to get the adequate evidences to enable a sensible knowledgeable auditor to determine that ABC was a going concern.   At the time of getting reasonable assurance the auditor is required to maintain the professional skepticism all through the audit. Fundamentally, ISA 200 necessitates the use of professional skepticism as the medium of improving the ability of the auditor to recognize the risk of material misstatement and respond to the risk recognized (Soh and Martinov-Bennie 2015). Professional skepticism is closely associated with the essential ethical deliberations of the auditor fairness and liberation. Professional skepticism is associated with the implementation of professional judgement by the auditor. If an audit is conducted without using the professional skepticism then it may not result in high quality audit. Consequently, implementing the professional skepticism must assist in assuring that the auditor does not overlook the unfamiliar circumstances or undertake incorrect assumptions at the time of ascertaining the audit response.    As the part of audit procedure in compliance with the Australian auditing standard the auditor is required to exercise proficient decision and maintain the professional skepticism all through the audit procedure. As the part of audit the auditor is required to make accounting estimates (Pitt 2014). The accounting estimates requirements include fair valuation of accounting estimations. This comprises of noteworthy assumptions made by management in establishing accounting estimates and reviewing the decisions that are made by the managers for management in creating an accounting estimates. Another requirement of professional skepticism is that the auditor must review the management’s assessment of going concern and whether the plans of management are feasible or not. This is especially vital in the circumstances where there prevails significant amount of doubt over the capability of the organization to continue as the going concern (Klassen, Lisowsky and Mescall 2015). The auditor on the other hand are under the obligation of fulfilling the requirements of related party relations and disclosure. For an auditor it may be difficult in getting the information of the related parties since the information might be confined to the management meaning for which the auditor might have to remain dependent management to recognize all the related parties. The auditor is required to remain sceptical at the time of assessing the business underlying principle behind the related party’s transaction. Furthermore, the professional skepticism requirements of the auditor also include paying considerations on laws and regulations (Bowlin, Hobson and Piercey 2015). The auditor is required to remain alert all through the audit process for reflecting that there may be instances of suspected non-compliance with rules and regulations. Unless it is found that the auditor has the sufficient purpose to believe the conflictions the auditor might accept the records and documents that are genuine. If there are situations that forces the auditor to believe that the document might not be authentic or the conditions in the document have been altered but not revealed to the auditor (Quadackers, Groot and Wright 2014). Where the responses to the enquiries of the management or the person that are charged with the governance are not consistent then the auditor should investigate the inconsistencies. Auditors are regarded as the vital gatekeepers who are dependent upon to offer assurance and market confidence in the quality of the monetary statement. The ASIC constantly place their focus on auditor’s importance for implementing professional skepticism and getting the sufficient audit evidence to assist their conclusions (Cohen, Dalton and Harp 2014). It is necessary that auditors implement correct skills, experience and skepticism in recognizing and responding to the risks by obtaining audit evidence and judging the areas as going concern. In context of ABC learning it is understood that the auditor failed to sufficiently perform his duties as auditor. The auditor failed to obtain suitable evidence of audit relating to appropriate accounting treatment for numerous fees that resulted in overstatement of ABC revenue. The auditor failed to classify the items of income. This resulted in consequences that items from the provision of childcare services were not correctly categorized as revenue and led to overstatement of ABC revenue. The auditor further failed to enable that ABC was the going concern and lacked professional skepticism in supporting his opinion that the financial report of ABC was free from material misstatement (Brazel et al. 2016). The auditor failed to create audit procedure to deal with the evaluated risks and failed to adequately document the testing that was undertaken relating to fraud risk. The auditor failed to use the professional judgement and lacked professional skepticism while auditing ABC learning financial report.    As evident the code of ethics for professional accountants lay down the ethical requirements for professional accountants. To act in the interest of public a professional accountant should observe and comply with the ethical requirements. As evident in the current case study of ABC learning the major reason that contributed to the collapse of ABC learning was the ethical issues (Klein 2015). The chief ethical issues led to the downfall of the ABC learning was the lower payment of wages to the employees in order to incur lower cost and more amount of profits that enables them to attain the competitive advantage in the corporate world. This misstatement in the financial report by the auditors is regarded as one of the major ethical issues. Section 110 of the code of ethics requires an accountant to follow the principles of integrity in order to impose the obligation on all the professional accountants to act in a straight forward manner (Press and Woodrow 2018). Integrity also refers to the fair dealing and truthfulness. To capture the market, share and gain more profit ABC learning gave their employees a lower rate of wages and was found to below the Australian standards. The accountants of ABC failed to discharge their obligation with integrity and provided inappropriate accounting reports relating to cash flow and business model. Another ethical issue that contributed to the fall of the ABC learning was the significant ethical and moral lapse in the share that was floated by the company when the CEO engaged in the related party transaction. The ethical issue in the case of ABC learning revolves around the deception to the shareholders as the shareholders have invested money on false pretence. The management of the ABC learning failed to act in compliance with the section 130 related to professional competency and due diligence (Ma’Ayan and Carmeli 2016). The maintenance professional competency and diligence encompassed the responsibility of acting in agreement with the requirements of obligation carefully and on timely manner. Unearthing claims arising out of the insufficient revelation, related party transactions and mis-administration have contributed to the ethical downfall of the organization.      Another ethical reason that was responsible for the downfall of the ABC learning was the lack of objectivity. Section 120 of the code of ethics provides that the accountants must not compromise their professional or business judgement because of the unwarranted effect on others (Pitt 2014). The accounting misstatement of financial reports rotates around the deceiving the shareholders regarding the overall position of the organization on false pretence have evidently contributed to the collapse of the ABC learning. The accountants did not provide true financial and position of the company to the stakeholders. This enable the company to remain exposed to the situations impair objectivity. As evident from the study above the major reason that contributed to ABC Learning downfall was the financial discrepancies. The in appropriate financial management such as high debts and abnormal acquisition attributed to main discrepancies in the financial information. The inflated value of the assets and increased valuation offered wrong information to the shareholders that was not approved by the AASB. The auditor’s failure in reflecting the company as the going concern with lack of professional skepticism in responding to accounting risk contributed to the company down. Conclusively the underlying fact states that management of company was ineffective in controlling the fortunes of ABC learning.   AICPA, 2017.  Statement on Auditing Standards, Number 126: The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern  (No. 126). John Wiley & Sons. Bowlin, K.O., Hobson, J.L. and Piercey, M.D., 2015. The effects of auditor rotation, professional skepticism, and interactions with managers on audit quality.  The Accounting Review,  90(4), pp.1363-1393. Bozkurt, O., 2014. The Effect of Internal Audit Procedures and Auditors’ Responsibilities on the Independent Audit Decision.  Research Journal of Finance and Accounting,  5(1), pp.26-33. Brazel, J.F., Jackson, S.B., Schaefer, T.J. and Stewart, B.W., 2016. The outcome effect and professional skepticism.  The Accounting Review,  91(6), pp.1577-1599. Cohen, J., Dalton, D. and L Harp, N., 2014. The Effect of Professional Skepticism on Job Attitudes and Turnover Intentions within the Audit Profession. Fazli Aghghaleh, S., Muhammaddun Mohamed, Z. and Ahmad, A., 2014. The effects of personal and organizational factors on role ambiguity amongst internal auditors.  International Journal of Auditing,  18(2), pp.105-114. Kassem, R. and Higson, A.W., 2016. External auditors and corporate corruption: implications for external audit regulators.  Current Issues in Auditing,  10(1), pp.P1-P10. Klassen, K.J., Lisowsky, P. and Mescall, D., 2015. The role of auditors, non-auditors, and internal tax departments in corporate tax aggressiveness.  The Accounting Review,  91(1), pp.179-205. Klein, G., 2015.  Ethics in accounting: A decision-making approach. John Wiley & Sons. Li, Y., Simunic, D.A. and Ye, M., 2017. Do Auditors Care About Clients’ Compliance with Environmental Regulations? Evidence from Environmental Risk and Audit Fees. Ma’Ayan, Y. and Carmeli, A., 2016. Internal audits as a source of ethical behavior, efficiency, and effectiveness in work units.  Journal of business ethics,  137(2), pp.347-363. Pitt, S.A., 2014. International standards for the professional practice of internal auditing. Press, F. and Woodrow, C., 2018. Marketisation, Elite Education and Internationalisation in Australian Early Childhood Education and Care. In  Elite Education and Internationalisation  (pp. 139-159). Palgrave Macmillan, Cham. Quadackers, L., Groot, T. and Wright, A., 2014. Auditors’ professional skepticism: Neutrality versus presumptive doubt.  Contemporary accounting research,  31(3), pp.639-657. Shah, M.K., 2017. THE IMPACT OF VARIOUS RESPONSIBILITIES OF THE AUDITORS IN CONTEXT OF INDEPENDENCE AND IMPARTIALITY: A PERCEPTION OF ACCOUNTING PROFESSIONALS.  Journal of Commerce & Accounting Research,  6(4). Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting.  Managerial Auditing Journal,  30(1), pp.80-111. With a decade's experience in providing essay help,