Auditors Action Pertaining to Management Risk Issues - Essay Example

April 10, Advanced_ Auditing/Assurance The audit reporting changes focus on the materiality and risks. The paper delves on how the auditors set the optimum materiality levels. The paper focuses on the auditor’s action pertaining to management risk issues. The recent audit reporting changes increased the auditor’s auditing responsibilities. Materiality and Risks The Financial_Reporting_Council imposed compulsory changes in the audit process as well as preparation of the audit reports. The changes will be implemented by United Kingdom companies listed in the local stock exchange. The changes focus on improving the materiality and risk benchmarks. The new audit report format is longer than the prior typical audit report. Further, the audit reports of the 15 selected United Kingdom companies vividly comply with the new audit requirements. The Financial_Standards Council (United Kingdom) required the implementation of the new audit standards. The new standard required external auditors to explain how they applied the materiality concept in the planning as well as implementation of the external audit procedures. In terms of Centrica, the auditor focused on the auditors used all required resources to ensure materiality concept of auditing is implemented (Centrica, 2014). Materiality can be described as the minimum amount of the error or fraud that will significantly affect the decision making activities of the investors and other affected parties. The focus of the audit was determining the materiality judgments of the management officers significantly affected the trueness or fairness of the financial reports. The audit team also focused their risk audit on management’s overriding the internal controls that were set to reduce or even eliminate the cropping of fraud issues and errors in the account shown in the financial reports (Arwinge, 2012). In addition, the United Kingdom standards council required the auditors to explain the risks that had the greatest effect on the overall external auditing strategy. In terms of Associated_Business Foods, the company had tax risks (Foods, 2014). The company’s setting up businesses in several tax communities resulted to complex tax liability situations. The tax rules in different countries resulted to tax payment risks. To resolve the issue, the external auditors of the above food company hired its own set of tax specialists. The tax specialists helped the external auditors reduce the tax risks. The tax specialists checked the accuracy of the tax payments that were paid in the different countries or communities where the company’s branch is located. The tax specialists were legal experts in tax cases. In terms of British Petroleum (BP), the external auditors focused their audit on the reliability of the internal control procedures implemented to reduced risks (Petroleum, 2014). The internal_control procedures help prevent the theft of assets by employees, customers and other individuals. The same control procedures helped reduce errors significantly. The auditors observed that the Board_of Director’s audit committee continually reviewed and favourably managed the risk reduction procedures. The auditors observed that the implemented strong internal control procedures reduced the risks. The external auditors observed that the internal audit team’ audit procedures and proposal of effective internal control procedures reduced risks. In terms of Morrisons Chain of stores, the auditors focused their risk audit steps on the property purchases (Morrisons, 2014). The audit included observing whether the changing market conditions increased or decreased the property purchase transactions. The property acquisition audit focused on the changing prices of the volatile real estate prices. The audit included determining whether future forecasts of real property market prices may increase the property acquisition risks. The audit steps included reviewing the property acquisition contracts for all lease and purchased properties. In terms of National Grid, the auditor focused their risk audit on ensuring the financial reports comply with all accounting standards, specifically the Financial_Standards Council of our United Kingdom jurisdiction (National Grid, 2014). The audit of the risks included the auditor’s determining whether the financial reports comply with Companies Act of 2006. Specifically, the risk audit procedures included reviewing the reasonableness of the company’s financial instrument and derivatives valuations. The risk audit procedures focused on reviewing the trueness of the carrying values, charges for asset impairment, and lives of the company’s properties. Finally, the audit process included determining whether the revenue_recognition policies complied with prescribed accounting financial reporting standards. In terms of Sainsbury Plc, the external auditors set materiality benchmarks (Rittenberg et al., 2011). The benchmark helped reduce the time and procedures needed to complete the entire audit process (Sainsbury, 2014). Specifically, the audit team observed that the materiality limit for group financial reports is £40 million. The external auditors picked the amount because it is approximated five percent of the company’s net profit before the computed taxes were deducted. The audit team also reported all misstatements that reached the £ 3 million materiality benchmark will be presented for remedial action by the audit committed. Tesco’s external auditors set its own unique materiality benchmarks (Tesco, 2014). The benchmarks were able to lower the time and audit procedures needed to complete the entire audit program. Specifically, the audit team set the materiality benchmark limit for group financial reports is £150 million. The external auditors chose the figure because it is approximated five percent of the company’s computed net profit before the taxes were removed. The audit team determined that all misstatements that reached the £ 7 million materiality mark will be presented to the audit committed for appropriate resolution. In terms of the Weir Group, the external auditors issued the company’s materiality benchmarks (Weir_Group, 2014). The benchmarks were set to reduce the audit time and audit program processes. Specifically, the same audit team placed the materiality benchmark limit for group financial reports is £18 million. The external auditors determined the figure for its being approximately five percent of the company’s computed net profit before the removal of the payable taxes. The audit team determined a report indicating all misstatements that reached the £ 0.5 million materiality figure will be sent to the audit committed for appropriate resolution. In terms of Vodafone, the company’s external auditors set its own unique materiality limits (Vodafone, 2014). The benchmark helped lower the time and audit programs needed to complete the whole audit process. Specifically, the audit team decided to set the materiality limit for group financial reports is £ 250 million. The external auditors picked the amount because it is approximated five percent of the company’s adjusted profit prior to the removal of the computed taxes. The audit team also decided to inform the audit committee of any misstatements that hit or overshot the minimum £ 5 million materiality benchmark. In terms of Wal-Mart, the external auditors performed the audit in compliance with related provisions of the United States Public_Company Accounting_Oversight Board for its United States branches (Wal-Mart, 2014). This is in compliance with the United States Sarbanes_Oxley Act. The audit team observed the company’s misstatements were not material enough to affect the decision making activities of the various Wal-Mart stakeholders. The different stakeholders include the investors, managers, employees, community, environmental groups, and the government regulations committees. The auditors determined whether the financial reports of its United States branches complied with all the materiality and reporting benchmarks of the United States. In terms of Wolseley, the external auditors observed that t he management’s risk management policies (Wolseley, 2014). The auditors observed that management officers focused their risks on the achievement of its preset strategic management objectives and goals. The auditors focused its risk audit on whether the management implemented viable risk management policies. Similarly, the auditors related its risk audit with management’s implementation of effective internal control procedures. The auditors reviewed whether the current internal control procedures significantly lower both fraudulent activities and errors. Errors are unintentional acts committed by normal human beings. On the other hand, fraud occurs when one or more individuals intentionally decide to present fraudulent transactions. Fraudulent transactions include theft by employees. The auditors present the audit report on risks to the company’s audit committee for appropriate action. The auditors observed that additional operational audits were implemented to reduce audit risks. Likewise, the auditors observed that the company’s internal control department and the audit committee officers, reducing the risks of errors and frauds. In terms of SSE, the auditors did not find any materiality inconsistencies or irregularities (SSE, 2014). The auditors focused the materiality audit benchmark on the financial report bird’s eye_view concept. Consequently, the auditors’ review procedures indicated that the accounts were fair and balanced. The audit findings included the audit committee’s not implemented the internal audit department’s recommended internal control procedure improvements. The improvements are set to reduce or eliminate risks. The audit team set the materiality benchmark limit at £104 million. The external auditors determined the figure for its being approximately 17.6 percent of the company’s computed net profit before the removal of the payable taxes. The materiality levels for each account group were imposed as from £ 10 million to £25 million. In terms of Tui Travel, the auditors obtained reasonable evidences or documents to show there were no material errors in the financial reports (Tui Travel, 2014). Likewise, the auditors used documents to show that there were no significant errors or fraudulent amounts, in compliance with the provisions of the International_Standards on Auditing of the United Kingdom and its nearby neighbour, Ireland. The materiality issue included the external auditor’s ascertaining whether materiality benchmarks set up by the company are appropriate and realistic. The auditors also determined whether the company’s preferred accounting policies were realistically applicable to its market segment image. However, the auditors observed that there were no material inconsistencies in the amounts shown in the financial_reports that needed adjustment of the related financial report figures. The audit procedure included determining whether the company complied with the financial reporting provisions of the Companies_Act (2006) law. The auditors affirmed the company complied with the law. In terms of BabCock, the entity’s external auditors had implemented its own unique materiality signposts (Babcock, 2014). As expected, the benchmark helped decrease the time and audit programs required to complete all the procedures of the client’s chosen audit program. Further, the audit team opted to set the materiality limit for financial report figures at £ 14 million. The same external auditors chose the amount for it is estimated to be set at the standard five percent of the company’s adjusted profit prior to the tax reductions. The audit team also decided to report to the board of directors’ audit committee of any misstatements that hit or overshot the minimum £ 1 million misstatement materiality benchmark for possible corrective measures. In terms of BHP Biliton, the entity’s external auditors had set up unique materiality benchmarks (BHP Biliton, 2014). The benchmark led to the significant decline in the audit time and audit program procedures. In addition, the audit team determined to peg the materiality limit for financial report figures at £ 700 thousand. The same external auditors preferred the figure because it is projected to be set at 4.5 percent of the company’s net profit before the tax reductions. The audit team also decided to report to the board of directors’ audit committee of any misstatements that hit or overshot the minimum £ 34million misstatement materiality mark for probable resolution. Conclusion Summarising, the audit reporting changes centre on improving the materiality and risk concepts. The auditor’s new audit responsibility includes the process of setting the materiality limits of each account. The new changes include requiring the auditors to report all misstatements that reach a prescribed amount. Evidently, the recent risk and materiality audit reporting changes enlarged the auditor’s auditing responsibilities. References: Arwinge, O, 2012, Internal Control. London: Springer Press. Babcock, 2014, Financial Report. London: Babcock. BHP Biliton, 2014, Financial Report. London: BHP Biliton. Centrica, 2014, Financial Report. London: Centrica. Associate British Foods, 2014, Financial Report. London: Associated Business Foods. National Grid, 2014, Financial Report. London: National Grid. Morrisons, 2014, Financial Report. London: Morrisons. British Petroleum, 2014, Financial Report. London: British Petroleum. Sainsbury PLC, 2014,. Financial Report . London: Sainsbury. SSE, 2014, Financial Report. London: SSE. Tesco Plc, 2014, Financial Report. London: Tesco Plc. Tui Travel, 2014, Financial Report. London: Tui Travel. Vodafone, 2014,. Financial Report. London: Vodafone. Wal-Mart, 2014,. Financial Report. London: Wal-Mart. Weir Group, 2014, Financial Report. London: Weir Group. Wolseley, 2014, Financial Report. London: Wolseley. Read More