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Introduction to Auditing and Assurance Services

Category: Business & Management Paper Type: Report Writing Reference: CHICAGO Words: 1600

      Business risk refers to the risk that an entity as the organization will be proved as unsuccessful to accomplish its goals and objectives. In daily routine managers takes a number of the decision as related to purchasing an inventory, and decision for investment, such decision can influence the business conditions as the customer may start buying from the competitor's companies and taxes may increases (Louwers, et al. 2006).   

Conditions increasing demand for reliable information of Auditing and Assurance Services

In accordance with the chapter, the major conditions that increase demand for reliable information are four in number. However, these are remoteness, complexity, consequences and time sensitivity. Remoteness condition presents that investors or partners cannot visit the distant location personally to collect accurate information for decision making. Complexity presents that complex information cannot be considered as understandable for the investors, therefore, it requires professional services to make the information clear and easy to understand.  Organizations focus on reliable information because of these conditions.   

Risks creating Demand for independent and objective outsiders to provide assurance

       Information risk is the major reason that creates the demand for independent and objective outsiders to provide assurance to decisions makers as information provided by the internal sources as managers and accountants can be sometimes false and wrong (Louwers, et al. 2006). Companies sometimes provide misleading and false information just for their personal benefits while such information can generate risk for the decision makers as they may take the wrong decision on the basis of this information.

Auditing and what Auditors Do? Of Auditing and Assurance Services

      Financial frauds and accounts data manipulation are the factors that have a negative influence on the financial condition of the companies (Louwers, et al. 2006). Auditing helps out the companies to get rid of such evils in real meaning. The basis for the process of auditing in the financial statement is provided by the American Accounting Association Committee that is commonly known as AAA in the accounting and auditing books.

    Auditing process basically contains on two major activities as obtaining the information and making the evaluation of this information to ensure the accuracy of the information. In the organization, there are two types of auditors working on the auditing process that are external auditors and internal auditors. The main focus external auditors are on the assertions created by the management of the company regarding the income statements, and other financial statements. 

        The major difference behind the role of external auditors and internal auditors is that both have different working areas as one analyze the financial statement and the second one evaluate the international operations efficiency. Internal auditors evaluate and measure the cost- effectiveness of the all operations held in the company (Louwers, et al. 2006). For instance, internal auditors will evaluate the policy developed by the management of the company as, whether the lease the heavy equipment or to purchase the equipment. Explicit representations are not provided to the internal auditors of the company, as it is only delivered to the external auditors.

           Independent auditors work according to two frameworks accepted by the accounting standards for their financial reporting. They can select the framework provided by the Internal Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles also known as GAAP (Louwers, et al. 2006). While opposite to them governmental auditors working in the financial information of the company are usually obliged to follow up the criteria and framework developed in regularity and Legislation agency rules.       

Attestation Engagement of Auditing and Assurance Services

      Attestation in the financial statements including income statement, cash flow statements, and the balance sheet is referred to the auditing process. Attestation engagement is basically a strong or weak relation or engagement in which practitioners are linked or engaged to an assertion regarding a particular subject matter that is most of the time goes under the responsibilities and duties of a second party (another party). auditing is basically a specific type of attestations engagement as auditors in the process of auditing usually play the same role as practitioners play but the role of auditors is relatively more specific. For instance, auditors work on the subject matter and issue that was basically the responsibility of the managers working in that organization.

Assurance services and Attestations services of Auditing and Assurance Services

         Auditing services for the financial statements of the company and attestation of these statements are considered as the most important type of assurance services. While opposition to this consulting services are not the representing types for the assurance services (Louwers, et al. 2006). The entire focus of the assurance services is on the information and data that are being used by the decision makers. Similar to this focus on the attestations service is also on the presentation of the accurate information to the decision makers (customers for the attestation services). Analysis of the attestation services and assurance services presents that a number of procedures and services performed by the auditing team as part of the auditor’s engagement are related to the responsibilities and procedures that are performed by the assurance service as the part of the assurance engagement.      

     Auditing Standards Board Assertion of Auditing and Assurance Services

 Auditing Standards Board management elaborated the Assertions that are listed below with brief details and relevant examples containing questions that auditors need to must answer:

Existence or Occurrence:

      The information presented with the actual transactions numbers in the financial statements help out the users to find the actual transaction as the purchase of inventory or cash transaction occurred in the month of January (Louwers, et al. 2006). The existence and occurrence assert that the numbers and transactions presented in the financial statement should have existed in real life and actually did occur. Regarding existence assertion auditors should answer the question of “Do the enlisted assets really has existence" and for occurrence, the question to be answered is "did cash transactions recorded in the statements really occur?     

Rights and Obligations

       In accordance with this type of assertion, it is must that the company have the rights for the assets like cash, inventory, equipment or building presented in the balance sheets of the company. While obligation asserts that obligations and liabilities mentioned in the liabilities section of the financial statement as balance sheet are really related to the company (Louwers, et al. 2006). Companies cannot present the assets and liabilities of other companies in their statements. For Right assertion auditors should answer the question “Does the company have right for the enlisted asset?” and for Obligations, they should answer this question "Are all the related and concerning legal responsibilities of the company are identified?"

Completeness of Auditing and Assurance Services

In this assertion, managers ensure that whether all the assets, liabilities and other information required in the financial statement are mentioned or not? Here the auditors will answer the question “Are all the financial data is presented? And “Are the financial statements complete?”    

Valuation or Allocation of Auditing and Assurance Services

     Valuation or allocation assertion makes the management obliged to include all the data and information regarding financial statements accurately. Valuation asserts that all the assets as property and equipment on which company has the legal right of ownership are valued according to the standards and rules of IFRS and GAAP. For valuation, auditors must answer with evidence to the question “Are all the expense presented in the specific period (as one month etc.) benefited?” while question for accuracy is “Are the accounts (assets accounts or other) valued accurately?        

Presentation and Disclosure of Auditing and Assurance Services

      In this assertion, management will ensure that whether all the accounts and information presented in the financial statements (income statement or balance sheet) are presented correctly without any type of errors or manipulations (Louwers, et al. 2006). Presentation and disclosure also assert that the information presented in the financial statement is meeting the standards of IFRS and GAAP or not, however, here they are also required to confirm the accuracy of footnotes. Regarding presentation, assertion auditor should answer the question "Were all the transactions (for the accounts as assets accounts or liabilities account etc.) recorded in the correct accounts? And for disclosure auditor should answer the question “Are disclosures (footnotes or details) understandable for the management or other users?”       

Conflict of interest between managers and auditors

     Auditors act as there is a conflict of interest between them and managers because of certain reasons. Auditors evaluate the work of the management to find out the errors and mistakes. They review their efforts to bring more accuracy in the financial information presented in the statements developed by the managers. In the auditing process managers are the information provide while auditors known as users of the information. Manipulation and error created by the management cause problems for the auditors to understand the financial statement. Because of such reasons sometimes the conflicting situation arises that supports such behavior of auditors.    

1.20)  Experience is required to become certified because without having experience auditors cannot efficiently perform their job duties and responsibilities while certificates are the indicator of expertise therefore without having expert level knowledge and experience one should not be given certificates.

References of Auditing and Assurance Services

Louwers, Timothy J., Robert J. Ramsay, David Sinason, and Jerry Strawser. 2006. Auditing & Assurance Services. McGraw-Hill Education. Accessed 12 02, 2018.

 

 

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