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BUACC5935 Auditing and Assurance Service Assignment Help
1.Discus in terms of accounting first and then in relation to auditing
The immense effort put forward by Sir Thomas Brown in his work controverts the inaccuracy of his age, Pseudodoxia Epidemica that first gained attention in the year 1646. Post to this, five additional editions arrived upon which the last edition received the title of “Vulgar Errors” which was noticed in the year 1672. The material includes evidence of Baconian method along with its nature, aims, features and properties. It included three different approaches in regards to understanding and identifying the truth via critical observations. These were included in the first description where it stated that the first responsibility of former authors, the second being act of reason and last of all experimental activities.
Primarily auditing was related with the verification of financial books of an organisation to organise test and understand the issue through reasonable and true judgements in regards to the financial statements of an organisation. Therefore it can be said with confidence that auditing was an internal control, and processes followed within the organisation by adding recorded figures in the financial statements or books and accordingly matched the figures to identify the appropriateness of information. In addition to this, it was checked to identify if there were any fraud committed in the organisation. Auditing is considered to be fruitful for low sized organisation but are a big complication when it comes to multinational companies or big brands. Presently, modern accounting has gained immense attention since it is based on information system that comprises thorough checking of the information that flows within the organisation. Sales and purchase departments, marketing, advertisements are some of the departments that are interlinked to ensure appropriateness of information. Subsequently, the figures brought by these departments are cross checked to assess the gaps if found. Therefore, Information System Auditing is considered to be one of the most influential processes nowadays as organisations are using computers, online applications, processing (Real – Time) as it verifies the information through Information System (IS) (Accounting, auditing and governance standards for Islamic financial institutions, 2010).
Presently, the concept of auditing has changed drastically due to its conventional methods and approaches that are changing the objectives of auditing and the business operations of an organisation. The old-fashioned concept in auditing involves the use of vouching that depicts verification of every transaction physically by the auditor which takes up time and effort. However, it is the job of the auditor to understand the various scenarios occurred in the organisation and provide a proper audit effectively. The primary role of the auditor is to be analytical while understanding and observing the scenario. Recording the figures and calculation is of no use, the auditor has to analyse these figures appropriately to come to a proper conclusion.
The conventional auditing style can be interpreted as the up gradation to the old fashioned auditing system. However, it is clearly understood that modern auditing methods are said to be more precise and provides appropriate data and helps the auditor to make the decision appropriately with the help of effective database structure. The conventional auditing requires proper planning and expert professionals who are need of conventional infrastructure based facilities like IT.
2.Trust takes years to build, seconds to break, and forever to fix. What does this say about the auditor/management relationship?
Being trustworthy is considered to be the most valuable assets in everyone’s life. Trust is valued in terms of gold whether concerned with business, among friends or within family. Trusting someone gives rise to bond of loyalty and values more than money which flows throughout lifetime (Hay, 2014).
Trust, forms the base of relationship between auditors and management as this is the foundation on the basis of which dealings with audit committee is done. Thus, every business is expected to develop and maintain a strong relationship with the internal auditors so that they can be comfortable in critically analyzing the business and offer improvements. The relationship between the auditor and management must be based on honesty, humility, integrity, appreciation and commitment sharing to similar kind of goals. The main objective of auditing is to create and maintain a clear understanding of each ones role and course of action, which otherwise may lead to misunderstanding and confusion in the long run. The goal of auditing is to create independent, objective assurance which the organizations are expected to accomplish (Protecting the public interest, 2002).
An auditor is expected to start with a certain level of trust for the purpose of conducting audit effectively. As the course of audit progresses so does the level of trust and continues to grow throughout the tenure of audit. At certain times the auditor also faces distrust from management. Hence, balancing the same becomes really a difficult task for the auditors. It is expected that the auditors design the procedure of auditing in such as way that they are on the basis of a certain assumption and where evidence to contrary is missing they can accept representations being true and accordingly declare that the records and documents available, reflect a true and fair picture. Many a times the auditors fail to maintain the level of trust and enough professional skepticism to their job. Some researchers have been conducted which will prove the statement (Ramanan, 2014). A case brought into light fraud-related activities against auditors, wherein a lot of issues with audit were discovered. Another deficiency that became visible was failure in demonstrating required level of professional scepticism. As per report this deficiency was evident in almost 60% of the cases.
“Trust breeds trust”. This statement is very effective for understanding the relationship between auditors and management. While audit course, the auditors get several opportunities for demonstrating good faith thereby building up the fact of trustworthiness. Again this can go vice versa. The case may be that the management on whom the auditor relied seemed to have violated the trust. This violation is subject to thorough investigation and if betrayal or violation of trust is proven then this may also lead to termination of trusting relationship and many a times the auditor may resign from the job he/she is assigned. Thus, on one hand, the auditor has to rely on the management for resources and evidences for accomplishing his/her audit task and on the other hand there are chances of the auditor to get misled by the management (Special issue on NGO accounting, auditing and accountability, 2004).
Thus, building and maintenance of trust is very important between auditors and management. In case, any one between the two fails to abide by this, it may be lead confusion and at the same time break in the process.
3.This is Martin Shkreli. Who is he and what does his story tell us about corporations, shareholders, accounting and auditing – if anything.
Martin Shkreli is born to Albanian and Croatian immigrants and was brought up in a community of working- class, in Brooklyn, New York. After skipping various grades in the school, he managed to receive degree from Baruch College in New York in the year 2004 in business. He started as an intern at Cramer Berkowitz & Co. at the age of 17. The hedge fund was founded by Jim Cramer, a television personality. Elea Capital Management, a hedge fund founded by Martin Shkreli in the year 2006. However, the company closed down after lawsuit of $2.3m from Lehman Brothers and led to collapse of the same. Recently, Martin Shkreli launched Turing Pharmaceuticals in February, 2015. Before this he was ousted from Retrophin.
Recently, Martin Shkreli came into news for being arrested by FBI on fraud charges. Martin Shkreli and Evan Greebel, his attormey, got engaged in duping investors in a rage of Ponzi kind of schemes which came out of bad investments which Martin Shkreli made with his hedge fund. While the CEO of Turing Pharmaceuticals, he obtained Daraprim, which was used years ago for treating toxoplasmosis, a deadly parasitic infection likely to harm AIDS and cancer patients; and raised the price by 5,500% overnight to $750/pill from $13.50/pill. Martin Shkreli was fired from Retrophin on 30th Sept, 2014 on the grounds of settling and releasing claims against his hedge fund named MSMB Entities, of the errors that arose out of transactions; at the same time the claims against him. The corrections related to accounting error and it’s restatement at the same time the lawsuit iof Retrophin are at present subject of the Justice Department and SEC charges of fraud against Martin Shkreli. After the case with Retrophin, Martin Shkreli requested Marcum LLP, a public accounting firm for auditing KaloBios Pharmaceuticals. Previously, the same microcap-focused accounting firm has audited the accounts of Retrophin, which resulted into the fraud committed by Martin Shkreli and as a result of it the company, abandoned Marcum and declared that the audited accounts must no longer be believed by the investors and it is necessary to restate the same. The same thing happened with Martin Shkreli in the case of KaloBios. He was sued by the company.
Martin Shkreli damaged his public image by investing millions on the only copy of an album Wu-Tang Clan, which the fans of music were desperate about and later told Bloomberg Businessweek that he is having no such plans of listening to the same. He boasts on Twitter and message boards about the strategies he is planning for his business, his music preference and political sense. He launched MSMB Healthcare by inducing investments of $5m from nearly thirteen investors. For himself he kept the largest share (i.e. far in excess) of the decided 1% management fee and 20% incentive on profit, as per SEC (Special issue on NGO accounting, auditing and accountability, 2004). Hence the auditor of the organization should present their opinion in such a way so that it represents the true and fair view of the operations of the organization and its financial position. The management of the organization are the safe keepers of the shareholders and the decisions should be taken in the best interest of the organization and conversantly the stakeholders. It is for this reason that the auditors of the organization should be independent and should be rotated in order to maintain the principle of independence.
4.“If I had eight hours to chop down a tree, I’d spend six hours sharpening my
ax.”Abraham Lincoln. What does this mean in the context of auditing and auditors?
According to the Auditing Standards in Australia, the audit is considered to include examination and verification of records and accounts, mainly the financial accounts and any such statement or report that reflects audit. Auditing comprises of different responsibilities of auditors such as:
1. Detection of errors;
2. Detection and report any fraud;
3. Discovery of fraud;
4. Assessment of risk related to fraud;
5. Presenting report on any defalcation detected;
6. Presenting report on any fraud related to financial statements;
7. Report any illegal act detected.
Hence, with all the above responsibilities it is can be understood how much careful and analytical an auditor is supposed to be before he presents any statement or reaches a conclusion.
During an inspection it came into the notice that about 36% of the audit work had some deficiencies which are related to internal control. The reason behind this condition is insufficient planning of work. As soon as the auditing work starts the auditors gets involved in the same and tries to reach a conclusion as soon as possible. However, they must spend some valuable time in understanding and identifying each and every risk which is present and select the best possible control method for testing. Again, every control method may not be appropriate or relevant; hence they need to spend some time finalizing the appropriate control method by observing the scenario. After this the auditor needs to focus on testing management review controls (Weirich, Pearson and Churyk, 2010). Through the management review controls the management can identify the errors, fraud or any sort of inaccuracies. If an auditor feels of relying on this they need to first need to understand the process and then carry out a test to confirm that the control system is effective enough to detect material misstatements. Then the auditors should be checking the system generated reports or data. Suppose, the auditor while checking the sales price must at first go through the price list and understand from where is it coming and recognize and examine the accuracy and completeness of the price list. Therefore, it is evident that simply application of mechanical approach to audit which involves checking review performed by management without a thorough planning may result in ineffective examination of issues and controls.
Thus, the statement made by Abraham Lincoln holds true in case of auditing and auditors as they cannot hurry with their duty and each phase of their responsibility must be given ample time in order to draw a conclusion (Weirich, Pearson and Churyk, 2010). Auditing involves verification and examination of systems and procedures in order to make sure compliance with needs. These verification and examination is highly crucial for the respective company and the auditors must ensure they give it their best so that they come up with suitable results. Time is the biggest factor in auditing process and hence time must be utilized to its optimum level.
Accounting, auditing and governance standards for Islamic financial institutions. (2010). 1st ed. Manama, Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions.
Hay, D. (2014). Auditing, International Auditing and the International Journal of Auditing: Editorial. International Journal of Auditing, 18(1), pp.1-1.
Leung, D. (2011). Inside Accounting. 1st ed. Farnham, Surrey, England: Gower.
Protecting the public interest. (2002). 1st ed. Washington, D.C.: U.S. General Accounting Office.
Ramanan, R. (2014). Corporate Governance, Auditing, and Reporting Distortions. Journal of Accounting, Auditing & Finance, 29(3), pp.306-339.
Special issue on NGO accounting, auditing and accountability. (2004). Accounting, Auditing & Accountability Journal, 17(5).
Weirich, T., Pearson, T. and Churyk, N. (2010). Accounting & auditing research. 1st ed. Hoboken, NJ: Wiley.