Analysis of Threats to Auditor Free-Samples-Myassignmenthelp.com

Questions: 1.Identify and Evaluate any threats in relation to Auditor Independence 2.Identify any Safeguards to those threats Identified above. Answers: 1.Risks in relation to Independence of Auditor Promotion of Company by an auditor In the situation under study, where the client wants the auditor to promote about his business policies and practices at the public platform in an seminar and if the auditor denies this then continuation of audit in next year is in question. The risk clearly shows the threat of intimidation in which the client has dominance power over the auditor and can affect the reporting of auditor by making him concern about his financial security. The risk in this can be assessed by the degree of dominance created by the client over auditor reporting (Edwin, 2015). Benefit given to Auditor In the given case, where the client is giving extra benefits in form of holiday vouchers of the fourteen days to one of the member of audit team Geoff for himself and his family member creates the financial interest of the auditor in the business of LTH Company. The auditor may have a personal interest in the business of the client and can overlook the mistakes identified during audit in returning the favor of free vouchers received by auditor. The threat in given situation related to auditor independence is the threat of Self Interest. The risk can determine by the quantum of interest taken by the auditor in the business of the client (Barizah, 2016). Family Relationship among the auditor and employees of the company While having conversation with the audit team member Michael it comes under notice that person responsible of preparation of financial statements in LTH Company is the father of Michael. The audit team member in this situation may report the mistakes of his father which he is able to allocate during audit process. The audit reporting free from any biasness is hampering with the threat of familiarity in the situation. This threat can be evaluated by the level of mistakes ignored by the auditor while doing audit due to his family relations (UK, 2013). Audit and Non Audit Services performed by the Audit Team Member In understanding the situation of the client, the audit team has performed some of the accounting and taxation services of the client about four weeks ago for the same year for which she has to do audit services. The audit team member is under purview that the work done by her is free from error and mistake and she does not need to have a look on the same at the time of audit. The risk in this situation is the risk of self review which impacts the independence of the auditor while reporting the true and fair view about affairs of the company. This risk is appraised by the degree of assumptions made by the audit team member in respect of correctness of the non audit work done by her. 2.Safeguards from the risk in respect of independence of auditor Safeguards available because of the applicable regulations are called regulatory safeguards. These includes: Monitoring and reviewing of work of auditor by the Government authorities and their agents. Evaluation of reporting done by auditor for the clients by the Australian Auditing Standard Board. Reporting of Frauds and errors of Clients business to the regulatory bodies. All the audit method as defined under different statutes are applied while doing audit Safeguards available because of the engagement letter between client and auditor are called engagement safeguards. These includes: Expression of interest in relation to client business is to be disclosed before taking up the assignment Rotation of team members of each year of audit The assurance and audit team members are different for same client No extra benefits should be taken by auditor and his team to safe himself from under influence of client while reporting (Livine, 2015). Situation of danger in working of business in respect of purchase of inventory by the company The current audit practices are more concern about the assessment of risks that can create the situation of danger in the business and can hamper the going concern policies of any business. Now a days business environments are very complex and critical in nature and the reaction towards such complex business environment by the management creates the situation of risk in business. The following are the two major risk situations in the business policies of MSL Mining Supply Limited: Foreign Currency Fluctuation Risk- the Company is purchasing the supplies from the creditors located in different countries of the world like China, UK, and USA etc. The currencies of the respective counties are different from home currency of the company. While purchasing the goods from these suppliers, the business of the company comes under purview of the Foreign Currency risk which changes every second according to the market forces. Loss of spares- Since main equipments and its spares parts transported from different supplier and customers located in different parts of the world, there may be chances of damage of spares in the transportation. The company has to made provision about such damages as the company does not have any clear agreement with supplier or customers about damage of spares in transit (Imrie, 2011). Risks in audit and account balances which require more attention of the auditor in respect of situation of dangers identified in MSL Mining Supply Limited Risk in audit refers that financial statements are not correct in all respect and the opinion of the auditor in respect of such statements are bias in nature and full of misstatement, errors. The two components which auditor has to take into consideration are level of material mistakes and the finding level of such mistakes. In case of MSL Mining Supply Limited, the audit risks in comparison to the business risk identified are as follows: Detection Risk- This risk is present in audit because of quantitative mistakes in financial statements due to wrong application of business policies by the company. These risk results in frauds and error in any company and procedures compliance and substantive applied by auditor fails to detect or find the mistakes done in the financial statements of the company. The accounts which require more concern of auditor are Supplier, Customers, Bank Charges, Foreign Exchange Gain and Foreign Exchange Loss. Control Risks- These are risk situation arises out of the errors or mistakes in the financial statements due the lack of control policies of the management. Adequate internal controls system of an organization can help in reducing and assessing the risk level in an organization. The account balance that requires auditor attention is Purchases, Sales, Customers, Suppliers, Inventory and Loss of Goods (Long, 2015). References Barizah N, (2016), Threats to Auditor Independence, available at https://www.academia.edu/260449/Threats_to_Auditor_Independence accessed on27/04/2017. Edwin M, (2015), Analysis of Threats to Auditor Independence and Available Safeguards against those threats, available at https://www.academia.edu/9406967/THREATS_TO_AUDITORS_INDEPENDENCE accessed on 26/04/2017 Imrie B, (2011), Business Risks facing the Mining Industry, available at https://www.in.kpmg.com/SecureData/ACI/Files/Top_20_Risks_the_Mining_Industry.pdf accessed at 26/04/2017. Livine G, (2015), Threats to Auditor Independence and Possible Remedies, available on https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full accessed on 27/04/2017. Long G, (2015), Audit Risk and Business Risk, available at https://www.cpaireland.ie/docs/default-source/Students/Study-Support/P2-Audit-Practice-Assurance-Services/audit-risk-and-business-risk.pdf?sfvrsn=0 accessed on 27/04/2017. UK Essays, (2013), Threat To Auditor Independence Accounting Essay. Available at https://www.uniassignment.com/essay-samples/accounting/threat-to-auditor-independence-accounting-essay.php?cref=1 Accessed on 26/04/2017