The Global Foundation of Independent Audit - MyAssignmenthelp.com

Question: Discuss about The Global Foundation of Independent Audit. Answer: Introduction: The relevant evaluation of auditing standard is mainly conducted in the assignment, where ASA701 Communicating Key Audit Matters in the Independent Auditors Report is been evaluated for TPG Telecom Limited. The relevant annual report of TPG Telecom Limiteddoes not comply with the ASA 701 standard, where the independent auditor report does not hold any kind of Key Audit Matter. The relevant assessment of risk from material misstatement or significant risk in accordance with ASA 315 is also evaluated for TPG Telecom Limited. This evaluation could directly help in detecting the measures that needs to be conducted by the company in its financial report for allowing the investor to understand the relevant misstatement. The Communication of Key Audit Matters was mainly conducted in annual report of the organisation after the commencement of financial crisis, as companies were not disclosing all the relevant data in their annual report. With the implementation of Key Audit Matter companies were mainly forced by accounting standard to follow the regulation for reducing the occurrence of next financial crisis. Moreover, companies are mainly responsible for disclosing the explanatory materials in key audit report in the independent auditors report. This disclosure is mainly conducted according to the standard mentioned in ASA 701, which could depict actual financial condition to its stakeholders. Analysis: The relevant analysis of the annual report could mainly help in detecting the material misstatement, which could increase problems of the organisation. After the passing of financial crises, authorities mainly detected problems in financial report of organisation, where all the relevant disclosure was not conducted by companies. This relevant problem in disclosure mainly led to the implementation of ASA 701, which is a disclosure measure that needs to be communicated in the annual report. Therefore, relevant disclosure of Key Audit Matters needs to be disclosed by the company in their annual report. The evaluation of the annual report of TPG Telecom Limited also helps in detecting signification risk with ASA 315, which could affect its operations. Arens, Elder and Beasley (2014) mentioned that with the help of material misstatement relevant evaluation of the problems, which could incur in future can be estimated. Moreover, from the evaluation of annual report any kind of problems hin dering activities of the company can be estimated, which might allow the investors in detecting problems of the organisation. On the other hand, Basu (2016) criticises that non-disclosure of material misstatement could eventually increase the unethical measures of the organisation. The evaluation of annual report of TPG Telecom Limited could eventually help in depicting high risk if material misstatement in accordance with ASA 315 are conducted as follows. Assessed areas of high risk of material misstatement: After the evaluation of TPG Telecom Limited annual report no relevant Key Audit Matter (KAM) is communicated by the company to its shareholders. This relevantly reduces compliance of the organisation with the ASA 701 in disclosing all relevant matters. The evaluation of annual report mainly helps in depicting the disclosure, which is been conducted by the company. This could eventually help in stating the problems faced by the organisation, where the director and independent auditor depicts that there is no material misstatement in annual report of the organisation. The company is not following with the overall ASA 701, which mainly reduces viability of the annual report depicted by the organisation. The relevant disclosure of Key Audit Matter (KAM) is also not being depicted in the annual report of the organisation. This mainly indicate the lack of Auditing standard ASA 315 conducted by the company and the auditor. Furthermore, the use of ASA 315 could allow investors of TPG Telecom Limited to identify the risk of material statement present in the organisation. Accounting policies adopted by the company mainly helps in depicting the actual financial posit on of the organisation. However, the non-representation of Key Audit Matters in the annual report of TPG Telecom Limited mainly indicates the noncompliance of ASA 701 conducted by the organisation. Moreover, there has been high profile scandals conducted by companies where auditors have unethically represented financial strength of the company, which directly questions creditability of the independent auditors report without Key Audit Report. The auditors of TPG Telecom need to understand the business risk, where identification of material misstatement is essential to be conducted. The business environment risk, firms operation risk, business entity risk and other forms of risk needs to be evaluated by auditors before evaluating the audit procedure. The evaluation of approach used by organisation, such as top down approach could also increase the chance of material misstatement, as employe es have no say in the decisions conducted by organisation. Therefore, understanding the business risk, which could convert into audit risk needs to be evaluated by the organisation. Cao, Chychyla and Stewart (2015) stated that auditors need to evaluate all the business process of the organisation to understand the actual risk, which could arise material misstatement. The use of ASA 701 was mainly implemented after the completion of financial crisis, which was started in 2007. The crisis mainly allowed audit Assurance board to detect unethical measures conducted by organization and independent audit companies while formulating the financial report. This unethical measure in preparing the financial report as mainly portrayed wrong financial strength of the organization, which increased share value and allowed companies to retain more capital from the market. However, during the financial crisis all the companies using unethical measure mainly collapsed and no buyers were present for their shares. This directly declined financial stability of the capital market and economy of various countries all around the world. Hence, it could be understood that the implementation of ASA 701 is mainly a measure taken by the audit Assurance board for reducing any kind of unethical ways used by organizations. Chandler (2014) stated that companies used their debts as income in their financial report to hide their insolvency condition from investors. The ASA 701 was mainly a measure for stopping the company to use unethical measures in preparing their annual report and increase transparency in portraying their actual financial condition. Significant risk identified in accordance with ASA: In addition, to the non-representation of Key Audit Matters the company has no material misstatement, which was identified by the independent audit report. However, according to the audit standard ASA 315 conducted by auditing and assurance standard board, auditors with the standard will be able to recognisees risk of material misstatement present in companys financial books. Moreover, the ASA ruling states that auditors need to evaluate business environment, internal control, and external risk, which could arise material misstatement of the organisation. ASA 315 directly indicates that auditors need to use the guideline depicted in paragraphs from A9 t A11 and A27 to A30. This could directly help auditors in identifying the material misstatement, which could increase audit risk. This relevant evaluation could also allow the auditors in detecting frauds, which could be conducted by companies in inflating their balance sheet. In this context, Cohen and Simnett (2014) mentioned that au ditors due to the measures depicted in ASA standard are able to detect frauds, which could be conducted by companies in preparing their annual report. On the other hand, Earley et al. (2016) argued that independent auditors are influenced by management to use unethical measures in their audit report for inflating financial performance of the company. However, the current financial report of TPG Telecom Limited does not comply with the ASA 315 standard, as there is no material misstatement that is identified by auditors. In addition, the auditors need to follow ASA 315 paragraph A105 to A108, which enables them to identify risk of material misstatement that is present within operations of the organisation. Moreover, the evaluation could also help in asserting different levels of diverse transaction classes while detecting performance of audit process. The auditors are mainly able to detect financial risks, while analysing financial report of the organisation to detect material misstatement hindering their financial stability. Hay, Knechel and Willekens (2014) stated that auditors by implementing audit procedures are able to detect financial viability of companys annual report. Research- extent and application: The TPG Telecom Limited annual report does not comply with ASA standard, which is needed by every organization. This noncompliance of preparing the key audit matters could directly increase audit risk of the organization. This relevant audit risk could be identified with the help of audit procedures, which needs to be followed by auditors. The Railways procedures needs to be followed by auditors to evaluate and analyze risk involved in operations of the organization. Firstly, the identification of risk pertaining business objectives portrayed in the financial report needs to be evaluated by the auditor. This evaluation could eventually help in identifying the material misstatement, which could depict wrong financial statement of the organization. Secondly the auditors need to approximate the importance of risk to the management of the company, who needs to comply with regulations laid down by Audit Assurance Board. In addition, the likelihood of occurrence of certain risk needs to be identified by auditors which might increase material misstatement in future of the organization (Junior, Best and Cotter 2014). Furthermore, relevant activities conducted by the organization needs to be evaluated for identifying any kind of risk pertaining from those actions. Areas in financial report that needs significant management judgement: There are different levels of internal control that needs to be conducted by organizations for reducing the risk from material misstatement. In addition,evaluation of internal control for specific entity needs to be conducted by the independent auditors for detecting the chance of material the statement. according to ASA 315 A36to A41, relevant understanding of industry divisions and risk involved in operations of the organization needs to be evaluated by the auditor's. This evaluation could eventually help in detecting the external factors, which could be applicable on the formation of financial report. The understanding of internal control needs to be conducted by auditors for adequately completing the audit procedure. This could eventually allow the auditor to understand the complex internal control, which is being conducted by the organization for completing its operations. Furthermore,majority of the internal controls evaluated by the auditors needs to comply with the process of financial reporting, as detection of material misstatement is the major priority for the auditor. According to ASA 315 paragraph A42 to A65, professional judgement of the assessor regarding specific control could be conducted by the auditor for singling out controls, which could have material misstatement. In this context, Kinney (2015) stated that auditors by evaluating annual report and operations of the company are able to detect any kind of risk, which could lead to material misstatement in the financial report. The audit process conducted by the auditor's needs to comprehend in the control environment in which operations of the organization is being conducted. this evaluation could eventually help auditors to understand the overall activities conducted by the administration within the organization. this evaluation could eventually lead to a detection of any kind of material misstatement present within the Governance of the organization. Moreover, this could also help in detecting the culture of honesty as well as ethical behavior present within the organization employees and Management. this overall detection could eventually help in detecting material misstatement present within the operations of the organization. Therefore, auditors need to evaluate external and internal control of TPG Telecom Limited for identify any kind of material misstatement, which could be present in its operations. However, both directors and independent auditors of the firm has depicted no material misstatement p resence in operations of the company (Knechel and Salterio 2016). In addition, the detection material misstatement could evaluate the actual financial position of the company. therefore, from the identified material misstatement the auditors could portray the actual financial position of the company to the stakeholders. These material misstatements can be shown directly in key audit matters section of the annual report, which could in turn increase viability of their annual report. The effect of significant events and transactions occurred during the period: The evaluation of significant events and transactions that has been conducted by the company during the fiscal year also needs to be evaluated by auditors. This evaluation could eventually allow the auditors to detect any kind of strange activities or risk which might increase the chance of material misstatement. Currently, TPG Telecom Limited directly provides all the relevant information regarding their activities in the annual report. Therefore, different impact of the event and transactions occurred during the period can be evaluated by auditors. Different accounting standards such as ISA 260 could also be violated by the organization,issues regarding internal audit procedures might eventually rise. As depicted by Louwers et al. (2015), companies following all the relevant accounting standards are able to portray actual financial position to the stakeholders, which depicts the honesty of the organization in conducting their operations. Moreover, the evaluation of significant even ts could allow the auditors to identify any kind of risk involved in both internal and external factors of the organization. Moreover, the internal and external process could also be evaluated by the auditor during the period. this kind of detection of different types of risk identified from operations could eventually allow the auditors to understand material misstatement of the organization. on the contrary, Messier, Glover and Prawitt (2014)argued that companies use the independent auditor's report as a cover for hiding all the relevant unethical measures conducted during the fiscal year. Recommendation and conclusion: From the evaluation of all the relevant ASA standard such as ASA 701, ASA 315 and ISA 260, companies are needed to portray their actual financial position in the annual report. Companies that are not providing key audit matters in the annual report could eventually increase suspicion of the investors regarding their activities. Hence, TPG Telecom Limited needs to prepare key audit matters in their annual report to identify any kind of material misstatement a present in its operation. The disclosure needs to be conducted by the organization in the annual report to the investors, which could help in portraying the actual financial position of the company. Therefore, it is essential for TPG Telecom Limited to adopt ASA 701 and ASA 315 in its operations for complying with the Audit and Assurance Board. The company also needs to acquire an experience auditor or an audit company, which could depict actual financial position of the organization. This selection of the auditor is essential, a s they need to know all the relevant standards and regulations which needs to complete their actual financial report. Thus, the company need to prepare financial report where all the relevant accounting standards are depicted and addressed according to the regulation. Lastly, all the relevant transactions conducted by the company during the fiscal year needs to be evaluated by the auditor for detecting the material misstatement present within operations of the organization. this detection of material misstatement could eventually allow the auditor to convey the message in key audit matters of the organization. This transfer of information from the auditors to the investors could eventually help them understand the actual financial position of the organization while making a relevant investment decision. Reference and Bibliography: Arens, A.A., Elder, R.J. and Beasley, M.S., 2014. 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