Audit And Assurance Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Audit And Assurance Case Study Help

Undue Dependence:

If the auditor depends or relies on a selected client or group of connected clients because the firm takes an outsized part of its fee income from the client, the auditor is also less likely to challenge accounting policies or disclosures proposed by the client, for fear of upsetting them. This typically happens when the firm is little, but the client is large. Where the firm feels that an audit qualification is also necessary, it is going to be reluctant to issue it for fear of losing the client and therefore the fee income.

This is applicable no matter whether the fee income is audit fee income or income for other work. The difficulty is very important because if the auditor does not issue a professional audit report where appropriate, the firm is also sued for negligence. Where an outsized client is involved, the firm’s professional indemnity insurance might not cover the claim.

In this case, the audit firm should incorporate the additional measures where they found that the recurring fee income from any specific client is exceeding form 15 percent of the audit firm total gross income.

Financial Interest:

Where a partner or member of staff in an exceedingly firm (or the firm itself) holds shares in an exceeding client, they need an interest within the client’s performance. If the client performs well, the worth of the shares may rise. A professional audit report isn't usually related to good performance and therefore the firm may be reluctant to issue one where appropriate. This is often important for the explanations noted above. Even if there is absolute confidence in a professional audit report, there is also a temptation to assist the client present the leads to the most effective possible light, rather than presenting a balanced view.

There is also a financial interest were partners, staff or the firm make loans to, or guarantee the borrowings of the client or contrariwise. Significantly overdue fees of amounts that are significant to either auditor or client have appreciated loans. In this case, the audit firm should eliminate the person from the audit team which is closely connected with the client’s financial system to maintain the independence of the audit. Furthermore, the firm should quit the audit if they have found that any member of the audit team is a board of director or have any link with the specific client.

Family or Other Close Personal or Business Relationships:

Where there is family or other close personal or business relationships between client and audit firm, the individuals concerned may try and influence the firm in its dealings with the client to safeguard the family or human relationship, or the mutual business interest. If, for instance, an audit partner is married to the finance director of a client, it is less likely that the client will receive a professional audit report than it would be if the link did not exist.

This is often important in any case but more so where the effect of a professional (or modified) audit report is probably going to lead to, say, withdrawal or non-renewal of banking facilities which could lead to the business ceasing to be a going concern. If the firm does not issue a modified audit report in such circumstances, the firm is also exposed to claims of negligence by the bank. If there are close business relationships between client and auditor, both parties have an interest in each other’s performance and there's, therefore, a double pressure to present the leads to the most effective possible light and to not issue a professional audit report.

In this case, the audit firm should eliminate the person from the audit team which is closely connected with the client to maintain the independence of the audit.

Other Services:

Many audit firms provide their audit clients with services aside from audit services. It is quite common for auditors to produce their very small audit clients with accountancy services, for instance. Other services that may be provided include tax, service industry, IT and human resources advice. Some firms not only provide consulting advice but also perform IT and other functions for a few of their clients. There are two threats to objectivity where other services are provided.

Firstly, the firm may find that it is reporting on a system that the firm itself has founded or advised on, or reporting on information that the firm itself has prepared. This implies that it's reporting on its work and it's going to be difficult to be objective in such circumstances. Secondly, the fee income from other services may perhaps exceed the fee income from the audit and therefore the client may pressure the firm to present an unqualified audit report by threatening to require the opposite services to a different firm if a professional report is given.

In this case, the audit firm should not participate in the other services with the client such as the accounting records, stock exchange, and public relations and just focus on the statuary audit to maintain the independence of audit.

Long TimeDuration:

As known that the auditor has been associated with the company fora long time which represents the familiarity threat as the audit partner associated with the company fora long time.

The steps need to be taken by the audit firm id to change to rotate the auditor for the specific company.

Conclusion

It has been concluded that the review is an assessment of plenty of records, both monetary and non-money related, to ensure that they will be depended upon as far as precision and fulfillment. An examiner may be a certified individual who does the review task and reports on the 'genuine and reasonable perspective on' the customer element's budget summaries with the goal that the clients of fiscal reports can rely on the unwavering quality and validity of the fiscal summaries. If the audit firm any of the above discuss threat then the audit firm should immediately incorporate some necessary actions such as the audit firm should not participate in the other services with the client such as the accounting records, stock exchange, and public relations and just focus on the statuary audit to maintain the independence of audit.

As known that the auditor has been associated with the company fora long time which represents the familiarity threat as the audit partner associated with the company fora long time. The steps need to be taken by the audit firm id to change to rotate the auditor for the specific company. Furthermore, this is applicable no matter whether the fee income is audit fee income or income for other work. The difficulty is very important because if the auditor does not issue a professional audit report where appropriate, the firm is also sued for negligence. Where an outsized client is involved, the firm’s professional indemnity insurance might not cover the claim. In this case, the audit firm should incorporate the additional measures where they found that the recurring fee income from any specific client is exceeding form 15 percent of the audit firm total gross income.................................

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