AUDITING ASSURANCE & PROFESSIONAL ETHICS

Identify and critically discuss the factors that influence the quality of audit service.

The overall objective of auditing obis is to maintain reasonable assurance that the financial statements, which are the Balance sheet, Income statement, and cash flow statement, are free from material misstatement and communicate as required by standard auditing. The audit should have covered all factors of the financial statement, which is important being audit and audit should be satisfied that the information in financial statements is reasonable. The auditor should decide whether important information should be disclosed properly in books of accounts and whether relevant information should be disclosed in notes to accounts (Ferdousi et al., 2018). The following topics are to be disclosed when performing an audit function:

• To verify the existence and proper working system of the internal control.
• To determine the proper entries in books of account to carry supporting documents.
• The proper classification between the capital nature of expenditure and revenue expenditure.
• To verify the balance sheet, profit and loss account, and other statements in accordance therewith.
• To check the existence, title, and asset value in the balance sheet and are proportionately disclosed.
• To check the result, disclosure of profit and loss is true and fair.

AuditAn audit is not necessary to perform all types of organizations. It depends on the law and voluntary basis (Kwon et al., 2018).

• The companies that followed the Companies Act, banking companies, and insurance companies are necessary to perform audit functions.
• Some of the organizations are Hindu undivided family and partnership firms; there is no need to audit. The internal function of the organization is to meet the requirements of audit. The organization wants to get its finances audited so that it receives government grants and section loans. Loans: advantages of auditing financial statements

• The audited accounts help with the settlement of accounts to death and the admission of the partner.
• Before receiving the license for selected businesses of the government, there must be a need to audit financial statements.
• The audit helps to identify the losses that occur in the absence of internal control.
• The audit helps in many forms, such as settling the tax liability, loans, and purchase consideration at the time of acquiring the business.
• To protect the interests of the shareholders of the company because shareholders are not involved in the management of the company, the audited financial statement helps to determine the actual financial position of the company (Legg, 2019).

As per relevant standards, the auditor cannot reduce the audit risk to zero and cannot provide absolute assurance that the financial statement is free from material misstatement due to fraud or error. The inherent limitations of the audit are

The financial statement is made by management with the applicable international accounting standard. Furthermore, it includes the judgment of the management so that the auditors cannot give proper interpretations of the financial statements.

To obtain audit evidence, the auditor has legal limitations.

The management may not provide complete information that is relevant to preparing and performing the financial statements, whether the auditor has been requested.

Before performing the audit function, the auditor should follow the following strategy: The overall audit strategy, documenting audit plan, audit program, and audit execution. To make an audit plan the auditor focuses following points (Moroney and et.al, 2021).

• To concentrate on those areas which require special attention
• Timely solving of problems
• Effective audit team engagement
• Itinerary and supervision of engagement team.
• To allocate the work in a better manner.

The auditor discusses all elements of planning with management. The audit planning is not a one-time procedure; the audit should change the plan as necessary during the audit. When auditors establish an overall audit strategy, they would include:

1. To determine the characteristics of the engagement and its scope
2. Ascertain the objective of the engagement.
3. To focus on the engagement team that they conduct proper work according to the auditor's professional judgment.

To establish the overall audit strategy, the auditor assists in the allocation of resources for high audit areas and the use of these resources by the engagement team members for high-risk areas, as well as the amount of resources allocated to high-risk areas and several team members involved in the inventory count. To change business conditions, conduct unexpected events, and fail the audit plan, the auditor may need to redevelop the audit strategy (Nguyen et al, 2021).

In the second strategy, the auditor shall be documenting the audit plan. The audit strategy is prepared before the audit plan. The audit plan is a detailed framework in comparison to the overall audit strategy. Audit strategy and audit plan are interrelated because the change in one would affect the result of another. The important factor in an audit plan is that the auditor should know the client's business so that the audit can be performed effectively. They should obtain the industry and external factors, including the applicable financial reporting framework. Understanding the relationship between the trade payable and the customer helps identify related parties or risks to revenue recognition. In the third stage, the auditor should make the audit program for bigger audits. To obtain sufficient and appropriate audit evidence, the auditor verifies the financial statements of a given company. The audit program of one business does not support the other business because every business is different in size, nature, and work. The services provided by the auditor from assignment to assignment. The auditor should timely review the audit program. The auditor performs the audit work based on the audit program. If there is any change in business policy, they may not know, and they carried out audit work according to the previous audit program, so the whole audit conduct there would be entirely misdirected, and they would face legal and regulatory complications (O’donovan et al, 2020). To construct an audit program, the focus should be on the points, such as:

1. Determine whether the available audit evidence is reasonable

2. To consider all the possible errors

3. Identify those areas that are material for verification purposes.

4. Determine the scope and limitations of the assignment.

There are main types of audit as per the quality management system; they are as follows:

1. Process audit: It verifies the actual method of co-ordering against the defined instruction and set of standards.

2. Product audit: It verifies the product or services against the defined standard.

3. System audit: A system audit is an audit of the management system that is implemented in the organization. As per the requirement of an organization, the auditor implements the system and checks against the standard clause of the particular management system.

The firm analyzed all those activities that could be performed before the audit. The word audit quality is not simple to define because many factors affect quality. According to the International Auditing and Assurance Board, there are special focuses on the quality of audit services. The factors that may affect the quality of audit service, such as:

1. Size of the firm: The size of the industry is an important factor that affects both positively and negatively the audit quality. The client chooses the best auditor to reach the best auditing. The big firms want a high reputation of auditors in comparison to small audit firms (Santhanam et al., 2019). The higher reputation gives the clean and fair audit report so that the investors and other firms can invest in the company because inaccurate audit reports decrease firm reputation. Other factors, such as professional competence, auditor qualification, and material information, can be found in big firms. These factors affect the audit firm's size and audit quality. The detailed study of auditing has explored whether there should be a relationship between audit quality and audit size. The big audit firm may reach a higher reputation and demand higher fees. They require a higher level of auditors to conduct audits (Schwepker et al., 2021).

2. Industry expertise: Industry expertise plays an important role in affecting the quality of audit service. A higher reputation of industry expertise requires a high level of audit report so that there is a positive relationship between audit quality and the industry. The term of the auditor depends on the industry expertise because a new audit client wants to achieve the benefit from the audit expertise. The reputed auditor wants higher fees and gives a report and truly audit report, which is free from material misstatement. The advantage of industry expertise increases audit reputation in the market and increases audit quality as well as audit fees.

3. Auditor tenure: the auditor's tenure depends on the audit quality. According to auditing standards, a lower quality of audit is expected because long-term auditors decrease auditor independence and audit quality. The other factor of a long-tenure auditor is identifying misstatements using a high level of knowledge. In the short term, the auditor issues a fair auditor report, but if the auditor knows that the next year the client switches them, then it gives an adverse audit report on the financial statements. The manager may switch the auditor for the next year, but if the auditor modifies the audit report, then the manager may not tend to switch the auditor after receiving the qualified audit report (Sellami et al., 2019).

4. Auditor fees: It means those charges that the company pays to the auditor against the audit services. The audit services are quality if the company pays higher audit fees, so they want to receive a higher quality audit report.

5. Auditor independence: The auditor should maintain independence and ensure that they are free from management influence. The audit committee performs the meeting without the presence of the company's management to encourage that they are independent.

6. Auditor qualification and proficiency: The main objective of the audit is to ensure the investors that the financial statements are truly true. It is a very important area to develop the auditor and high-quality audit services. These factors are:

   • Enhance the knowledge of staff.

   • Treat equally all the members of the staff.

   • To increase leadership and professional competence.

7. Internal control: These are the areas that require special consideration. The auditor should obtain an understanding of internal control relevant to the audit. Almost most control relevant to the audit is likely to relate to financial reporting; not all control related to financial reporting is relevant to the audit. It is a matter of the auditor's professional judgment whether a control, individually or in combination with others, is relevant to the audit. If the firms have higher internal control, there should be the least possibility of misstatement.

CONCLUSION

As concluded by the above report, auditing is explained as part of managing a business organization. The audit function is performed by the Chartered Accountants. The auditor should express his opinion on the financial statements, which are free from material misstatement. The auditor should follow the terms of engagement, from planning the audit to compiling the information and reporting the result. The external and internal factors both affect the audit quality. To perform the audit work with the standard of auditing and legal requirements. The audited financial statements help to sanction loans and government grants. The experts at Assignment Help Services can help you at every stage if you require guidance in understanding auditing procedures or finishing associated assignments.

REFERENCES

Books and Journals

Ferdousi et al., 2018. Associations between organizational factors, TQM and competitive advantage: Evidence from an emerging economy. Benchmarking: An International Journal.

Kwon et al., 2018. Do social ties between CEOs and engagement audit partners affect audit quality and audit fees? Auditing: A Journal of Practice & Theory, 37(2), pp. 139-161.

Legg, H., and Tickle, A., 2019. UK parents’ experiences of their child receiving a diagnosis of autism spectrum disorder: A systematic review of the qualitative evidence. Autism, 23(8), pp. 1897-1910.

Moroney et al., 2021. When do investors value key audit matters? European Accounting Review, 30(1), pp. 63-82.

Nguyen et al., 2021. The impact of retailers' indoor environmental quality on consumer purchase decisions. International Journal of Retail & Distribution Management.

O’donovan, R., and Mcauliffe, E., 2020. A systematic review of factors that enable psychological safety in healthcare teams. International journal for quality in health care, 32(4), pp. 240-250.

Santhanam and et al., 2019. Modeling the impact of employee engagement and happiness on burnout and turnover intention among blue-collar workers at a manufacturing company. Benchmarking: An International Journal.

Schwepker et al., 2021. Using ethical leadership to reduce job stress and improve performance quality in the hospitality industry. International Journal of Hospitality Management, 94, p. 102860.

Sellami and et al., 2019. An empirical investigation of determinants of sustainability report assurance in France. Journal of Financial Reporting and Accounting.

Shin and et al., 2019. Role of fairness, accountability, and transparency in algorithmic affordance. Computers in Human Behavior, 98, pp. 277-284.