Audit Committee Characteristics and Report - MyAssignmenthelp.com

Question: Discuss about the Audit Committee Characteristics and Report. Answer: Introduction Auditing refers to the process of inspecting the financial statements of the companies so that it can be ensured that they are free from material misstatements (William Jr, Glover and Prawitt 2016). At the time of conducting the audit operations, the auditors are required to comply with all necessary auditing standards and principles. Non-compliance with these standards can lead to the breach of ethical principles. The auditors are responsible to provide correct audit opinion based on the result of audit procedures. While conducting different audit procedures in the companies, the obligation is on the auditors to make compliance with the required ethical standards. Accounting Professional and Ethical Standards 110 (APES 110) contains all the ethical standards and principles. Among all these principles, the confidentiality principle is an important part. According to this principle, the auditors are not allowed to make disclosure of the financial information of the audit client acquired while performing the audit operation to any third party. The provided situation indicates the delivery of audit working papers related to the current audit operation to Penshurst Accountants from Mortdale Accounting firm. While providing this audit information to Penshurst Accountants, Mortdale Accounting firm did not inform the audit client. Thus, according to APES 110, Mortdale Accounting has violated the audit ethical principle of Confidentiality (Martinov-Bennie and Mladenovic 2015). From the provided situation, it can be seen that Jan Dungog makes a job application for one of the accountants position. What attracts the attention is the job application by Jan Dungog in a new company for a new position while presently working in a company. Apart from this, he also asked the local company not to inform his current employer about this application. The local organization appointed him in their company by accepting his application and they has not informed his current employer about this. According to APES 110 Section 110, these acts of both Jan Dungog and the local company lead to the breach of the audit ethical principle of Professional Appointment. According to this principle, at the time of accepting the engagement application of the auditors, business organizations are required to determine the existence of any kind of threat in the appointment process related to compliance. In this particular case, the breaching of this act can be seen from the act of the compan y (Ottaway 2014). The provided case indicates towards the existence of two separate situations. First, Wendal Sailor is an audit professional; second, he is the owner of a business of superannuation and insurance. In this context, it needs to be mentioned that there is not any breach of auditing ethical standard due to the fairness of the fact that n auditor can have his/her own business. The provide case study indicates that Wendal Sailor uses to give advise related to other non-audit services to his audit clients at the time of providing the audit services to them. According to Section 290 Provision of Non-assurance Services to Audit Clients principle of APES 110, the auditors are not supposed to provide any kind of non-audit services to their audit clients while conducting the audit operations as it creates threat for auditors independence. Moreover, the audit agreement does not include anything related to non-audit services due to its illegal nature for the audit profession (Chapple et al. 2014). According to the ethical principle of auditing, an active member of the audit team do not have the right to possess any significant position in any other business corporations. From many instances all over the world, it can be observed that the audit members of the business organizations work as acting members as the board of directors of other companies. Ethical principles of auditing consider this act as illegal as it can affect the independence of auditors. However, difference can be seen in the provided case situation. The provided situation shows that Judith Durham works as an audit partner of a not-for-profit making organization. At the same time, he posses the position of honorary member in the board of directors of a company. It needs to be mentioned that there is not any violation of audit ethical principles due to the honorary position of him in the board that prohibits him in taking any management related role in the company (William Jr, Glover and Prawitt 2016). The provided case situation states that Ernie Dengate sells his accounting practices like bookkeeping, auditing, tax and others. In this situation, he has the permission of selling only the tax working papers, not others. In spite of this fact, he has sold all the other accounting papers to a new accountant Jago. In this context, APES 110, Section 250 Marketing Professional Services has mentioned about the creation of the threat of auditors independence from this situation. The above principle states that the auditors are required to obtain permission from authority before selling their professional services. Thus, in this situation, Ernie Dengate has violated the principle of Marketing Professional Services (Clayton and Staden 2015). In todays business world, it can be seen that the auditors of the companies use to provide different types of non-audit services to their audit clients. These non-audit services include management advices, tax consultation and others. As per the auditing regulations, providing non-audit services is illegal as they are not included in the audit agreement form and all the details related to this can be found in APES 110, Section 290.156 Provision of Non-Assurance Services to Audit Clients. The given situation states that Fred Nerk provides both audit and non-audit services to his audit clients simultaneously. Due to the delivery of these non-audit services, it is possible that he accepts non-financial or financial rewards from the audit clients for the non-audit services that is not included in the audit agreement (Carey 2015). Thus, it can be understood that Fred Nerk has violated the ethical principle of Provision of Non-assurance Services to Audit Clients. While conducting the different audit procedures in the clients organizations, the auditors are required to deal with different types of financial information of their business. Thus, in the process of audit procedures, the auditors are required to consider the confidentiality aspect of clients financial information. In this process, it is the responsibility of the auditors to maintain the security of the vital financial information so that non-authorized people cannot access it. The provided situation states that due to the lack of adequate facility, the company keeps all the important audit information in another computer. There is a high possibility of ineffective security system in the new computer and it can lead to theft of information. At the same time, theft of information may affect the independence of the auditors. Thus, according to APES 110, Section 280 Objectivity, this incident violates the objectivity principle of auditing (Trung 2015). While conducting the audit procedures in the companies, the auditors have the obligation of complying with the audit ethical code of conducts. Thus, as per the principles, the auditors are needed to be honest and to maintain integrity. The provided case study shows the involvement of James Jameson in different activates like consumption of drug and alcohol, fighting, reckless driving and others that affect the integrity and professionalism of the audit profession. Apart from this, he was sentenced for jail for three months. It implies that the he failed to act properly and professionally in front of everyone. Hence, according to APES 110, Ethical Principles, these acts of James Jameson are against the ethics of audit profession (George, Jones and Harvey 2014). While conducting the audit operations of the business organizations, the auditors require all the necessary information of the audit clients. To obtain correct and relevant information has large role to play in the delivery of fare and correct audit judgment. From the provided situation, it can be seen that the auditors of the organization are unable to get any confirmation of eight major customers of the organization. However, with the assistance of other relevant information, it was possible for the auditors to judge the fairness of the account balances. Due to this, the auditors would provide Unqualified Audit Opinion with proper explanation (Tsipouridou and Spathis 2014). It is the prime responsibility of the management of the companies to provide the auditors with every authorization to access all the required and relevant information so that the audit operations can be conducted in the smooth manner. In the provided situation, it can be seen that the auditors of the company has got restriction from the side of the companys management on the required procedures for the verification of account balances of property, plant and equipment. It is vital to verify these accounts as they contributes 35% of the total assets and it is an obstacle to determine the actual financial position of the company. Thus, the auditor will provide Disclaimer Audit Opinion along with proper explanation (Xu et al. 2013). This case is almost similar to the above situation. It is one of the major responsibilities of the companies to provide the auditors with all the necessary information of their financial statements. In the determination of the correct financial position of the businesses, the importance of the determination of contingent liability cannot be ignored. From the provided case study, it can be seen that the management of the company has not included a majority portion of contingent liability in the financial statements and it can has a material impact on the financial statements of the company. Thus, the auditor will provide Disclaimer Audit Opinion in the absence of required information (Habib 2013). It is the obligation of the ASX listed Australian companies to follow the accounting principles and standards of AASB. According to the principles of AASB, in order to maintain all the required financial transactions, internal control of the companies is required to be effective. Loss of important financial information has major negative impact on both the financial position of the companies and the audit opinions. In the provided situation, lack of effective internal control leads to the lost of crucial business information related with large amount of cash sales and it has left the company with no option for verification. Due to this, the auditor will provide Adverse Audit Opinion (Stewart, Kent and Routledge 2015). The provided situation indicates towards the satisfaction of the auditors with the information of the financial statements and they become ensure that the financial statements are free from material misstatements, as they have not found any kind of material missstements in the financial statements. At the same time, the company has not provided the opening balance for the financial year. Hence, the auditor would provide Qualified Audit Opinion along with sharing the fact on the absence of opening balance (Ittonen 2012). It is the responsibility of the business organizations in the area of accounting is to comply with all the necessary accounting standards and principles. In this provided situation, it is required for the company to comply with the accounting standards of Australian Accounting Standard Board (AASB). The analysis of the provide situating states that the company has not complying with the principles of AASB for last four years. Due to this reason, the auditors of the company will issue Adverse Audit Opinion along with mentioning the fact that the company has not followed the required accounting standard (Tepalagul and Lin 2015). There are two processes of stock valuation; they are Last In First Out (LIFO) and First In First Out (FIFO). In this context, it needs to be mentioned that the companies are required to comply with the accounting standards and principles of AASB. As per the provided case, the company is using the method of LIFO that is disallowed by AASB. For this reason, the auditors will issues Adverse Audit Opinion due to the non-compliance of the company with the standards of AASB (Miglani, Ahmed and Henry 2015). It is the prime responsibility of the auditors to conduct proper investigation for analyzing different financial accounts of the companies so that proper audit opinion can be provided. In the provided situation, after conducting required investigation and analysis, the auditor has provided confirmation on the fact that all the financial statements are free from material misstatements and the accountants have prepared them in accordance with AASB principle and standards. However, the auditors have doubt regarding the going concern status of the company. For all these reasons, the auditor will issue Unqualified Audit Opinion by mentioning the going concern issue (Sultana et al. 2015). Conclusion In the above discussion, the results of different cases shows that the breach of auditing ethical principles can pose different auditing threats like non-assurance threat, threat of professional judgment and others. On the other hand, the auditors issue different kinds of audit opinions like unqualified audit opinion, adverse audit opinion, qualified audit opinion and others. References Carey, P.J., 2015. 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