Big Data Complementary Audit Evidence †Free Samples to Students

Question: Discuss about the Big Data Complementary Audit Evidence. Answer: Introduction: If the appointed auditor of any organization provides additional services out of the scope of the audit engagement letter, then those services are known as non-audit services (NAS). It covers the services like actuary services, promotion of clients business and actuary services are few of them to be named. When the auditor involves himself in the promotion of the clients business it generates the advocacy threat and it endangers the auditors independency (Ahlawat Nouri, 2015). Therefore, the approach of the LTH to the auditors of the firm CJ for giving speech related to promotion of their business is not as per the standard of audit and CJ shall not accept the offer. The auditor shall not accept anything in monetary or non-monetary form from the client except their fees. If the auditors accept anything in addition to the fees then it will create self-interest threat as through accepting the additional benefits from client, the auditor become liable to the company. Therefore, the holiday package offered by LTH to audit partner Geoff from the audit firm CJ, shall not be accepted by him as it will create controversies related to his independence. Further, the auditor must give true and fair judgment as per the best of his knowledge during the audit procedure (Causholli, Chambers Payne, 2015). Therefore, accepting additional benefits for carrying out the audit smoothly will definitely raise questions regarding the integrity of the auditor and therefore, shall not be accepted. When the close family members like parent, siblings, dependent child of the auditor is in control of financial decision of the client, the auditor shall not comment on the financial statement of the auditor. The financial interest also includes giving recommendations on the investment portfolio of the client or providing any guarantee for the clients obligation. In the given case, the auditor, Michels father is the financial controller as well as the preparer of financial statements of the client LTH. Therefore, if the audit appointment is accepted by Michel, it will raise questions regarding his independency and at the same time the it will jeopardize the credibility of the audit firm too. Therefore, Michel shall not accept the offer to be engaged as auditor. However, if Michel engaged as the auditor of the firm CJ, then he must restrain himself from commenting on the financial statement of LTH. If the auditor is engaged with the assignment of auditing of a company where she was previously engaged as an employee, then it will give rise to the familiarity threat as there is likelihood that the auditor will be aware of the strength and limitations of the company. In the given case Annette was employed with LTH for calculation of tax and preparation of accounts of the company just a month back (Sarwoko Agoes, 2014). It is more likely that Annette will feel that the financial operation of the company is in order and will not go for in-depth investigation. Moreover, the auditor cannot review her own work as it will generate the self-review threat. Therefore, Annette shall not be appointed as the auditor of LTH. Safeguards against the independency threat of auditor Various methods that can be used to safeguard the independency of auditor are At the time of audit procedure, the auditor shall give his judgement that is aligned with the standards of auditing and the professional approach of the auditor While carrying out the audit, the auditor must ignore any influence from interested parties, users and political parties. There must be a rotation system in the engagement of key partners of the audit firm. It will reduce the chances of familiarity and self-interest threat (Khlif Samaha, 2014). The audit team shall have vast level of knowledge regarding the auditing standard and recent amendments of auditing to give best quality to the audit Business risks related to spare parts and equipment To present the audit report in true and fair manner, the auditor shall Analyse the expected level of material misstatement and its impact associated with the clients business Evaluate the overall risk of the clients business due to the accounting procedure, accounting disclosures and the environment of the business (Yoon et al., 2015). Evaluate the impact of identified risk on the financial statements of the client Business risks that are associated with the spare-parts and equipment purchase are Strategic risk: the strategic risk is linked with the inventory management and system of inventory management. the client may exchange the available inventory for purchase of another products or they can control the inventories as per the regulated requirement of inventory management. if the loss can be comfortably accepted by the client, then they can select the 1st option, otherwise they shall sect the 2nd Operational risk: This risk is related to the outcome that after preparing some strategies, the company are not able to follow it completely (Okaro Okafor, 2014). The reason may be the management are not willing to follow the strategies or there is some limitation in the approach of the policy itself. However, for the management of spare-parts inventory, assessment of risk assures the suitable measures for the inventory management. Audit risk type and their impact on the balance The strategic risk takes place while the organisation is not able to develop any strategy or the auditor is not able to control the risk. The accounts affected by this risk are opening as well as closing balance of inventory, net profit and gross profit. On the contrary, operation risk takes place when there is a chance that the risk will not be detected by the auditor. It greatly impacts the transactions of purchase account, sales account, inventories, opening as well as closing stock and the revenue account. Reference: Ahlawat, S. Nouri, H., (2015). An examination of accountants non-accountants'perceptions of auditor not reporting a material misstatement.Journal of Business Accounting,8(1), p.51. Causholli, M., Chambers, D.J. Payne, J.L., (2015). Does Selling Non-Audit Services Impair Auditor Independence? New Research Says,Yes.Current Issues in Auditing,9(2), pp.P1-P6. Khlif, H. Samaha, K., (2014). Internal control quality, Egyptian stards on auditing external audit delays: Evidence from the Egyptian Stock Exchange.International Journal of Auditing,18(2), pp.139-154. Okaro, S.C. Okafor, G.O., (2014). Joint Provision of Audit Non-Audit Services in Nigeria: An Empirical Study.IUP Journal of Accounting Research Audit Practices,13(1), p.30. Sarwoko, I. Agoes, S., (2014). An Empirical Analysis of Auditor's Industry Specialization, Auditor's Independence Audit Procedures on Audit Quality: Evidence from Indonesia.Procedia-Social Behavioral Sciences,164, pp.271-281 Yoon, Kyunghee, Lucas Hoogduin, Li Zhang. (2015). "Big data as complementary audit evidence."Accounting Horizons29.2: 431-438.