AUDITING AND ASSURANCE
Auditing and assurance are the financial procedures of an organization to evaluate the overall financial health. The audit is nothing but to conduct a financial inspection of an organization to analyze its different economic activities. Assurance is nothing but the independent audit activities that helps to provide a financial assessment of the organization of a current financial year.
The financial statements, regulatory and compliances are altogether considered as the assurance service of the organization. The aim of the assignment is to explain the type of auditor reports for the four individual situations in the case study.
There are different types of auditors report comprises of unqualified opinion, qualified opinion, disclaimer opinion, an adverse opinion. In this given case study there are four situations is mentioned and there is a need to identify the type of audit report in those situations.
In the first situation, the company Beast limited is a wholesale company that follows the last in first out inventory management for maintaining their balance sheet. In the opinion of BOIRAL et al, (2019), the last in first out inventory management is followed by those firms where the tax liabilities are lower for the outdated inventory value.
So in this situation, the adverse opinion auditing report will be maintained because of a lack of integrity in the financial record. This type of audit report is prepared when there is an absence of generally accepted accounting principles in the financial record.
In the second situation, the organization SecondBite foundation has performed its audit operation with the help of an external accounting expert. The organization has no control over the collection of income but all the received income statements are recorded properly. As commented by MARTÍNEZ-FERRERO and GARCÍA-SÁNCHEZ (2018), in this scenario the qualified opinion of the audit report has been followed because in this type of report no misconduct has been entertained.
In the third situation, the organization Golddiggers Pty Ltd operates on the goldmine was founded by Mr. Smith and Ms. Smith. They suspect that the mining vein will be last from 13 months to 17 months which are not disclosed in the financial record. So in this situation, the disclaimer opinion of the audit report has been followed where there are inaccurate financial records. This type of audit report has not shown any financial statements about the organization.
In the fourth situation, the organization the Main insurance is a reporting entity that has been owned by Ms. Pit. As commented by BOIRAL et al, (2019), the company has refused to compile with the other organization AASB 124/IAS 24 and this is not shown in the financial report. So in this situation, the qualified opinion of the audit report has been focused which depicts that the financial report is materially correct in all aspects.
The different audit issues are listed below:
Lack of Integrity in the Financial Record
The main audit challenges that are faced by the auditors is the lack of authenticity in the financial statements. As commented by HUMMEL et al, (2019), the management of the organization does not provide all the necessary information about the expenditure and overall income.
Inadequate Internal Controls
The management of the organization has inadequate control over the internal circumstances which may be violated in the financial report. In the opinion of SUDSOMBOON and INTAKUN (2016), the inaccurate balance sheet results in fault in the audit report which influences the economical statement of the individual organization.
Inadequate Accounting Procedure
The higher authority of the organization may furnish insufficient accounting information that may result in poor audit reports. This is one of the main burning audit issues that may reduce the performance of the financial health of the individual organization.
Lack of professional skepticism
The lack of integrity in the behavior of the auditors may violate the financial report of an individual organization. The auditor must be honest and loyal towards making the audit reports which may enhance the business growth of the organization (DAVIDAVIČIENĖ et al, 2018).
In the first situation, the LIFO inventory management has been followed which depicts the lack of tax liabilities in the financial statements. So in this situation, the adverse opinion audit report has been maintained which is the worst audit report. In the opinion of ITTONEN et al, (2019), this audit report has been maintained here because there is no integrity and liabilities in the inventory management of the Beast ltd.
In the second situation, there is an absence of all the income statement but the received income statements are being recorded. As commented by MARTÍNEZ-FERRERO and GARCÍA-SÁNCHEZ (2018), so this financial statement will not follow the GAAP (Generally Accepted Accounting Principle) standards but there are no misrepresentations that are identified. So the qualified opinion audit report has been presented here where the GAAP standards are not strictly followed but proper integrity is maintained.
In the third situation, the Golddiggers Pty Ltd has suspected that there is a mining vein that takes times around 13 months to 17 months. After the gold is being dug, they will close their business. As commented by ERASMUS and COETZEE (2018), this information will not be violated in the financial statement so the disclaimer opinion has been followed. In this audit report, the auditors are unable to complete the whole audit report due to a lack of information.
In the fourth situation, the Main insurance company has not published the information that they make compliance with the AASB 124/IAS 24 company but all the other information is correct. So, in this case, the qualified opinion has been followed in the audit report because all other financial statements are materially correct.
It has been concluded from the report that there is a discussion over the different types of audit reports in different situations. The unqualified, adverse, qualified and disclaimer opinion has been highlighted in this report.
The main focus is on the different types of audit issues that may be faced by the auditors. It is also concluded that there is a need to justify the audit reports in accordance with the situation which has been discussed briefly.
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