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.