Auditing and Professional Practice Reporting Decision Making

Question: Describe about the Auditing and Professional Practice of Reporting Decision Making. Answer: Analysing the threat that might be evaluated from scenario one: After the effective evaluation of the scenario, certain threats might be identified, which might have a negative impact on the fundamental principles of the auditors. In this context, Weigand Elsas (2012) stated that fundamental principle mainly helps in reducing the unethical practises conducted by the companies to inflate their overall balance sheet. Moreover, the over identified threats of fundamental principles are as follows. Advocacy threat: According to the scenario the CFO of the company, mainly ask their auditors to project valuation of Steel Pty Ltd based on income and balance sheet statement. In addition, the advocacy threat mainly occurs if the auditors comply with the overall statement of the directors regarding certain point. In this context, Zeff (2016) stated that the auditors mainly support the unethical practices conducted by the company, which in turn helps in increasing their profits. On the other hand, Eilifsen et al., (2013) criticises that IFRS and GAAP effectively lays out rules of punishment and penalty, which might be imposed on auditors to reduce frauds conducted in the financial statements. Self Interest threat: In addition, the overall scenario mainly depicts that the auditors in term of self-interest mainly complied with the CFO of Bolts Ltd. Thus, the request of the financial report of Steel Pty Ltd without adding cash flow statement mainly increases the treat of self-interest. In addition, the self-interest threat mainly reduces the overall efficiency of the fundamental principles of auditing. Gebhardt, Mora Wagenhofer (2014) stated that due to the laid out rules of IFRS and GAAP auditor fear from losing their credential as authentic auditors. On the other hand, Power Gendron (2015) criticises that auditor with the help of identified loopholes in accoutring are able to suggest ways, which might help in inflating their financial statement. Depicting the two fundamental principles that might be at risk in scenario one: The overall fundamental principles that might be at risk are mainly evaluated as objectivity and professional behaviour. Kim, Liu Zheng (2012) mentioned that risks to fundamental principles are mainly controlled with the help of adequate control over operations of the auditors. In addition, the depicted risks are further explained as follows. Objectivity: In addition, the objectivity principle mainly depicts the auditor not to be biased in evaluating balance sheet of the company. However, accoutring to the scenario the auditor is forced to become biased in evaluating the financial performance of Steel Pty Ltd. Thus, the fundamental principle, objective is at risk in the given scenario. Weigand Elsas (2012) stated that identified principles of auditing mainly helps ACA to control ethical practises conducted by the auditors. On the contrary, Kouakou, Boiral Gendron (2013) cited that due to less monitoring process used by ACA the auditors with the help identified loopholes are able to increase their personal wealth. Professional Behaviour: In addition, the professional behaviour principle mainly depicts the use of laid out laws and rules in evaluating the financial performance of the company. However, in the overall scenario the CFO of Bolts Ltd mainly forces the auditors to evaluate the financial statements of the Steel Pty Ltd by leaving its overall cash flow statement. In this context, Lord (2016) stated that auditing process mainly helps in reducing portraying the adequate financial valuation of the company, which might be used by investors to make adequate decisions. On the other hand, Tsunogaya, Sugahara Chand (2016) criticises that auditors use loopholes in accounting process to compensate their personal desire and conduct unethical practises. Scenario Two: Analysing the decision of Luke with the help of American Accounting Association decision-making model (AAA): Figure 1: Depicting the AAA decision-making model (Source: Francis et al., 2015) Stage 1: Identifying and evaluating facts of the case After the evaluation of the overall scenario, Luke mainly understands that personality conflict is the main cause in dissatisfaction level of the client. In addition, the overall the late coming of Zane, which lead to the complaint from the client is also evaluated. Moreover, Luke also evaluates the identification of crucial audit issues by Zane, which helped in improving the audit process of the client. Stage 2: Evaluating ethical issues in the case The main identified ethical issues are the late coming, which was conducted by Zane during his work with the client. In addition, the personal conflict is also an issue identified by Luke in the scenario Stage 3: Depicting the principles and norms related to the case Appropriate Punctuality of the employees Customer and employee satisfaction level Stage 4: Determining the alternative course The company could force Zane to be punctual in future and make adequate apology to the existing client. Both Zane and Luke could be given the responsibility for the client to increase customer satisfaction level. In addition, Zane could teach Luke methods, which might help in identifying issues in clients audit. Step 5: Evaluating principles and alternative options The forceful implementation of punctuality and apology letter from Zane could help in improving client satisfaction level. Zane could teach Luke the critical audit process, which might help in identifying the audit issues. Stage 6: Depicting consequences of the action Outcome 1: The force full implementation might motivate Zane to leave the job, which might hamper operations of the auditing firm. Outcome 2: Zane might teach Luke its auditing process and increase customer satisfaction level of the client. Stage 7: Making adequate Decisions Zane will continue his work and become punctual. In addition, Zane will apologize to client and improve overall customer satisfaction level Table 1: Depicting the decision of Luke in the basis of AAA decision-making model (Source: As produced by the author) Analysing the difference in decision if Luke adopts Mary Guy Decision making model: Figure 2: Depicting the Mary Guy decision-making model (Source: Pettigrew, 2014) Stage 1 Identifying the problem Personality conflict between Zane and client Late arrival of Zane and reduction in punctuality Higher dissatisfaction level of the client Stage 2 Evaluating the goals that could be achieved To reduce complaint from client by implementing adequate strategy To increase efficiency of the auditors with the help implementation of punctuality Stage 3 Providing solution for the problem The auditing firm to set an example for other employee could terminate Zane. Zane could be forced to give an apology letter to the client and to the auditing firm for his unpunctuality Training Luke with the method used by Zane for identifying issues in audit Stage 4 Analysing alternative requirement that suites the situation Collecting apology letter from Zane addressing the reasons for his unpunctuality Adequate proofs could be provided by Luke to the client regarding efficiency of Zane in identifying audit issues Stage 5 Depicting actions that might give desired consequence Collecting apology letter from Zane and reducing customer dissatisfaction level Showing critical issues identified by Zane to the client and depict his efficiency at work Stage 6 Making adequate commitment to the choice To effectively encourage Zane to maintain punctuality To help train Luke for indentifying critical issues in audit Table 2: Depicting the decision of Luke in the basis of Mary Guy decision-making model (Source: As produced by the author) Scenario Three: Providing the two-risk assertion that might be witnessed in the accounts payable of the company: The overall scenario three mainly helps in evaluating the two-risk assertion, which is mainly affecting the accounting payable of the company. In addition, after the evaluation, Account balance assertion, and Transactional-level assertion is mainly at risk in scenario three. According to Mock Fukukawa (2015), identified risks mainly help auditors to reduce unethical practises, which might be deployed by companies to manipulate their overall financial statements. Depicting the overall justification for each identified assertion: Account balance Assertion: In scenario three, accounting balance assertion risks is mainly conducted due to unprocessed invoices of major suppliers being held and not recounted in the accounts payable statement. In addition, this mismatch in accounts payable statement might depict wrong financial statement of the company. Sonnenberg vom (2014) argued that portraying reduced profitability mainly help companies to decrease their overall tax payout. Transactional level Assertion: In addition, the slow flow of information conducted by the management to the accounting department is the reason for wrong transactional data depicted in the account payable statement. Mock Fukukawa (2015) argued that wrong depiction of profitability in the financial statement mainly help companies to reduce their retained earnings and in turn decrease their overall dividend payout ratio. Evaluating the substantial test, which might conducted in each identified assertion: Assertion Substantial test Evaluation Transaction-Level Assertions Inquiries, observations and inspections Test The test might help in identifying the correct prices of different transactions conducted by the company with log suppliers Account balance Assertions Evaluating and reperforming clients activities Test Reperforming clients activities might help in identifying the actual prices in five-year period and appropriately conduct account payable statement. Table 3: Depicting the substantial test for each (Source: As produced by the author) Reference: Eilifsen, A., Messier, W. F., Glover, S. M., Prawitt, D. F. (2013).Auditing and assurance services. McGraw-Hill. Francis, B., Hasan, I., Park, J. C., Wu, Q. (2015). Gender differences in financial reporting decision making: Evidence from accounting conservatism.Contemporary Accounting Research,32(3), 1285-1318. Gebhardt, G., Mora, A., Wagenhofer, A. (2014). Revisiting the fundamental concepts of IFRS.Abacus,50(1), 107-116. Kim, J. B., Liu, X., Zheng, L. (2012). The impact of mandatory IFRS adoption on audit fees: Theory and evidence.The Accounting Review,87(6), 2061-2094. Kouakou, D., Boiral, O., Gendron, Y. (2013). ISO auditing and the construction of trust in auditor independence.Accounting, Auditing Accountability Journal,26(8), 1279-1305. Lord, C. (2016).A democratic audit of the European Union. Springer. Mock, T. J., Fukukawa, H. (2015). 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