Audit - Assurance and Compliance Easy Finance Limited

Question: Discuss about the Audit, Assurance and Compliance for Easy Finance Limited. Answer: Introduction: In the case of King and Queen, Easy Finance Limited (EFL) provided finance to Impulse Pty Ltd for additional working capital, but the concerned auditor provided unqualified audit report irrespective of their drop in turnover and debtors turnover ratio. In the recent verdicts of the courts, containing several imperative judgements of the House of the Lords, have extended the classes of the case in which an individual professing some expertise (as an auditor does) could be accountable for carelessness to someone other than his or her own client: In the case of Hedley Byrne and Co. Ltd. v Heller and Partners (1964) AC 465, such Obligation may ascend whenever a professional person does work for his or client in conditions where that professional knows or ought to know: That the work is liable to rely upon by the third party; The third party can probably suffer from financial loss if the work in Question is done negligently. In accordance with the case facts of Royal Bank of Scotland v Bannerman Johnstone Maclay (Scottish Court of Session) has armoured the belief that an auditor can have a Duty of Care concerning a Third Party even Where he has no Knowledge (but has constructive knowledge) that the third party intends to bank on his advice. EFL argument that the Finance was provided to Impulse solely on the basis of the unqualified report of King and queen. Further, the auditor had not accomplished their work in a proper manner as despite Declining Turnover and Debtors Turnover Ratio they did not evaluate the assets of a business which shows that that King and Queen have performed the work negligently thus they will be held liable to EFL for the outstanding Dues. Impact on advice if they intended to make a loan to Impulse and were relying on the 2012 audited financial report No, EFL has made specific intimation to King and Queen that they are funding to Impulse for additional working capital relying on the audit report provided by you. According to Alexander and Hay, (2013), audit Report and Financial Statements reflects only the financial figures and situation existing at the time of conduct of the audit. It doesnt by any mean reflects the profitability and repayment capability of concerning company. In that Case, King and Queen wouldnt have been held liable because of no one forecast perfectly. A company can get insolvent or bankrupt for many reasons (Branson, Chen and Anderson, 2015). The decline of Turnover and debtor ratio is only the prima facie evidence. King and Queen Wouldnt have been liable in this case. Actual and perceived independence Independence in the context of an auditor can be defined as independence made available by parties who are interested in financial statements of a firm to be audited. As per the study of Knechel, (2013), this is important so that the audit conducted is free from personal bias. An unbiased audit makes it easy for the stakeholders to take a feasible decision. Actual independence is a situation where an auditor has a state of mind which is free to respond to a particular situation liberally. Independent auditors make decisions which they think are relevant. It is important that an auditor should appear to be not only independent but also act independently. Perceived independence is a state where an auditor is just perceived to be independent by the stakeholders but actually is bound by the directors of the company for the decisions to be made (Glover and et.al. 2016). Evaluation of independent situations In the Current Situation, Bob, an audit assistant, uses the information of one of his clients for his university assignment and eradicates all the reference. In accordance with provisions of ASA 230, it is the duty of the auditor to adopt such processes which ensure secrecy, reliability, safe custody and availability of audit documents. Further, this is supported by provisions of ASA700 regarding the duty of the auditor to maintain confidentiality (Tepalagul and Lin, 2015). Further, if bob wants to use the information of Club Casino, then he must have taken prior permission from those charged with governance even though he has deleted all the references. As an audit assistant, it is the responsibility of Bob to preserve the secrecy of documents and not to defaulter in any case. According to ASA200.2 the engagement partner, Wendy in this situation, is eligible for discharging the responsibility of an auditor, if the situations demand. As they possess appropriate capability and competency, they can be held responsible for supervision and direction of audit work. On the request of Ace Ltd. Wendy performed the secretarial duties. The span of duty included in a company secretary work comprises of administrative services like maintenance of records and ensuring compliance (Hay, Knechel and Willekens, 2014). Hence Wendy can perform the duties which support the functions of the company secretary in such circumstances. As per American Standards of Audit 100.5, an auditor is required to follow the principle of integrity, objectivity and competence (Krahel and Titera, 2015). An acquaintance threat comes to Precision Machinery Ltd. as Leo is in close connection with the firm and the principle of objectivity is breached. This will result in a conflict of interests overriding professional decisions. Thus it is recommended not to allow Leo to audit the internal control of cash system. This may lead to uncertainty in auditing, as the member can be sympathetic towards the interest of the firm. According to the professional standard 290.223, when a client of an audit firm is unable to pay the fees for a long period, there comes the risk of self-interest. In a situation where a huge fees is unpaid before the issue of the audit report, the relativity of the threat is assessed, and some shield is applied to reduce the risk to some extent (Knechel, 2016). The audit firm has a right to settle on the overdue fees as a loan to the client. Hence, in this situation, Chan and Associate can discontinue the service due to long outstanding payment. They also have a right to receive furniture and shares in fulfilment of the due payment, and the outstanding fees can be considered as a loan to Classic Reproductions Pty. Ltd. References Alexander, D. and Hay, D., 2013. The effects of recurring and non-recurring non-audit services on auditor independence. Managerial Auditing Journal. 28(5) Pp.407-425. Branson, L., Chen, L. and Anderson, L., 2015. The Implementation Of International Codes Of Ethics Among Professional Accountants: Do National Cultural Differences Matter?. International Journal Of Business Public Administration.Pp 12(1). Glover, S.M. and et.al. 2016. Current Practices and Challenges in Auditing Fair Value Measurements and Complex Estimates: Implications for Auditing Standards and the Academy. Auditing: A Journal of Practice and Theory. Hay, D., Knechel, W.R. and Willekens, M., 2014. The Routledge Companion to Auditing. Routledge. Knechel, W.R. 2013. Do auditing standards matter? Current Issues in Auditing. 7(2). Pp.A1-A16. Knechel, W.R. 2016. Audit quality and regulation.International Journal of Auditing,20(3), pp.215-223. Krahel, J.P. and Titera, W.R. 2015. Consequences of big data and formalisation on accounting and auditing standards. Accounting Horizons, 29(2). Pp.409-422. Tepalagul, N. and Lin, L. 2015. Auditor Independence and Audit Quality A Literature Review. Journal of Accounting, Auditing Finance. 30(1). Pp.101-121.