Auditing & Assurance

Question: Discuss about the Auditing Assurance. Answer: Introduction: Business Risk and Inherent Risk Assessment The business risk in the context of HIH has been related to the global, local as well as the environmental attributes and issues. The following parameters have been identified to determine the amount of risk that HIH is facing. The profitability and the structure - The business risk of HIH would have an adverse influence on the operational strategies as well as the business performance of the entity. The competitive risk in the business entity shall have an impact on the operational policies of the business entity. The risk assessment procedure in the business entity would influence on the operational strategies of the business entity. As such, this shall lead the business entity to reduce the chances of loss, and financial irregularities in the country. Arens et al. (2012) mentioned that the Australian prudential regulatory commission determines the insurance as well as the insurance commission in the country. As such, this shall help the business entity to prepare the financial statements in an authentic and transparent manner. Insolvency Risk The auditing assessment procedures shall have an impact, to determine the auditing risks in the business enterprise. The general agreements in the company would influence to determine the operational policies of the business entity. The profitability structure as well as the insurance risks in the business entity shall determine the operational policies of the business entity. Chandler and Edwards (2014) mentioned that there are certain risks in the daily operational policies of the business entity. As such, the inherent financial condition of the business entity has to be effective enough to meet the daily operational policies of the business entity and achieve the long term goals as well as the objectives of the business enterprise. Evetts (2014) mentioned that the insolvency risk should have to be determined to develop the operational strategies of the business entity. The conceptual risk shall be required to develop the necessary laws and the guidelines that shall help the busine ss entity to achieve the organizational objectives. The HIH is able to determine the risk relating to unqualified audit based on certain financial statements. Furnham and Gunter (2015) mentioned that the maintenance of the solvency margins is one of the pertinent issues that have a positive impact on the operational strategies of the business entity. About this, if the auditing procedures are not followed as per the required guidelines of the business entity it can lead to inaccurate budget forecasting for the organization. As such, the auditing procedures in the business entity shall be developed to prepare authentic financial statements for the business entity. Inherent Risk - In this regard, it can be said the inherent risk shall help the business entity to develop the operational procedures of the business enterprise. The inherent risk relates to discrepancies in the financial statements of the business entity. According to Hayes et al. (2014), these risks shall lead the business entity to financial risks for the business entity. Control risk - The control risks relates to material inaccuracies that has not been detected in the internal control system of the organization. In the case of HIH, the reconciliation of the general ledger as well the bank account has not been performed substantially to meet the needs of the organization. As such, the control risk is an essential market risk that shall have an impact on the financial condition of an entity and would lead to discrepancies. Thus, it is the primary objective of the auditing to physically verify each stock or inventory to prevent any discrepancies in the year-ended annual reports of the business enterprise. Detection risk The risk have to be deducted to identify the risks that can pose a threat to the business sustainability of the enterprise. In the audit, there are major risks that can affect the business sustainability of the enterprise. These include incorrect recording of the financial transactions as well as the financial irregularities in the business entity. Legal Liability It can be said that the auditors must be provided with the necessary data that shall have an influence on the operational policies of the entity. However, the legal liability of the organization is a core part of the operational risk relating to the business entity. Kumar and Sharma (2015) mentioned that HIH must emphasize on the liquidity position of the company, to determine the operational and the financial position of the business entity. Clients - Any understanding on the clients and the auditors shall have an influence on the auditing process of the organization Creditors - Emphasis must be placed on keeping the solvency level to a minimum to earn goodwill in the market . This would help the business entity to gather external financing from the market. The alterations made in the legislation of the organization shall hamper the impact of the HIH insurance in the organization. The factors that have an impact on the financial resource of the company are less than pricing ability of the legislations as well as improper investment policies. As such, this led to the depletion of the financial resources in the business entity. Improper Corporate Practices in the Context of HIH The conflicts between the proprietors, managers as well as the debtors of the organization shall have an impact on the operational strategies of the business entity. These issues shall have an impact on the business performance of the entity. As such, the issues in the risk management have been a major contributor towards the ineffective business strategies adopted by the entity. Non-Executive Director The non-executive director does not have exclusive powers and rights regarding the implementation of the operational strategies of the enterprise. As such, this would hamper the process of leadership in the organization. HIH has offered a sum of $1.7million for offering auditing services. In addition to this, a sum of $1.631 million was offered for offering non-auditing services to the business entity. Lenz and Sarens (2012) mentioned that the corporate governance of HIH can be held for negligible action. In addition to this, there has been power and lack of authority to the individual concerns of the management. This has been one of the primary attributes, which has led to the inconsistency and irregularities in the preparation of the financial statements of the organization. Ethics The audit report states the financial irregularities that have an impact on the different accounting statements that are prepared on the different financial statements of the organization. Messier Jr, (2016) mentioned that development of informal relationships between the management of the business entity with the external auditors of the company shall have an impact on the quality of the audit services as well as the fees charged for the audit services. It is the primary duty of the management of the business. Following were the issue due to which the management wanted to hire these members for its external audit team The auditors have been accustomed to the company The auditors had prior experience about different fiscal as well as monetary matters. c. The management of the company has assisted the business entity to develop an effective relationship with the external auditors of the company. As such, the auditors of the company shall have a proper relationship with the management of the company and there shall be mutual understanding with both the parties. Porter et al. (2014) mentioned that the auditors must have the adequate powers so that they can perform their services without any interference from the management of the organization. The auditors shall be fair and transparent in discharging their duties without any interference from the management of the company. It is the primary responsibility of the auditing companies to offer consultancy services regarding the payment of the tax. As such, the management of the company to provide auditing as well as non-auditing services to the clients. Another essential issue in offering auditing services is the conflict of services. The firm, which offers both auditing as well as consultancy services to the same firm, is the saving in operational costs for the business enterprise. Therefore, Chandler and Edwards (2014) mentioned that the regulatory measures in the business entity should enable business entities to prepare the year ended financial statements as per the required guidelines. The members in the organization did not offer full information to the external auditors of the organization. As such, the audit process was hampered with false as well as misleading information. The situation of Arthur Anderson detonated after the collapse of Enron. He also played a major part in obstructing justice for the organization. These factors violated the standard of the organization and had a considerable role in the financial irregularities of the organization. The following recommendations shall address the issues relating to audit governance as well as the financial reports in the organization. The report contains the amendments under CLERP 9 and are stated as follows; Appoint a lead engagement partner as well as lead the rotation of partners for the next five year The waiting period for the partners has to be increased for the next five years. These would also evaluate the existing audit partners that facilitate auditing. References Arens, A.A., Elder, R.J. and Beasley, M.S., 2012. Auditing and assurance services: an integrated approach. Prentice Hall Chandler, R.A. and Edwards, J.R., 2014. Recurring Issues in Auditing (RLE Accounting): Professional Debate 1875-1900. Routledge. Evetts, J., 2014. The concept of professionalism: Professional work, professional practice and learning. In International Handbook of Research in Professional and Practice-based Learning (pp. 29-56). Springer Netherlands. Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a Company's Personality. Routledge. Hayes, R., Wallage, P. and Gortemaker, H., 2014. Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed. Kumar, R. and Sharma, V., 2015. Auditing: Principles and Practice. PHI Learning Pvt. Ltd.. Lenz, R. and Sarens, G., 2012. Reflections on the internal auditing profession: what might have gone wrong?. Managerial Auditing Journal, 27(6), pp.532-549. Messier Jr, W., 2016. Auditing assurance services: A systematic approach. McGraw-Hill Higher Education. Porter, B., Simon, J. and Hatherly, D., 2014. Principles of external auditing. John Wiley Sons.