Communications AND audit Issues Samples †MyAssignmenthelp.com

Question: Discuss about the Communications AND audit Issues . Answer: Introduction What motivated this reform, according to ISA 701 -Communication of key aspects of the audit in the report of the independent auditor-, is because the users of the financial statements have demanded more information of those issues that they are most concerned about the communications maintained between the GER and the auditors. In accordance with the above, NIA 260 -Communications of audit issues with those in charge of administration (Revised) -which covers the aforementioned communications, has an important relevance when it comes to performing the work (Collings, n.d.). There have also been major changes in other ISAs. For example, in ISA 720 -Responsibility of the auditor on other information in documents containing audited financial statements-, dedicated to the verification of other information - that is, that accompanying the financial statements, whose level of assurance is lower, but with application in some countries; in ASA 570 -Company underway (Revised) - about the wor k to verify that the company applies the principle of business in operation, where we will see that the material uncertainties about this principle have a section in the report , before they were part of the emphasis paragraphs (Hayes, Gortemaker and Wallage, n.d.). The purpose of this review is undoubtedly the new order of audit paragraphs. By way of summary, the main modified standards have been made in the following norms, In addition, a number of modifications of agreement - conforming amendments - have also been introduced to other ISAs, with a semantic rather than an adaptation to the new terms and structure of the report. In January 2015, the IAASB made a significant leap forward by publishing the new standard on the audit report which, as the most important novelty, includes the inclusion of a section called "Key audit issues" (Choi, Frost and Meek, 2014). This section should reflect those questions of the audit work - salaries, transactions, disclosures in the notes, etc. - that represent a high professional judgment - for example, estimates of impairment and provisions - and that have generated a high flow of communication between those responsible for the government of the entity -RGE- and the auditors (Doupnik and Perera, 2015). Auditing Issues Surrounding the collapse of ABC Learning Centre ABC Learning Centre rose and dominated the daycare industry in Australia like a phoenix in the space of two decades and had a controlling majority in the countries daycare industry. It is worth to note that however, its fall was even swifter as the management of the company failed to control the fortunes of the company efficiently. With a clear vision on growth, the management failed to strengthen its base (Crumbley, LaGraize and Peters, n.d.). Additionally, accounting discrepancies and the change in government policy accelerated the companys downfall which was the most dominant force in daycare industry at one time. Financial discrepancies were a major attribute of the companys downfall. The representatives from the Australian Competition and Consumer Commission attributed it to financial mismanagement like high debt level. Related party transactions also led to its downfall. Risk assessment procedures and related activities to identify events that indicate that the ability to continue as a functioning company is in doubt (Oringel, 2012). When risk assessment procedures are applied, the auditor will consider whether the facts or conditions that may give rise to significant doubts as to the ability to continue as a going concern. Continuity of the business and validate the following aspects: Key Audit matters in the collapse of ABC Learning Centre If the valuation has been made, the auditor will discuss with the management and individual or jointly identified events or situations, which may generate significant doubts about the continuity of the business, in which case will find out the action plans to deal with these facts and conditions. If such an assessment has not yet been made, the auditor will discuss with the management the basis for the intended use of the business hypothesis under way and inquire with the management about the existence of facts or conditions that individually or jointly may generate doubt about the business in progress of the entity (Moroney, 2016). The auditor will also inquire with management about their knowledge of events or situations after the period evaluated that may generate significant doubts about the entity's ability to continue as a going concern. Examples of facts or conditions that may call into question the business assumption o n going. That the company cannot meet the payments corresponding to the debts incurred. Audit for Going Concern- ASA 570 These are the issues that may lead to a companys ability to continue as a going concern Excessive dependence on short-term loans for long-term financial assets is a major risk for a going concern and either the loss of a principal supplier for the development of its activities, without having the option of being able to replace it. Indications of withdrawal of financial support by creditors and change in the way payment of transactions with suppliers, from payments to credits to cash payments, and without sufficient liquidity to cover the needs of the operations of the company. Loss of important customers is also a threat to business.. there are also changes in regulations that negatively affect the entity and additional audit procedures when a fact or event is identified that creates doubt about the business in progress (Dauber, 2008). When identifying facts that generate doubt about the company's business continuity, the auditor will obtain sufficient evidence to determine whether or not there is material uncertainty through the application of procedures additions, wh ich will include the following factors: Request to the management or direction of the assessment or assessment of the entity's ongoing business. Action plans made by management for future actions related to the risks identified in the evaluation carried out and whether such action plans are feasible taking into account the circumstances. Forecast of future cash flow and evaluation of the reliability of the data used to prepare said forecast. Adequate conclusion of the business case in progress, despite the existence of material uncertainty (Dauber, 2008). When the auditor concludes that there is a material uncertainty but that the assumption of business in sea cha is supported by management is appropriate to determine whether the financial statements present the following aspects: Issues to be included in the auditor's report If the financial statements have been prepared under a hypothesis that the auditor believes is not appropriate, an unfavorable opinion should be expressed. Going concern How does the external auditor verify the entity's ability to continue as an "operating company" or, as it has been called, "business in progress"? Therefore, the continuity of the entity will be presumed when its profitability and access to sources of financing are adequate and have been maintained for a reasonable time and, in addition, payments of debts and liabilities arising from the operation are programmed with the due anticipation and are carried out without affecting the financial structure of the entity (Dauber, 2008). In these cases, it will not be necessary for the management to mention this situation in the financial statements or in its notes, since it is elaborated on the basis of business in progress. The auditor will refer to the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), in the event that the management of the entity complies with said regulations in the preparation of its financial statements (Dauber, 2008). Within the conceptual framework of the IASB, the Basic Postulate, Business on the Move, is identified as a fundamental hypothesis. Audit Procedures The auditor is responsible in the evaluation and conclusion on an entities ability to go on as a continuing entity or as a going concern for the entity. The auditor is responsible for evaluating and concluding on the entity's ability to continue as a going concern for the following year from the date of issuance of its opinion (Dauber, 2008). The regulations to be applied will be those related to the International Standards on Auditing (ASA), specifically, ASA 570, Company in operation. This standard establishes with greater precision and detail the responsibility of the auditor to make an assessment of the entity's ability to continue as a going concern, obtain evidence of management's hypothesis in this regard, and determine the implications in the report audit (Dauber, 2008). Without being considered as the only viable procedures to be applied and only as a guide to carry out such risk assessment and assessment, the auditor should have a detailed work program and a checklist of t he business in progress. Before the end of the year, in the planning stage of the audit you should talk to the directors of the entity and comment with them if they have identified any significant issue that causes any uncertainty in the continuity of the company during the coming months. If this is the case, it will be necessary to follow it up during the entire audit, before the report is issued and, in all cases, to inform the management of the company about the legal consequences and impact that this issue will have on the financial statements and, therefore, the opinion. The auditor must ensure that the evidence he has made, the internal and external consultations that may be carried out, the reading of the minutes of the shareholders and of the Board of Directors, bank and third-party confirmations, future action plans and projections of the entity and the statements of the directorate, are documented and archived. Usefulness of ASA 701- Auditors communication What is the order of the sections of the report? First, the "Opinion" and the "Foundations of opinion" are prioritized and placed at the beginning of the report, in this order. They are the only paragraphs that are fixed in accordance with ASA 700. However, in some standards such as ASA 701, indications are given about the order of auditors paragraphs in relation to emphasis paragraphs. Previously, these paragraphs were almost at the end of the audit report (Davies and Aston, n.d.). With regard to the paragraph "Opinion": - The audited entity and the financial statements should be identified, if indicated that they have been audited - except in case of denial of opinion, which will indicate that "We have been appointed to audit the financial statements of ..." -, and the date of these will be specified.- The financial information framework which is applicable - IFRS, IFRS for accounting, other local frameworks, etc. -. If in addition to the financial information framework there are other legal requirements, they must be identified.- Regarding the types of opinion, the following are still known, although with new implications: a) Opinion not modified. b) Opinion with caveats. c) View denied. When this type of opinion is given, the paragraphs of "Key audit questions" or "Other information" cannot be inserted, as this might make the audit report less effective. d) Unfavorable opinion. In this case, ASA 701 recommends, but does not prohibit, to include auditors opinion other than the caveats that give rise to unfavorable opinion, because their inclusion could make the financial statements more credible than they actually are. On the other hand, "related uncertainty with the business principle in operation "has a separate section in the report (ASA 570,), provided that the section is well informed (Davies and Aston, n.d.). With the previous regulation, this uncertainty was part of the emphasis paragraphs. The content of this paragraph, in its structure, has practically no changes. Subsequently, the section "Key issues of the audit" will be reported, to which we will devote a special section to this article. After the key audit questions, , in this order, paragraphs of emphasis and paragraphs on other issues [ASA 706 (Revised)]; we recall that the former have the function of giving relevance to certain disclosures of the financial statements, while the latter have th e purpose of communicating certain issues not disclosed in these but that may be useful for users' understanding of financial information . . Before the end of the year, in the planning stage of the audit you should talk to the directors of the entity and comment with them if they have identified any significant issue that causes any uncertainty in the continuity of the company during the coming months Conclusion In case the auditor concludes that the Management's hypothesis is adequate, regarding the uncertainty about the capacity of the entity to continue as a company in operation and that, moreover, is revealed in the auditors communication report (Davies and Aston, n.d.).The international standard establishes that the evaluation of the business in progress must start from the planning stage and be carried out during the development of the audit until the issuance of the report, since any matter that causes uncertainty in the continuity of the entity, can be identified at any stage of the auditor's work. On the other hand, during the auditor shall keep in mind that he / she should approach the Management of the entity in a timely manner, in order to know the measures to be applied that tend to mitigate the problems of continuity detected and, if necessary, to convince it that the states financiers. References Anandarajan, A. and Kleinman, G. (2015). International auditing standards in the United States. New York: Business Expert Press. Choi, F., Frost, C. and Meek, G. (2014). International accounting. Harlow: Pearson. Collings, S. (2013). Interpretation and application of international standards on auditing. Hoboken, N.J.: Wiley. Collings, S. (n.d.). Frequently asked questions in international standards on auditing. Crumbley, D., LaGraize, W. and Peters, C. (n.d.). Case studies in forensic accounting and fraud auditing. Dauber, N. (2008). Wiley, the complete guide to auditing standards, and other professional standards for accountants, 2008. Hoboken N.J.: John Wiley Sons. Davies, M. and Aston, J. (n.d.). Auditing fundamentals. Doupnik, T. and Perera, H. (2015). International accounting. New York, NY: McGraw-Hill Education. Hayes, R., Gortemaker, H. and Wallage, P. (n.d.). Principles of auditing. Moroney, R. (2016). AUDITING. Melbourne: Wiley. Oringel, J. (2012). Effective auditing for corporates. London: Bloomsbury Information.