Developing Business Acumen and Client and Industry Knowledge - Assignment Example

ASSURANCE SERVICES AND REGULATION TOPIC: DEVELOPING BUSINESS ACUMEN AND CLIENT AND INDUSTRY KNOWLEDGE Student’s name Course code + name Professor’s name University name City, State Date of submission Table of Contents Topic Outline 3 Transcription 4 Scene 1: Junior Auditor and Client (first meeting) 4 Scene 2: Junior Auditor and Senior Auditor 7 Scene 3: Junior Auditor and Client (second meeting) 9 Future Research 10 Conclusion 11 Reference 12 Topic Outline Our dialogue discusses the development of business acumen and client and industry knowledge. In the understanding of business acumen, the dialogue attempts to determine whether it is proper for the auditors to have a general insight and a commercial sense regarding the operations of the business. In addressing industry expertise, the dialogue explains whether auditors have the necessary knowledge and appreciation of the critical issues, characteristics and risks of the industry. Finally, the dialogue also discusses about client knowledge that entails the specific understanding of the characteristics, risks and issue influencing the operations of the client. The motivation behind the selection of the topic emanated from the fact that there have been several incidences where clients opine that the auditors assigned to conduct an audit on their financial statements and other records do not have an in-depth understanding of the business. As a result, clients believe that the auditors that do not have sufficient knowledge regarding their business will be unable to carry out effective audits. Junior auditors have exhibited reluctance towards understanding the client’s business prior to embarking on the audit exercise. It is also worth noting that senior or experienced clients have a better understanding of the client’s business. The next section entails the actual dialogue that introduces the issue to the audience. The first scene entails a conversation between a client representing the client organization and a junior auditor. The second scene presents the dialogue between the junior auditor and the senior auditor. Finally, the third scene presents the final dialogue between the junior auditor and the client. Transcription Scene 1: Client and Auditor Junior Client: Good morning… I am Mr. XXX, an employee at XXX Organization. I would like to about the auditing services offered by your company. Auditor Junior: Good morning too…I am Mrs. XXX working in this auditing firm. Just to confirm, had your company placed an appointment with our firm? Client: Yes, the appointment is scheduled today 11 am. Auditor junior: Just a minute (he checks the records)…Ok. I have confirmed that your company had indeed placed an appointment for the inquiry of auditing services with our firm. Thank you for calling to confirm the appointment. I want to assure you that our company will deliver the best auditing services to your company. I am sure that at the end of the exercise, the credibility of your company’s statements will be restored. Client: To be precise, we are approaching the end of the financial year. Therefore, the organization committee has found it necessary to conduct an external audit on the financial statements of the company. Auditor Junior: (Confirms from the company documents on the table)...mmmmh…ok. Let me assure you once again that you are at the right place. By the way, there are other audit services that we offer besides the audit on financial statements. Some of the other auditing services include regulatory auditing, and analytics and data auditing. Client: Thank you for the information. However, we are a small firm and as a start, we have found it appropriate to conduct an external audit on our financial statements. I think we will consider the other options later on. By the way, we operate under the hotel and hospitality sector. I want to believe that your company has worked with firms in the sector before. Could you please inform me some of the relevant statements and documents that should be available for the audit exercise? Auditor Junior: (Stammering) Ummmmh…just a minute I will get back to you. (He tries to search for some documents. After several unsuccessful attempts of tracing the documents, he calls a senior auditor that provides the required information which he notes down quickly).., sorry for the delay, here is the check list. Client: Thank you. I think we have all the required information. I would like to ask a question. As an experienced auditing firm, what are some of the characteristics, issues and risks that you consider while auditing firms in the hospitality industry? Auditor Junior: Thank you for asking the question. It is evident that we are a reputable auditing firm that offers auditing services to different firms emanating from diverse industries. Our firm has enough senior auditors that will be on the frontline in auditing your firm and I believe that our job will be perfect. Let me remind you that our firm also offers discounts to firms that have established long-term partnerships. I look forward to seeing your firm enjoy the discounts soon. Client: thank you for the information. It is evident that we are in search of a good and reputable auditing firm that will restore the credibility of our financial statements. However, am not satisfied with the feedback that you gave to the last question. Would you please specify on the issues? Moreover, I also want you to convince me that your firm will offer responsible and efficient auditing services at one of the fairest market prices. Auditor Junior: (Handing over a business card)…the card contains our company website. I am pleased to inform you that the website provides all the basic information that you require regarding the services offered by our company. Client: (Murmurs)….mmmmmh…ok. One last question, on the checklist, I have seen that you require copies of material contracts, leases, salaries and remunerations, loans and all the other income and expense information about the company. Why do you need all this information? Auditor Junior: Thank you for asking the question. In order to conduct a proper audit on the financial statements of your establishment, it is imperative that we have all the income and outgo information from your company. By so doing, we will be able to assess the credibility of the provided financial statements. Client: Thank you for the information. Let us meet at 11 am for the appointment. Auditor Junior: I will liaise with the senior auditor to be ready for the appointment at the scheduled time. Thank you for visiting our firm and doing business with us. Client: (Standing up and making his way to the door)…See you then. Scene 2: Junior Auditor and Senior Auditor Junior: (Taking a seat)…Good morning? I have just finished conversing with the client from XXX Company that had booked an appointment to inquire about our auditing services today at 11 am. Senior: Splendid. Do you think the client’s organization will give us the tender of conducting the audit exercise? Junior: I really believe they will. The company is in dire need of a reputable, economical and efficient auditing company to audit its financial statements. Senior (Chuckles)….I hope you have responded to all the questions asked by the client adequately. Junior: Of course yes, however, there are some specific questions that I have heard to refer the client to the company website. Senior: I understand…From your experience, I suppose you have not participated in auditing any firm in the hospitality sector. The most important thing is that you have provided the checklist outlining all the relevant information requirements that will enable us to conduct a proper audit on the firm. Our objective as an auditing company is to maintain a long-lasting relationship with our clients to guarantee our sustainability in the market. Junior: I would like to have all the required information so that I can avail them to the client when he turns up for the scheduled appointment. Senior: Auditing the hotel and hospitality sector presents several challenges. For instance, there are several complex and diverse issues in the industry. They affect the different sectors such as rate contracting, engineering, marketing and the delivery of services. The information systems used to store pertinent audit information in the industry are also complex. In our case, it is imperative to understand SUN since many firms use the information system for their financials. The unpredictable nature of the industry’s performance also poses a significant challenge when it comes to risk profiling. The inefficiency of the internal auditors may also imply several errors in conducting internal audits thereby posing a challenge to external auditors that intend to restore the credibility of the financial statements. The changes in the processes associated with the delivery of services also complicate the auditing process. Being a medium-sized company, I also believe that our client organization is not regulated. As a result, it does not have a Board Risk and Audit Committee to ensure the credibility of the firm’s financial statements. Hospitality fraud also yields difficulties in auditing firms in the hospitality sector. (Smiling)…from the auditing risks mentioned, you can feel the task ahead of us. I believe you can now understand that understanding the client is a prerequisite for the conduct of an effective audit rather than simply filling in the check list items. Junior: Thank you so much…I believe I have what it takes to answer the client’s questions upon his arrival. Scene 3: Auditor Junior and Client Auditor Junior: (Ushering the client to his seat upon his re-arrival)…Welcome once again. I have sought advice from the senior auditor who has explained in detail the contentious issues that you asked in the earlier session. (Handing over the list)…Here are the issues and challenges. Client: Thank you for the effort. I am satisfied with the feedback. However, did you also ask about the efficiency of your organization? Auditor Junior: Yes I did…However, I would like to emphasize on the fact that we focus on both quality and efficiency. Therefore, following the assessment of your firm’s condition, the entire audit exercise will take approximately one month. Client: Ok…I think we are communicating real business…I understand external auditors have little knowledge and regard to business acumen, the understanding of industry and the client. As a result, I am afraid that your audit results may be of poor quality. Auditor Junior: As I had informed you earlier, our audit team comprises of over 25 senior auditors and many other junior auditors. The senior auditors have handled several cases involving hotels and hospitality firms in the sector. As a result, they have the required experience that will enable them to conduct a proper audit. Client: I am not objecting that fact. However, I would suggest that we hire a different auditing company to examine the results of your audit. Audit Junior: That is a good idea worth embracing. However, with the experience of many years that our team of expert auditors has gained in the industry, I believe that we will deliver the best services to your company. I also believe that you will give us other tenders associated with the delivery of auditing services. Client: Since this is the first time we are conducting an external audit, we will rely on the findings and recommendations of your audit report. However, let me assure you that we will have to hire another auditor to audit your audit report to evaluate its credibility. Auditor Junior: I understand…but I believe that our working relationships will last for as long as both firms are in existence. Client: (Standing up to take his leave)…Ok…Thank you for time and effort. I also look forward to working with you in the future. See you next time at our establishment when you commence the audit. Auditor Junior: Thank you… (Gives a sigh of relief) Future Research Reiterating the significance of understanding the client’s business and the industry suffices to be a prerequisite for the development of business acumen and client and industry knowledge. The understanding of the client’s business is also mandatory for an effective and efficient audit. By so doing, the auditor is in a position of tailoring his/her work in accordance with the individual circumstances of the client. The knowledge is also useful in maintaining a positive relationship between the auditor and the client following the emerging concerns that external auditors do not understand the client business. The future of developing business acumen and the client and industry knowledge also emphasizes on the ISA 316 statement that states that entity understanding should also entail the understanding of the entity and its environment, and its associated internal control to enable the identification and assessment of the risks emanating from the misstatement of materials such as financial statements due to error or fraud thereby enabling the implementation of further audit procedures. Conclusion Developing business acumen and client and industry knowledge requires auditors to have an in-depth understanding of the client’s business and its environment. Understanding the business of the client will enable the auditor to identify the risks inherent to material misstatement due to error or fraud thereby enabling the effective implementation of further audit operations. In essence, understanding the client’s business is a prerequisite for the effective planning of the audit exercise that leads to reliable and responsible audit reports. Reference Houghton, K, Ng, J, Jubb, C & Kend, M 2010, The Future of Audit: Keeping Capital Markets Efficient (pp. 700). ANU Press. Read More