AUDIT, ASSURANCE, AND COMPLIANCE assignment

HI6026 AUDIT, ASSURANCE, AND COMPLIANCE

Introduction

The aim of the paper will focus on providing an audit analysis of the BSF limited as well as providing recommendation on the going concern assumption of the company based on the level of audit risk with regards to inherent risk, control risk and detection risk. The general analysis of BSF limited is that, the company depicts a going concern. The audit process and recommendation for BSF li9mtied will be subject to international auditing standard which will act as a framework for our audit and decision making with regards to true and fair view of the BSF financial statement more specifically placing more effort on the audit risk and effectiveness of internal control over cash given that BSF limited received grant from CSIOR worth $500 million for the period 2013-2016.

Steps that you need to consider before accepting doing an audit

. The following are the steps that an audit will take before accepting the audit engagement with BSF limited (ASA 300, 2005)An auditor will accept an audit engagement for BSF limited on condition that it satisfies the standard of IAS 210 “agreeing on terms of an audit engagement. This standard requires an auditor to establish if the financial report framework that is applicable in the preparation of financial statement is relevant and getting the contract of management that it approves as well as comprehend its duties. Where the precondition for an audit is not existing, an auditor must discuss the matter with the management and must not accept the audit engagement unless permitted to so by the law or the standards

  • Ask the customer approval to get in touch with the outgoing auditor and reject the engagement if permission is not granted

  • Get in touch with the outgoing auditor and ask why they must not accept an audit engagement with BSF limited.

  • Making sure that the legit requirement with regards to removal of an auditor from office as well as appointment of a new auditor is met

  • Performing checks to guarantee audit independence is competent carry out an audit as well as depict appropriate resources.

  • Examining if the work is duly low risk

  • Turning down audit appointment where it is understood that limitation will place on the scope of an audit.

Should your audit firm accept the role of doing an audit of BSF Ltd.?

The model for audit risk is worked out as follows

Audit Risk   =   Inherent Risk   x   Control Risk   x   Detection Risk

In this regards, the audit risk for BSF limited is {90%*5%*80%} =3.6%

. (Arrunada, 2013)Since the audit risk is less than 10%i,e 3.6% for the BSF limited, an auditor will accept the audit engagement to audit the books of account of BSF limited since, the risk exposure is low. To accept to audit the BSF limited, we will use the audit risk model in order to establish the audit risk for the company. Audit risk model is important for auditors in managing the entire risk of audit engagement. An auditor will continue to examine the inherent as well as control risk with regards to audit engagement whilst gaining a comprehension as well as overall audit risk that a practitioner is willing to tolerate. Where the both evaluation of inherent risk and control risk is high, the detection risk is set at low level to ensure that the audit risk is at an acceptable level

(Chartered Accountants, 2012)Low detection risk might be attained by growing the sample size of an audit test. Equally, where the auditor considers that inherent risk and control risk of audit engagement is a low, the detection risk is permitted to be set at a high level. For BSF limited, it is evident that the inherent risk is high at 90% since the entity is operating in a much regularized industry and depicts an intricate network of linked financial control. The initial audit assignment is inherently risky since an auditor depicts less comprehension of the BSF limited and its business environment. The inherent risk for the audit might as result is deem to be high. The control risk engaged in the audit is high because the company doesn’t have correct oversight by expert audit committee of financial aspect of the company. The company is in deficit of internal audit department that is important control specifically in a much regulated industry. The control risk for the audit might hence be deeming to be high

What should be included in an audit program for the BSF Ltd

An audit program is a set of process that an auditor assumes to be relevant in audit to get

, (Jeremy, 2011)Definition of audit program Set of procedures (evidence – gathering steps) that an auditor realistic assurance that the financial statement is not impact by material errors. The audit program hence depicts policy and process that dictates how the appraisal of business is undertaken. This entails some guidelines of what need to be done and how much it must be done, collection of evidence and appraisal is important and when it must be executed

The aim of audit program is that it will act a guiding tool for personnel in an audit work which provide evidence of correct planning as well as documentation of audit work as well as time management of audit work. An auditor will prepare an audit plan subsequent to appointment of senior and junior personnel allotment if duties to them, outline the timeframe, the manner to which the audit will be conducted etc. the plan must be inclusive of every procedure in documentation, aims of every sector and aids in implementation like the programs into actions. The following will hence be included in audit program for BSF limited.

  • Comprehensive information of work of the entire junior personnel such as the audit of petty cash , purchase and sales books

  • Obtaining the relevant financial information

  • Reviewing past auditor reports and evaluating the findings

  • Reviewing the internal control questionnaire:

  • Discussing and documenting with the field treasurer the process of receiving and disbursing the cash.

  • Determining whether a listing of all assets owned is upheld by the company

  • Evaluating the computer system operations

  • Determining the nature of a variety of sources of proceeds and any strange recording process, entries, etc.

Any concerns the auditor should have for the full set of journal entries of the R&D transactions from 2013 to 2016

Since, the company is having huge among of grants worth $500 million for research and development, there is concern to audit the journal entries since, and it is susceptible to fraud. In this regards, there is need to audit the full set of journal entries for R$D transaction in order to provide assurance with regards to effectiveness of cash control and internal control over cash.

Since, the company received $500 million AUD from CSIRO, I ill perform audit on cash in order to substantiate the account balances. The main audit process employed in testing the cash balance is the confirmation. To test this, I will ask the cash account to confirm the balance in the bank account and response provide directly to me (Auditor).

As pet of confirming the cash balances, will perform bank reconciliation, by examining the cash confirmed in order to gain assurance over the bank balances, the dissimilarity will rate to deposit in transit and outstanding checks, I will recalculate and test the underlying information in company bank reconciliation and connect the gap between the book and bank balances.

Lastly, since the cash from CSIRO is a grant for research and development on bacteria based feeds, test the right categorization of cash/grants since, some cash balances like the cash balance that is limited from the sue to contractual agreement like the grant of $500 for the sue in R$D only will depict an intricate rules linked to disclosure and assortment. Some instances, the balances must not be listed as cash on the statement of financial position and may require to be listed as venture or restricted cash (Robert, 2009).

Bibliography

Arrunada, B. (2013) The Economics of Audit Quality: Private Incentives, London: Sprigner.

ASA 300 (2005) Auditing and Assurance Standards Board, London.

Auditing Standard ASA 220 (Quality Control for Audits ) Auditing Essentials — Page 28, London: Cingage learning.

Auditing Standard No. 12 (2013) Identifying and Assessing Risks, London.

Chartered Accountants (2012) Auditing Standard ASA 570, Sydney: Springer.

International standards on Auditing 200 (2016) Auditor Independence: Auditing, Corporate Governance and Market (ASA 200), New York: London.

Jeremy, L. (2011) Performance Auditing: Contributing to Accountability, Sydney : Springer.

Reiner Quick (2007) Auditing, Trust and Governance: Developing Regulation in Europe, New York.

Robert, M. (2009) Brink’s Modern Internal Auditing: A Common Body of Knowledge, New York: Cingage Learning.

Singleton, T. (2007) Fraud Auditing and Forensic Accounting — Page 75, Sydney: Springer.

Tommie, S. (2006) Fraud Auditing and Forensic Accounting, London: Springer.

Whittington, R. (2012) Principles of Auditing and Other Assurance Services, London : Cingage learning.