Audit - Assurance Functions - and Standards of Decision Making

Question: Discuss about the Audit, Assurance Functions, and Standards of Decision Making. Answer: Introduction This report has different audit, assurance functions, and standards of decision making. Financial statements of client are prepared with the help of Auditing and assurance where auditors undergo audit process, give their opinion. Auditors are expected be neutral and express their opinion regarding financial Statements. The report shows the responsibility of auditors to third party. To make clear the liabilities of auditors towards third parties case analysis are done. In Second section, 4 cases with different aspects of auditors roles and responsibility are analyzed and suggestion regarding same is provided. In following situations or miss-conduct by auditors, they can be held liable by business entity who has appointed them or client: Breach of contract while performing audit work or audit procedure can lead towards liability of auditor to business entity or client If auditor has allegation of professional negligence or professional misconduct by the business entity or client. Negligence of Statutory duties (duties which are stated by statue for the auditors to performed while conducting audit of the business entity or client) If the business organization or client suffers losses on relying on the audited financial statements or audit report, then auditors can be held liable by the client only. The auditors is liable to contractually extend to client only and further extended to outsiders or third party (Carey et al., 2014). The auditor can be held liable by the third party for negligence of their duties and professional misconduct. Following are the conditions under which only the auditor could be held liable by third party. If the client access the financial statement prepared by the auditor and put reliance on it. Second condition is, if the third party has the actual knowledge of limited class and use and relies on audited financial statements in decision making process. Last condition is; when auditors actually know that the group of stakeholders or one of them will use such audited financial statements and same has been provided in written form to auditors (Carson et al., 2014). On the basis of above provision of auditing standards followings questions or situations will be answered: Would King and Queen be liable to EFL? From the above provisions or laws related to auditors liability towards client and towards third party. It can be concluded that King and Queen Auditor of Impulse Pty ltd can be liable towards allegation of Impulse Pty ltd only and not towards any third party. As per the standards on auditing, professional negligence can be questioned by client (Impulse Pty ltd) only if they has suffered any loss by putting reliance on audit report or audited financial statements. But any third party putting reliance and taking decisions on the basis of audited financial statements or audit report cannot be sue auditors (Saha and Roy2015). Same standards can be applied in the present case and it can be concluded that Easy Finance Limited cannot take action against King and Queen. If EFL had written to King Queen advising you that they intended to make a loan to Impulse and were relying on the 2012 audited financial report to assist them in making their decision? In this situation, it can be observed that Easy Finance Limited has provided prior written notice to King and Queen that they will be using your audit report in their decision making process regarding lending loan to Impulse Pty Ltd. This situation fulfils the last condition as stated in above provision and on this basis Easy Finance Limited can take legal actions against King and Queen (Funnell et al., 2016). Define actual and perceived independence, and explain the importance of each. Actual Independence- Actual independence can be defined as the independence under which auditor has provided written consent that he / she is free from any biasness or interest in company. Importance of such independence is that; outsiders or third party can rely on audit reports and can take decisions on the basis of audit report (Leung et al., 2015). Perceived Independence- Perceived independence is the independence where auditor is assumed to be independent but in actual sense he / she are not independent. List any professional standards and regulatory requirements breached and discuss possible alternative courses of action In this case, confidentially in terms of use of clients financial information has been attracted as breach of professional standards and regulatory requirement. In this case, Bob has used financial information of client without taking permission of client; therefore this is the case of breach of confidentiality (Wines, 2012). Alternate course of action could be; Bob shall asked to client in writing to use financial information apart from audit work then this would not attract confidentiality breach. In this case, working capacity of auditor has been breached which means auditor has to act in auditors capacity of the business entity and snot in any other capacity. In this case, Wendy has acted in dual capacity i.e. auditor and as company secretaries also. In this case, independence of auditor also breached as Wendy is also involved in internal matters as company secretaries of company (Tepalagul and Lin, 2015). Alternate course of action could be; if Wendy can resign from the post of auditor then she can be company secretaries or vice-versa. In this case, audit work of testing internal control system in term of cash payment system has been handed to Leo who is son of foremen, employed by client. Therefore independence of auditor will be hampered. Alternate course of action could be; not to give testing of cash payment system work to Leo but some other work which does not involve cash or other importance assets of the business organisation. This is the case where auditor of company will become shareholder in exchange of their audit fees. In this case, since auditor (Chan Associates) becomes shareholders of $ 1000 then interest of auditor will be sin business organisation. Therefore in this case, independence of auditor will be getting hampered and auditor will not able act as auditor from then (Hohenfels, 2016). Alternate course of action can be; not to accept shares in the clients company. Conclusion To conclude, auditor should be free from biasness, integration shall be followed. Auditors should be independent to express their opinion on the financial statements of the client. Auditors liabilities are not limited, in fact, fulfilling certain conditions they can be held liable for negligence of their duties. Only if there is a written contract between the two auditors can be held liable for misstatement and negligence. Prime necessity of conducting audit is Auditors independence which should be maintained. Clients information should be kept confidential and not misused by auditor. References Carey, P. J., Monroe, G. S., Shailer, G. (2014). 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