The Major Audit Principles - Essay Example

1. Confidentiality, professional competency, due care, professional behavior, and integrity are some of the fundamental audit principles (Wild, Shaw, and Chiappetta 2011, 811). These are standards that an audited member must adhere to in order to uphold integrity in the profession. In the above problem, Bob has breached the confidentiality principle; this is an ethical principle and legal obligation of discretion which require nondisclosure of information except to the client and audit committee about the findings or any material uncovered during the course of the audit. This is unless permission is granted by the client for such discloser (Boritz 2004, 29). However, the above principle can be violated in the following circumstances: if it is a requirement in a legal proceeding, if it is a professional requirement, and to protect the public interest in a situation where the fraud is discovered.
2. Wendy has been practicing as an auditor of Ace Limited audit for a number of years and was subsequently appointed for the post of secretary, after the retirement former Secretary. When conducting an audit function, auditors are required to be objective and independent in their judgment. If Wendy continued to act in this position, conflict of interest will arise; this is because she will be assessing her own work thus impairing the principle of objectivity. If Wendy wishes to carry on as a secretary, then she should resign first as an audit partner or otherwise compromise the audit firm’s integrity.

2.

1. Audit risk can be defined as the risk that an auditor will give the wrong audit report or opinion when the financial report has been significantly misstated or miss presented (Pickett 2006, 214). According to (Gray and Manson (2008, 73), it is the responsibility of the audit team to reduce this risk to the acceptable level for the final report’s reliability. This has a significant bearing on the business risk associated with the enterprise as indicated in Slipway Limited. The audit report is altered in nature and therefore is an indication of the prevailing concern. There are three components of audit risk: inherent, control and detection risks. If the auditor relied on the internal control system and internal audit report which could have been weak to the extent of failing to detect any fraud, then control risk occurred. The second scenario talks of detection risk which could occur due to failure of the auditor’s substantive procedures to detect any misappropriation and fraud in the company. In this case, bankers might have relied on the report to continue providing the finance which could be misleading.
2. According to Gray and Manson (2008, 73), inherent risk is the susceptibility that class of transaction or account balances is materially misstated according to the inherent factors and internal environment. This is without the consideration of control systems. This risk depends on the economic situation of the industry at large, integrity of the management team, nature of the business entity, unusual obligation on management, and knowledge-base of the entire management team. Getaway Pty Limited is considering a change in its top management with extremely different business strategies and procedures which significantly adds to its inherent risk.

3.

1. As an audit senior of Harmony Pty Ltd together with an audit assistant, the audit function of stock take is done as per the laid instruction. The report questions will be answered based on sufficiency, reliability, and appropriateness of gathered evidence (Vona 2008, 137). Numerous items were selected from the client’s inventory sheet which was tested and found to be correct.  On my part, am convinced that there is sufficient appropriate audit evidence to provide a basis for the report.
2. It is responsible for an auditor to perform a test of control in order to check the strength and weaknesses. According to Chorafas (2002, 93), they also check the efficiency and effectiveness of the internal control system (ICS). The result obtained by Susan indicates the presence of error, therefore the reliability of the evidence will be questionable.
3. To determine whether the transactions are materially misstated, the substantive test should be conducted by performing analytical procedures; this, in turn, reduces detection risk. They involve ratio analysis, looking at sales trends, and other comparative financial statements. Susan who is a highly skilled and competent audit assistant has found, based on the audit plan and strategies, that product 75L earns the company a substantial return. This is despite the fact that the presentations only indicate 1% of sales for the year. I will totally agree with the conclusion made by Susan because 1% is less than 5% of the appropriate base amount; this is also supported by the management presentation.