Auditing Scenarios - Assignment Example

Scenario 1 The American Accounting Association decision model for ethical issues will require a seven step process to be carried out so that ethical decisions can be taken. The scenario following the seven step process will be as Step 1: Identifying the facts Zane & Luke both work in the same audit firm and are looking for promotion to audit supervisor where there is only one vacancy Zane has been replaced by Luke on a particular case as the client has called the audit manager and stated that he was not impressed with the manner Luke has worked The allegations put forward by the client is that Zane has missed a lot of issues while carrying out the audit work and was arriving late at work Zane realized that Luke had done an excellent work and has covered different issues which he might have missed and the client has complained the audit manager due to personality issues which they are facing among themselves The audit manager due to clients reputation is unlikely to report the actual matter to Luke as it would impact the reputation of the firm Step 2: Ethical Issues The ethical issue before Zane is whether he should look forward to bring the actual issue before Luke and the audit manager. Bringing forward the issue to Luke and the general manager would have an impact on the future prospect of Zane as it might lead towards the promotion of Luke for audit supervisor for the good work he has done. This could result in a situation where Zane would not be promoted whereas he can take advantage and state the work being carried out by him which would lead towards his promotion. The other problem is that the audit manager might not look to discuss the issue with Luke as it would have an impact on the client reputation and also the impact the reputation of the firm which would have a further impact on Zane future. Step 3: Identification of norms, principles and values The societal norms require that the actual matter is brought forward to the people so that they understand the actual ground realities and decision can be taken accordingly The professional code requires to act is a fair and transparent manner which suggest that the actual ground situation should be brought forward and decisions should be taken so that the professional code of conduct is adhered. Step 4: Alternatives The different alternatives are as Hiding the matter and taking the credit for someone else work so that Zane gets promotion and is promoted to audit supervisor Bringing forward the matter and actual situation before Zane and making him realize that the audit manager might not take his stand as it will impact the client reputation and have an impact on future job with the client Bring forward the matter with the audit manager and higher bodies so that the actual situation is understood and the reason for removing Luke is something other than the work i.e. personality conflict Step 5: Best Action The best action will be bringing forward the actual matter before Luke, audit manager and higher authorities so that they understand the actual situation and realize that Luke has been removed from the role because of personality conflict with each other. Step 6: Consequences of action The actions taken will result in Luke performance being realized and he might be promoted for the role of audit supervisor because of the good work carried out by him It would result in Zane loosing the chances of being promoted to the role of audit supervisor as the performance of Luke would be better than Zane It might result in losing the client for the future as it will have an impact on the client reputation and would thereby make them lose a prospective client for the future Step 7: Decision Bringing forward the actual matter before Luke, audit manager and higher authorities so that they understand the actual situation and realize that Luke has been removed from the role because of personality conflict with each other Scenario 2 The four ethical issues which the situation presents are as The documents which have been provided lacks complete details regarding the transaction. The overall documents are so summarized which raises questions whether the business has used the capital purchasing policies. This raises doubts regarding the ethical standards which have been used and the degree to which all steps with regard to capital purchasing policies have been used. This could lead towards a situation where the business has camouflaged the purchasing mechanism and might have used a process which is different and beneficial for them. This thereby raises questions and doubts regarding the manner in which purchase policies are being developed and followed The other ethical consideration is that Blake is not willing to substantiate the details which are being asked for but instead looks to use their relationship to influence people in decision making. This could be unethical as using personal relations while carrying out official activities could lead towards using machines and objects which are below standards. Being guided by people and not looking to use the audit process also goes against the ethical standards and could thereby impact the overall mechanism through which different decisions are taken. The other ethical consideration is that the professional code of ethics which has been provided by the audit board and committee is not being followed. This means that the overall consideration and mechanism through which business standards need to be judged and the process which has to be followed while carrying out ethical process is not being followed. This is against the professional code and requires ramification so that decisions are taken based on correct models Lastly, the situation unfolds where gifts and other form of tokens are being given to lure the auditor so that he acts and takes decisions which don’t follow the required code of justice. Taking gifts whether in monetary form or other form doesn’t justifies the professional code which has been provided and cannot be justified on the grounds that activities were undertaken keeping things in good faith. It is unethical for an auditor to take gifts and raises concerns regarding the moral standards and ethical standards which the auditor follows. This highlights that the mechanism which has been adopted in unethical and goes against the process through which corrective decisions have to be taken The different actions and steps which has to be taken to ensure that ethical standards are maintained are as Ensure that no gifts or help or any rewards are being accepted as it is against the ethical code of professional conduct. It is imperative that the auditor acts fair an doesn’t indulges into any such activity which creates a bad image of the professional code. This thereby makes it all the more important to ensure that no form of gifts whether in cash or kind is accepted at any time Carry out the process of audit in the most ethical manner and follow the standard code which is required. This makes it imperative for the auditors to verify all the details and look at every matter and issue so that it can be better understood. This will thereby help the auditor to verify all the different documents and certify that all the details which have been provided is actually correct and true. The process would require physical verification and looking at all details to ensure authenticity of the transactions Bring the matter to the knowledge of the higher authorities and make them realize the manner in which the production manager is acting. This will thereby help to ensure that even in the future all the decisions which will be taken will be fair and the audit process will be carried out on correct grounds. In addition to it bringing the information to the knowledge of the higher authorities will ensure that the manager doesn’t act in the same way and the fear of being caught in the future will guide actions in a better way Confirm to the code of conduct which has been laid down and carrying out the different activities keeping in mind the manner in which it will ensure uniformity. Following the policies and ensuring that the correct moral and ethical standards are followed will help to carry out the activities in the best manner and would prevent to be unethical as all the activities will be guided by ethical standards Scenario 3 The scenario presents before the different areas which needs to be considered. The key assertions in relation to accounts payable which has been highlighted is as Differences in the accounts payable balance which will have an impact on the future performance. Since, the process of changes has not been provided to the accounts payable department this is going to raise concerns regarding the manner in which different entries are carried out. This will have a bearing on the final balance of different creditors as balances will not match will make it difficult to ensure similar business dealings in the future. The overall bearing will be seen in the manner in which different business dealings are being entered and will thereby have an impact on the long term performance The overall bearing will have an impact in the financial as it will reflect incorrect figures as the balances of accounts payable are incorrect. This will reflect the organization in incorrect light as the actual value of assets and liabilities will not be reflected. This will raise question regarding the manner in which organization works and delay in the accounts payable will have a long term bearing on the performance. This will have an impact on finding prospective suppliers in the future and will thereby make it difficult to carry business as incorrect accounts payable will have an impact on performance The risk which the accounts payable presents can be further justified on the grounds that Incorrect accounts payable and delay in paying money to the creditors will raise questions and doubts regarding the manner in which business pays of its dues. Over a longer period of time having incorrect entries would become a tedious job and would reflect the entire business in a bad light. Since, the changes in the manner in which organization works and deals with creditors have undergone changes the same needs to be passed on to the concerned department so that they are able to take appropriate steps at the correct juncture. This will help to ensure that the values of accounts payable match and will help to reflect the correct value. This will also ensure that having correct accounts payable value will help to undertake corrective decisions as business based on it can undertake credit policies and decide the manner in which money will be collected and paid to the creditors so that the overall brand image of the organization improves Accounts payable form an important part of the financial statement so it becomes imperative that it is correctly highlighted as incorrect values would lead towards improper financial management. Different business decisions are taken keeping in mind the credit policies and having incorrect account balances for accounts payable will make the entire credit policies to be incorrect and would thereby create doubts regarding the manner in which different business decisions are taken. Further, accounts payable should reflect the correct values as it helps to understand the business policies and helps to find prospective suppliers for the future. The inability of the organization to work and maintain it will have a bearing on the long term performance and would thereby raise questions and doubts regarding the manner in which different decisions are taken at different levels To deal with the different issues which the accounts payable is presenting it is important that different mechanism and steps are found which will help to deal with the issue. This can be addressed to a large extent through Significant Overstatement Test: This requires carrying out extensive test by confirming the balances with the different vendors so that the differences and discrepancies can be found out. This will require getting all details of the transaction which includes purchase, sell and payments so that it can be matched and verified (Johnstone, Granling & Rittenberg, 2014). This will help to ensure that accounts payable will reflect the correct value as having a continuous overstatement test for different vendors at different time intervals will reflect the correct value. The test also requires that the balances are verified at small interval of time like quarterly instead of yearly so that all information can be collected and compiled at the correct time interval. This will reduce the risk and will help to bring about the required changes in the accounts payable process will would thereby help to reflect the correct value of different assets and liabilities. Cut Off Test: This test will require verifying last few transactions i.e. last five transaction before the cut-off date which is generally the accounting year. This will be carried out on a yearly basis and will help to ensure that all accounting transactions in relation to accounts payable have been entered (Johnstone, Granling & Rittenberg, 2014). Verifying the last few transactions will also ensure authenticity of the other transaction as it will ensure that no transaction is being missed. This will thereby help to ensure that the different balances are correct and the financial statement reflects correct value of assets and liabilities. This will have a bearing on the long term performance as having correct balances will ensure that the business will be carried out on corrective terms and will help to ensure that the business is better controlled and governed The test will thereby help to ensure better control over different working and will reflect the manner in which accounts payable is managed and correct balances are being reflected. References Johnstone, K., Granling, A. & Rittenberg, L. 2014. Auditing Inventory, Goods & Services & Accounts Payable: The Acquisition & Payment Cycle. 9th edition, South-Western Cengage Learning Read More