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HI6026 Audit Assurance and Compliance Editing Services
Auditing procedure is designed by an auditor to contain specific and sufficient accurate auditing evidence. Auditing procedure involves inspection, the collection of evidence, observation, recalculation and proper interpretation with an analytical process of assurance and compliance, usually in the similar combination. The major requirement of preparing this report is to identify the needs of services of experts or an auditor to interpret the fair and true value of a financial position of the company. The major description will be explained related to the preliminary figure of materiality and its significances to optimise feasibility and reliability of operational and auditory resources in the financial and auditing reporting process. An auditor is a person who is capable to emphasize the financial status of any company through conducting auditory process. Double Ink Printer Ltd. A company is a company who needs to make proper adjustment of financial resources to measure comprehensive nature & level of materiality.
Explanation of need to use the services of an expert in the audit of Double Ink Printers Ltd (DIPL):
Double Ink Printer Ltd Company is the publishing private agency which works in the printing sector and serves its services to the educational, advertising and magazine industries. DIPL Company wants to expand their business at the perfect level to explore the current business level and status. An appointment of an auditor is must for any company to regulate its business activities and operations. An auditor and expert is the man who has interpersonal capabilities and skills to recognize future needs and make the responsible adjustment to get long-term achievements. A section of 620 of International Auditing Standards (IDS) says that application of auditory services from experts becomes necessary for a company when a company needs to measure its business operational level and status (Cohen & Hanno, 2017).
An auditor is an individual who adopts auditing process methodology to obtain actual auditory evidence. According to the section 620 (2013), an auditor designs auditing reports carries out financial tests to collect evidence, analyses evidence to draw the proper and accurate conclusion. DIPL Company needs an expert and it services to evaluate fixed assets, inventory level, and performance level to draw financial decision. Auditor helps the DIPL Company to focus on managerial and operational risks areas to achieve the level of assurance required to taking the appropriate and corrective decision (Power and Gendron, 2015).
Needs of the auditor and experts to DIPL Company in following ways:
1.Effective evaluation of fixed assets
DIPL is the private company. To explore its business status and the level company finds a need to appoint a skilled expert who has knowledge of audit and financial statements. Auditor is the person who differentiates between book value and market value of the company to take corrective and appropriate decision (SA 620, 2017)
An expert is capable to observe the financial requirement of the company and the nature of the inventory. Expert helps the company to make proper adjustment of liquidity position of the inventory so that company could know actual needs related to inventory (Tepalagul and Ling Lin, 2014).
Auditor measures an actual relationship between debt and equity level of the company. Company liquidity position depends upon the liability and flexibility of the company. Determination of liquidity position of the DIPL will support to analyze the future steps which are to be taken while making financial decisions.
4.Feasibility and flexibility
If DIPL company would appoint a financial expert or an auditor to inspect its business operations and status, a company will be able to draw perfect conclusion relation to financial decision making procedure and business expansion activity (Tepalagul and Ling Lin, 2014).
You are at the planning stage of the audit of Double Ink Printers Ltd (DIPL) for the year ended 30 June 2017 and have been asked by the audit manager to assists determine the materiality levels.
AICPA (2017), says that materiality is the financial process or a concept that optimises and evaluates performance against overall auditing criteria. Materiality level of preliminary figures is decided while making auditory reporting process to make effective and accurate decisions and provide required & additional information as appropriate evidence for proper risk analysis. Accurate and rationale statements are performed by fair and true information provided by adopting materiality concept. Misstated frauds, actions, and errors, and omission of a transaction could be identified if a company follows materiality concepts while making decision process and operational statements. A company becomes able to recognize future required aspects and make proper judgments of financial status by enlightening the actual and accurate information and other necessary facts related to nature and operations of the business.
a.Identify five factors that would influence your determination of the preliminary figure for overall materiality for the 2017 audit of DIPL.
Solution: The factors that influence financial materiality concepts those are –
Quality disclosures facts:
The major and primary factor of materiality concept is disclosing important and necessary information on time. A company needs to measure accuracy and reliable information to judge what's happening and changes are been made in the external environment. Disclosing actual and required figures become necessary for the company to measure and examine additional necessary information as footnotes according to requirements. If a company fails to adjust additional information and unable to shows them in the financial statements it will reduce the productivity of the company and materiality level would be reduced (Cameron & Robyn-Ann, 2014).
Perceptions and thinking of Auditors:
Another major factor is personal thinking and perception of an auditor. An auditor should adopt accounting standards and norms to make proper adjustment and complete requirement of financial purposes and objectives of the company. Auditory procedure should be free from personal biasness and perceptions. These factors would make proper adjustments and maintenance of materiality level and reliability of accounting standards.
Unusual trends and activities:
Unusual trends mean uncertain changes occurred in the business activity. These changes can be made through errors in the information facts and omission in the financial transactions. Changes in the internal and external scenario create positive and negative fluctuations in the decisions of the company. Negative impacts make decisions uncertain and uncontrollable that lead the lower the level of materiality. Such factors and changes make critical situation for the company and increase the negative influence in the application of materiality (Cameron & Robyn-Ann, 2014).
Types of information:
Types of information are also major aspects that impact the level of materiality. A company needs to store and detect important information securely to measure actual materialityfigures and make accurate decisions. Financial information is categorized into two parts financial and non-financial information. Financial information is also known as quantitative facts and data which are necessary for the company to evaluate at the time of making proper judgments.
Financial framework and reporting:
Other main aspects of materiality concepts are size, nature, and activity of businesses that measures actual feasibility and reliable operations of financial frameworks and reporting process. Financial framework is based on auditing reporting process. A company needs to follow conceptual framework according to their requirements and sizes. Application of financial reporting and framework are implicated according to organizational structures and nature of various operational activities. DIPL Company wants to know actual liquidity status and their actual position. The company also expanded its business operations through online business. This activity will make company decisions related to financial operation more complex and critical. More complexity would lead to more confusion in the detection of financial problems. It will create the difficulties for the auditor measure materiality level (Messier, et. al., 2017)
(B) Explain why the factors identified in (a) above are relevant to your calculation of the preliminary figure for overall materiality.
DIPL Company should appoint a financial expert and an auditor who has interpersonal skills of adapting materiality concept to maintain their liquidity positions and relevancy of materiality factors. Such relevant factors are:
1.Quality disclosures facts:
Quality disclosures are those factors which make relevant to a company when a company needs to mention additional information in the financial reports and statements and make required adjustments to get long-term achievements. To maintain the level of materiality of preliminary figures in the company, it becomes necessary to make required adjustment according to situations' demands. Disclosures of information help the primary users to avoid irregular and irrelevant facts and making reliable decisions (Messier, et. al., 2017).
2.Unusual trends and activities:
Unusual information is those changes are not in the hand of the company to make proper adjustments. Such uncontrollable and uncertain changes make a company liable to maintain the level and accuracy of materiality. Changes in individual nature, culture and fluctuations in the governmental policies are major aspects that create uncertain changes according to accounting standards and laws (Materiality guide, 2015).
3.Perceptions and thinking of Auditors:
An auditor is a person who is liable to make the proper adjustment after collecting evidence, making recalculations and readjustment of necessary figures to support the company to understands actual situation and demands of the financial resources. Auditor has to make statements and judgments free from his personal thinking and perceptions. Lack of efficient knowledge and efficacy of information makes an auditor liable to do wrong judgments which reduce the materiality level. So the auditory planning process should be free from a personal perception of the auditor to maintain the level of materiality (Peter, 2013).
4.Types of information:
Types and various kinds of information are also the major reason which impacts the relevancy and reliability of material principle of financial information and figures. Financial information is of two types such as quantitative and qualitative facts. Qualitative facts are related to nature, behavior and thinking of the employees and changes made through them whereas quantitative information is related to such facts and data that are transacted and securely stored in financial statements and records. Errors, omission, misstatements, and frauds are necessary while using quantitative information (AICPA, 2017).
5.Financial framework and reporting:
Financial reporting frameworks are based on conceptual analysis and analytical procedure that makes an auditor able to analyze requirements of financial resources according to accounting standards. The materiality concepts should be adapted to cover the necessity of the company according got their complexities, size, and nature (ISA, 2010).
(C) Describe how the factors influence preliminary figure for overall materiality in the audit planning process.
Factors that impact preliminary figures for materiality
Quality disclosures facts:
According to the sections 320, “an auditor must revise the materiality concept to fulfill the companies' requirements. Quality disclosures mean adjustment of actual and additional facts that are necessary to represent in the financial statements and in the annual report to examine the availability of level of accuracy (Materiality guide, 2015).
Unusual trends and activities:
Auditor monitors the future requirement of resources so that company could make accurate and relevant judgments to maintain their liquidity and financial positions. An auditor should understand the changes happened uncertainly and rapidly. Such fluctuations are uncontrollable but necessary to observe to avoid them in the future and get long-term desired goals.
Perceptions and thinking of Auditors:
DIPL company is the in the position where anyone wants to meet their actual financial requirements related to business operations. An auditor needs to take the decision and make his judgments which are free from personal decisions and interruption. Auditor should maintain the level of materiality by following accounting standards and regulate auditing planning process (Messier, et. al., 2017)
Types of information:
Types of information are also impacted the materiality concept and feasibility in financial statements. Auditor judges collect, classify and evaluate various factors that are necessary to disclose while making financial decisions. Auditing planning and strategies are made with proper consideration of quantitative information. If such information is to be avoided, auditor is not able to judge actual changes and make required adjustments (AU-C Section 320, 2017)
Financial framework and reporting:
Financial reporting framework is managed by the auditor by following actual requirements and conceptual analysis in the company. The company monitors and evaluate its conceptual frameworks according to nature, size, and expectation of internal and external management. If the company is in critical condition or of complex nature then a company would not be able to recognize future aspects and make required adjustment to enhance particular productivity (Cameron & Robyn-Ann, 2014).
This reading had provided the knowledge about organizing and implicating perfect level of materiality by analyzing relevancy and transparency of financial reports through a successful auditory planning process. This report has also been concluded about requirements of an auditor and a financial expert to judge accuracy and liquidity status of the company. An auditor is a person who has capabilities and skills to regulate internal and external audit process to enhance the productivity level by adopting accounting laws and regulations. Auditor finds out actual and transparent figures which are necessary to disclose in their financial status to increase r maintain the level of materiality. This report also explained about materiality concepts and its necessity in the company while making financial decisions and auditing planning process.
1.AICPA, 2017. Materiality in planning and performing an audit. Audit sampling.
2.AU-C Section 320, 2017. Materiality in Planning and Performing an Audit. AICPA.
3.Cameron & Robyn-Ann, 2014. Applying the Materiality Concept: The Case of Abnormal Items. Corporate Ownership & Control, Volume 12, Issue 1, Continued – 4
4.Cohen, R. J. & Hanno, D. M., 2017. Auditors' Consideration of Corporate Governance and Management Control Philosophy in Preplanning and Planning Judgments. American Accounting Association. Volume 19.
5.ISA, 2010. Materiality in planning and performing an audit. International standard on auditing 320.
6.Materiality guide, 2015. Materiality. ICAC.
7.Messier Jr., William, F. & Lizabeth, A., 2017. Inherent Risk and Control Risk Assessments: Evidence on the Effect of Pervasive and Specific Risk Factors. Austen American Accounting Association.
8.Peter, E. G., 2013. Audit Risk Assessment and Detection of Misstatements in Annual Reports: Empirical Evidence from Nigeria. Research Journal of Finance and Accounting. ISSN 2222-1697 (Paper) ISSN 2222-2847.Vol.4, No.1.
9.Power, K. M., and Gendron, Y., 2015. Qualitative Research in Auditing: A Methodological Roadmap. A Journal of Practice & Theory.
10.SA 620, 2017. Using the work of an auditor’s expert. International journal of the audit of financial statements.
11.Tepalagul, N. and Ling Lin, 2014. Auditor Independence and Audit Quality: A Literature Review. Journal of Accounting, Auditing & Finance, Vol. 30(1) 101–121.