MAA705 – Corporate Auditing
Trimester 2, 2014
Due Date: 8th September 2014
Word Count: 1300 (Including references)
Beer Brewing Limited is a publicly listed company on ASX since 5 years. It’s into manufacturing of beer. XYZ is a firm of chartered accountants established in 2002. This firm is growing at good pace and increasing its client base. However, XYZ is bidding for first time to audit an ASX listed company, in past it has been auditing small and medium sized businesses. Its experience in Beer manufacturing company audits is quite limited, but has some experience with drinks manufacturers which can be relevant. Apart from evaluating experience, there is a need to check all the factors, which are in essence the objectives of Auditing. The core objective of an Audit is to provide an independent opinion the financial report, to see whether there is no material misstatement and it is prepared in accordance with financial reporting framework. Also, before accepting an audit contract, it is critically important to assess the client on ethical as well as legal considerations. The overall findings and on paper evidence suggests that the potential client in past has been good and barring few disagreements with the auditors; there were no major causes of concern. BBL seems to embrace the independence of its auditors and has got a spate audit committee as well as internal monitoring committee. XYZ had duty to assess the background and consult past auditors, their reason for discontinuation of audit. When consulted past auditors, this doubt was also cleared and the reason for past auditors to leave was not related to auditor Independence. The control environment was also satisfactory, as the board of BBL had appointed audit committee with 3 members. The board itself has 11 members, which might add on to the integrity and corporate governing standards of the company. Moreover there was also an internal auditing unit, which was directly reporting to the chairman. It is of utmost importance to check if any of the Audit Partners or their families has any shareholding in BBL. If yes, then it would be a case of clear conflict of interest and would influence the independence and integrity of audit process. But in this case no partners in XYZ or their families have holding in BBL, a manager in XYZ has disclosed holding in BBL. XYZ should ensure that he is not involved in servicing this client and complete confidentiality is maintained. The financial statements and the cash flow statements seems fair, there are few evidences of material misstatement which have been identified. They should be worked upon to make sure there is maximum amount of transparency and no material misstatements. Looking at these points the client should be accepted, but material misstatement should be worked upon soon with greater efficiency.
There are mainly 3 types of risks associated with accepting the audit, which are Audit Risk, Firm’s Business Risk, and Business Risk of Auditor. Business risk of Auditor
The auditor has full knowledge about the financial condition of the company, which keeps the company in risk of going into liquidation. A company will provide all the details about its activity to the auditors and thus auditors keep on changing (Audit Risk Model, 2013). Inherent Risk
The company might sometimes have errors in the statements like errors in recording material stock in the past or just omissions while recording, which might risk the company and can be a major concern. This occurs when there are complicated transactions and where recording is done on intuition. Firms Business Risk
The most important risk is organizational risk. That is the case where the board is adamant and rigid in applying standards that...
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