Fundamentals of Quality Auditing

Question: Discuss about the Fundamentals of Quality Auditing. Answer: Introduction Auditing tends to be a systematic process where auditors objectively obtain and evaluate evidence in regards to the economic assertion acts and the events, so as to ascertain the extent of correspondence between assertion and the established criteria by communicating the pertain results to the interested parties. Based on this, auditors are required to possess the assurance aspect. Assurance tends to be the engagement whereby a practitioner tends to express conclusion designed for the purpose of enhancing confidence to the intended users rather than focusing on the responsible team about the results being evaluated in terms of measurement of the subject against the set criteria (Russel Wilson, 2013). In this case, a good example of assurance services includes assurance (audit) of the pertained financial statements, assurance reporting of internal control, assurance of electronic commerce and assurance of prospective financial information. Consideration of all these leads to the syst ematic phase process where it implies that there is the need of developing a well planned logical approach when conducting an audit as it involves objective obtaining and evaluation evidence. With all these in mind as discussed above, it proves that auditing tends to more conceptual in nature compared to accounting process. In accounting, the main focus is mostly on learning the rules, techniques and computations needed for the purpose of preparing financial statements (Wright, 2016). As for auditing it mostly focuses on learning the framework of analytics and logical skills needed in evaluating the relevant and reliability of a system and process in financial information, as well as the information itself (Fairhall, 2010). Therefore, for one to be successful in the auditing process, he or she must be able to follow certain auditing canons that are vital in the conduction of the process. Therefore, this paper will offer an in-depth insight of the auditing procedure and relate it without case study as an assertion factor. Hence, they include: Identifying the assertion being tested In many instances, audit procedures are done so as to test the financial statements assertions (Prinsloo et al, 2014). Therefore, it tends to be critical that when explaining the audit procedure you first identify the assertion that needs testing. In this case, the assertions embodied in the financial statement are often vital for auditors because they aim at considering different types of potential misstatements as they appear in different forms. Therefore, as an auditor of Best Living Supplies Limited first I should understand that the assertions that need testing include; perpetual inventory file and physical inventory file. To enhance understanding of this step certain considerations must be taken so as to make the process effective, and they include occurrence, completeness, accuracy, valuation and allocation, existence, cut off and classification. Completeness- here, one must consider all the transactions that have been recorded in the financial statements-i.e. the liabilities, assets, equity interest and other disclosure have been effectively included in the financial statement (Homewood, 2001). As for our case study, as the auditor one should ensure that the needed transactional variable in the perpetual inventory file is recorded, this tends to extend also to the physical inventory file. Occurrence- the assertion here must indicate those transactions and the events, as well as other matters, that have been recorded as they took place and tend to relate to the organization. For instance, as the auditor of Best Living Company in the perpetual inventory file, I should ensure that each item purchased or sold during the year is correctly recorded as it happened. It should also be evident that the recorded transaction is in relation to the company. Valuation and allocation- here, the recorded transactions in the financial statements requires appropriate valuation according to companys policy and there be a relevant reporting framework. In any instance of allocation or valuation of any transactional adjustments need there is need of fair disclosure with the appropriate amounts (Parsowith, 1995). In our case, we should consider the factor that in perpetual inventory file all the transactions in relation to purchase and sale are correctly recorded in terms of correct value. If there is any adjustment, they should also be recorded to prevent instances of financial misstatement that are likely to occur. Accuracy- this means that in relation to the transactional and the events that are effectively recorded in terms of accurate amounts-i.e. the amounts that appear in the sources of documents (Kunz Hamel, 2014). If we could make a relation with our case study firm, as an auditor when conducting the audit procedure, I will make sure that the transactions recorded in the perpetual and physical inventory files entry are accurate. Hence, this step tends to prevent an instance where there is indication or appearance of error. Classification- this entails that financial information is appropriately presented and disclosed, and for the disclosure purposes they should be clearly expressed s as to make it easy for users to understand. In our case study, when disclosing information during auditing for Best Living Supplies Company what should be considered is the use of simple language and the state matter must be clear and concisely for the purpose of enhancing understanding. Existence- when conducting this audit procedure one should be able to substantiate if the reporting date of the entity is correct (Basu, 2009). Such a step tends to be paramount in our case as we can know the actual date a transaction took place in relation to the purchasing or sale of assets in the physical or perpetual inventory file. Cutoff- as an auditor it is vital to understand that the transactional and the events that have been recorded in terms of the correct account time. In our case, if goods in our two inventory files goods are delivered before the year end, it means that all these needs to be included in the cost of goods or services being sold not in the inventory. Consideration of such facts tends to be vital in auditing procedure. Identify the audit procedure Here, it becomes vital if one can choose the assertion being tested as indicated above. Hence, one chooses assertion from valuation, allocation, existence and rights. Onwards after choosing the assertion being tested it is vital to identify the risk that may cause any form of materiality misstatements as they appear in financial statements (Saxena et al, 2010). Here, the auditing risk tends to be the total value of Best Living Supplies Company property, plant and equipment as indicated the two inventory files. Hence, the significance of this step tends to be avoidance of revalued assets. The problem that comes about with revalued asset tends to be the not fair representation of values, where they can be under/overstated. Therefore, this procedure is very paramount when conducting auditing in our case company. Lastly, it is vital to at least try and thinks of auditing procedure from the AEIOU. A is a representation of the analytical procedures, the E-enquiry and confirmation, I for inspection of the recorded assets; O entails observation and U being the recalculation and the re-performance. Considering this procedure for Best Living Supplies Ltd would be significant when conducting their audit procedure. Adequate presentation and sufficient disclosure As an auditor, you should be able to perform the auditing procedures to at least try and evaluate whether the overall presentation contained in the financial records, includes the availed disclosures, and is in accordance with pertained applied financial reporting framework (Whittington Delaney, 2012). In this case, as an auditor for Best Living Supplies Limited when carrying out the audit process, it is important to make presentation and disclosure in a clear and concise way that eases understanding of the auditing report. Evaluating Sufficiency and the accuracy in the Audit Evidence In terms of audit procedure being performed and audit evidence attained, another vital procedure for the auditor should be an evaluation, before they create the conclusion of the auditing process, whether the pertained assessments of the identified risk of material misstatement that has relevant assertion level remain appropriate. The auditor should also be able to conclude whether there is sufficient and appropriate auditing evidence that has been obtained. When developing conclusions, as an auditor you should be able to consider all the relevant auditing evidence, regardless of whether they appear to be in collaboration or contradicting with the assertions of the financial statements (Davies Aston, 2011). If the auditor hasnt been able to attain some sufficient and an appropriate auditing evidence in regards to the relevant levels of assertion, as an auditor you should at least try to develop even further auditing evidence. Even if auditors tend to be unable to obtain derive sufficient auditing evidence, as an auditor you may consider expressing an even better qualified opinion or even disclaiming any opinion in the financial records. Documentation As an auditor of Best Living Supplies Company it tends to be vital to include the following: The overall response that aims at addressing the risks being assessed in terms of material misstatement in the provided financial records provided and actual nature and the extent of the auditing procedures that has been performed. The pertained linkage of these procedures and those assessed risks at the relevant assertion level; and Results of auditing procedures tend to include conclusions, developed such conclusions at times arent otherwise clearer. Auditors should develop the intention of planning for the purpose of using the audit evidence in terms of the operating effectiveness and controls retrieved in the previous audit done; auditors should maintain that they have included in the auditing documentation the pertained conclusions that rely on such controls that were to be tested in the previous audit (Homewood, 2001). In this case, we could make the conclusion based on the previous audit report that was developed by Best Living Supplies Company. Also, as an auditor, it is vital to include that in the audit documentation the basis for any determination not to use the external confirmation procedures for the accounts receivable when the account balance appears material. Hence, the document will have to show that the financial statements agree or either reconcile with set out underlying account records. Recommendation As an auditor, the recommendation that I could provide for Best Living Supplies Company is that when choosing an auditing firm they should entail that the auditors are experienced; this tends to prevent errors from occurring in the audit process. Choosing a professional skepticism team of auditors is also a key step that will ensure efficiency in the levels auditing process. Conclusion This paper tends to provide procedures for the assessment of risks material misstatement concerning financial statement levels and, the auditor's overall feedback affecting the auditor's ability of understanding known control environs. Also, there being an effective control environment usually allows auditors to possess confidence in their internal controls and reliability of the auditing evidence being generated internally and within the assertion and, thus, it allows an auditor to conduct audit form of procedures at the interim date rather than on the period-end (Fairhall, 2010). At times the deficiencies in the control environment, at times tends to have some opposite effects (for instance, an auditor may consider responding to any ineffective control environs by conducting even complex auditing procedures as the period-end rather than the interim date, being obtained in even more extensive audit evidence as from the substantive conditions, and the increasing numbers of locations tend to be included in the auditing scope (Deraison, 2004). As a result, the above discussion tends to be key for auditing procedure. References Basu, S. K. (2009).Fundamentals of auditing. Delhi, Pearson. Cascarino, R., Cascarino, R. (2012).Auditor's guide to IT auditing. Hoboken, N.J., Wiley. Internal auditing fundamentals introduction and study guide. (2016) Ljubljana, The Center of Excellence in Finance. Wright, C. (2016).Fundamentals of information risk management auditing: an introduction for managers and auditors Fairhall, T. (2010).Auditing fundamentals. 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