Auditing - Assurance - and Compliance Services

Question: Discuss about the Auditing, Assurance, and Compliance Services. Answer: Introduction: The present study sheds light on the relevant accounting theory and the auditing and assurance services. This particular study is based on a case study that illustrates the operations of the BSF Ltd., an Australian bioresearch organization that is listed in the Australian stock exchange. This particular organization carries out research for the purpose of utilization of the bacteria for the manufacture of fish. However, the corporation BSF Ltd also undertakes diverse research operations that orients around bioresearch for discovery of the sustainable aqua cultural feeds. The study also reflects the challenges faced by the research organization that encompasses the failure of research on the plant-based feed that could solve the concerns of the fish based feed along with the cost borne by the organization due to the unsuccessful projects. The unsuccessful research also drew criticisms from the environmentalists and faced the allegation of diversion of the high worth food crops into lu xurious fish. This led to the new research on the bacteria based research for the generation of the feeds that ultimately met with success. The current study therefore deals with the steps that need to be taken into consideration before the auditing and application of the same into the operations of the BSF Ltd. Thereafter, the present report deals with the evaluation of the risk of the audit, process of application of different functions. Furthermore, the current study discusses the entire audit program for the company and discusses the accounting treatment of the research as well as development transactions. Besides this, the present study also discusses the accounting treatment of the government grant received by the corporation from the Commonwealth Scientific and Industrial Research Organisation (Federal Government of Australia). Consequently, the study deals with the evaluation of the research as being socially as well as environmentally friendly. Finally, the present assignment carries out analysis of the reasonableness of the assertion regarding the patent value as the exclusive control over the advanced technolo gy used by the research organization. Steps to be considered before acceptance of audit and application to the operations of BSF Ltd The audit process necessarily needs to adhere to the auditing standards stipulated under the section 336 of the Corporations Act 2001. The process of conduction of the auditing needs to comply to the auditing standards namely, the ASA 100 (Preamble to AUASB Standards), ASA 101 (Preamble To Australian Auditing Standards), ASA 102 (Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements) among many others (Christensen et al., 2012). The process of the evaluation of the audit comprises of the inspection of the prospective clients of the accounting firm, allied activities of the business together with the owners. The sequential process of the audit also comprises of evaluation of diverse objectionable risk associated to the client that includes enquiry of the overall reliability of the corporation (Duncan Whittington, 2014). However, as a result the procedure of the audit follow the due diligence procedure and verify the overall ethical thre ats associated to the confidentiality or else the contradictory advantages. In addition to this, the BSF Ltd also needs to have the adequate competence for executing the business activity, as this organization is mainly a bioresearch organization. However, diverse circumstances for the purpose of the performance of the audit embrace the process of determination of different suitable framework for the financial as well as account of the corporation (Homb et al., 2014). Furthermore, the process of audit also includes the examination of the legitimacy of the presented information concerning the client along with the conformation with the diverse accounting standards. Besides this, the auditor also needs to examine the overall ethical requirements and maintain the overall quality of the activity (Ahmed Haji Anifowose, 2016). Over and above this, the management of the corporation also needs to be in agreement with the one another as regards the preparation of the financial statement. Th erefore, the evaluators need to ensure that the financial statements of the company are also free from the material error that might be owing to fraudulent activities if not unintentional mistakes. As rightly indicated by Shah Nair (2013), the assessor can disallow the overall engagement with the client firm if the management implements constraints on diverse activities of the audit. In addition to this, the assessors can in turn refuse certain suggestions of audit when the financial records are not prepared according to the acceptable regulations. Nevertheless, the assessors assume confirmation from the preceding auditor as regards the execution of the legal and at the same time the process of implementation (Simpson et al., 2016). In addition to this, the assessors also need to make it certain that the choice of the proposed assessor according to different statutory obligations. Ultimately, the auditor has the need to submit the requisite letter of engagement with the client. Risk assessment of the audit of BSF Ltd The process of evaluation of the audit risk needs to adhere to the Australian Auditing Standards that institutes different requirements and at the same time offer the process of implementation of the standards. The assessor can abide by the rules such as the AUASB ED 7/08 ( the Proposed Auditing Standard ASA 315) that helps in the process of identification as well as assessment of the risk of materiality. In addition to this, many other standards are laid down as a guideline for carrying out the entire audit. The primary intention of the assessor is to identify and at the same time reduce the overall risk to a significantly low level (Hegazy Farghaly, 2016). The analysis of the present case study reveals the fact that the inherent risk of BSF Ltd is 90% and on the other hand the control risk stands at 5%. In addition to this, the risk of detection is recorded to be 80%. The audit risk in the present case can be evaluated by utilization of the Audit Risk Model in which the assessor c an take into consideration both the control as well as inherent risk (Chambers Odar, 2015). Therefore, the audit risk can therefore be calculated by implementation of the formula that states that the risk of the audit is necessarily the multiplication of all the registered inherent risk, detection risk as well as the control risk. Therefore, the formula for the calculation of the audit risk can be put across as (Audit Risk = Inherent Risk*Detection Risk*Control Risk). As mentioned in the case study, the audit risk is therefore equivalent to 0.36 (0.36=0.8*0.9*0.05). Thus, the audit risk is registered to be 36%. However, the audit risk in this case is under 10% that is regarded as the standard for the audit risk, therefore, there is a need to have audit risk within the limit of 10%. This reflects the fact that the assessors can execute the role of audit for the client company BSF Limited. Discussion of the audit program for the BSF Ltd As rightly indicated by Pitt. (2014), the auditors have the need to devise and at the same time create audit program in a bid to make it certain that the business functions as well as control of the organization can be evaluated for the purpose of rectification. In addition to this, the assessors can also get hold of adequate information as well as requisite substantiation by conduction of diverse audit programs that includes list of different functions that are essentially involved in the process of assessment and audit process. Again, the suitable individual audit procedure are primarily designed with the intention of the development of accounting methods and at the same time accounting strategies (Graham, 2015). Nevertheless, the audit process also takes in different substantiated tests as well as other methods of control. For the purpose of the substantiation of the audit opinion, the assessors need to comply with diverse performance requirements according to the specific require ments of the audit regulations (Australian Auditing Standards) for the particular audit program and thereby build up the important working papers of the assessors (Lowell, 2016). Again, the assessor also needs to record different features that in turn can aid the entire procedure of the validation of the audit (Auasb.gov.au., 2016). The important factors of the audit program also need to integrate the process of the preparation of the working papers that can essentially facilitate the overall process of retention of the union with the presentation of the audit. In addition to this, the auditors also need to arrange the working papers and keep account of the business functionalities in both the current as well as the permanent audit directory. As rightly indicated by Chambers Odar (2015), the permanent audit paper therefore includes diverse substances that can persistently exert impact on the entire performance that comprises of the Document of the Copy of Memorandum of Association of the company BSF Ltd. In addition to this, the permanent audit paper also comprises of extracts of different important legal documents significant minutes in addition to the documents of agreements of the organization BSF Ltd. In addition to this, the documents of the audit also need to include important information concerning the internal control and at the same time the process of the accounting that the management of the organization BSF follows (Christensen et al., 2014). In addition to this, the audit documents also comprises of the structure of the company, information offered by the legal advisors as well as the bankers of the particular business entity along with the letter of the engagement. The document also replicates the evaluation of diverse accounts of balance of the corporation BSF Ltd, illustration of the process of evaluation of the financial statements at the time of audit by other auditors along with the perspectives of the assessor. The auditor presents the points of view regarding the overall internal control procedure, procedure for accounting, adherence to different ethical requirements along with the quality of the financial declarations (Chychyla et al., 2015). In addition to this, the important performance indicators together with the important ratio can assist in the process of detection of the specific trends of the business as well as the evaluation of the process of assessment. Moreover, the working paper of the audit also comprises of the constitutional documents of the BSF Ltd that replicates the entire business structure. Set of the journal entries for the transactions of the research and development The Journal entries for the research and development expenditures are as follows The journal entries for the Year 2013 Dr. RD exp 260,000,000 Cr. Cash or A/P 260,000,000 Dr. Cash or A/P $500,000,000 Cr. RD exp. $100,000,000 Cr. Unearned grant revenue $400,000,000 The journal entries for the Year 2014 Dr. RD exp. 100,000,000 Cr. Cash or A/p $ 100,000,000 Dr. Unearned grant revenue 100,000,000 Cr. Research grant revenue 100,000,000 The journal entries for the Year 2015 RD expenses $ 100,000,000 Cr. Cash or A/p $100,000,000 Dr. Unearned grant revenue 100,000,000 Cr. Research grant revenue 100,000,000 The journal entries for the Year 2016 RD expenses $ 60,000,000 Cr. Cash or A/p $60,000,000 Dr. Unearned grant revenue 60,000,000 Cr. Research grant revenue 60,000,000 Decisions regarding the accounting treat of the grant In keeping with the accounting directions established under the standard AASB 120 that yet again congregates with the conditions stipulated under the IAS 20, the dealings of accounting for ascertainment of the government grants can be carried out properly (Aasb.gov.au. 2016). Again, as mentioned in the accounting stipulations, the set of laws established under relevant principles of accounting, the government grants can be registered as profit or else loss and in a systematic way during the course in which the business entity identifies the expenses as the connected costs (Cohen et al., 2013). In addition to this, the process of recognition in addition to documentation of varied government grants similar to profit if not loss is not according to the specific assumption of accrual accounting as revealed under the standard AASB 101 Presentation of Financial Statements (Aasb.gov.au. 2016). Nevertheless, the method by which the government grant can be recorded does not convince the compl ete technique of book-keeping that can essentially be executed on the subject of the grant. Nonetheless, the government grant can be regarded as a receivable and can be treated as a reimbursement for offering the instant financial preservation to the entire business unit with no probable allied costs that can be documented in profit if not loss throughout the particular time (Cohen et al., 2013). Description of the research as being socially responsible and environmentally friendly As rightly put forward by Shah Nair (2013), the research process carried out by the BSF Ltd also have the need to be socially responsible and at the same time environmental friendly. As mentioned in the case, the research work conducted by the company BSF Limited on the plant based feed faced criticisms from the environmentalists that alleged that the process of diversion of the human quality food crops into the lavish fish is almost identical to the process of diversion of the low valued fish into the course of production. Therefore, this business practice can also affect the poor people and in turn escalate the risk associated to malnutrition. Therefore, there is a pressing need for the development of a socially responsible and at the same time environment friendly research activity. This practice also reflects the fact that the business units have the need to adhere to different set of rules as well as regulations that are essentially stipulated under both the social as well as e nvironmental evaluations in the process of carrying out daily business operations (Christensen et al., 2012). Again, there is also an obligation on the part of the corporation regarding the implementation of the regular tracking of diverse environmental issues in the entire business unit. In addition to this, the brand also has the need to abide by various severe regulation regarding the operational policies that can assist the process of deliverance of the operation (Ahmed Haji Anifowose, 2016). Again, the human resource segment of the company also need to hold fair as well as transparent view that in turn can avoid the partialities to a particular party in a bid to maintain social accountability (Chambers Odar, 2015). Again, the research process also need to abide by the rules of the administration of the company BSF Limited. Assessment of the reasonableness of the exclusive control of the patent values over technology As rightly indicated by Chambers Odar (2015), the process of functioning of control over basically an intangible asset can direct and help in the commencement of forthcoming economic growth (Lowell, 2016). Nonetheless, the capability of a particular corporation to deal with the impending economic refund from a specific intangible asset can occur out of various legal associations that efficiently can be considered as obligatory under necessities of pertinent law. On the other hand, the special control of the company over certain intangible assets that in turn can support the entire course of improvement in common technical aspects. This can facilitate the process of acquirement advantages in the forthcoming phase (Cohen et al., 2013). According to Cohen et al. (2013), the AASB138 paragraph 13 -16, the association BSF Ltd also have the need to be accustomed to the level of expertise as well as potential of the members of the staff that sequentially can generate the step up of economic rewards in the forthcoming time (Aasb.gov.au. 2016). Yet, owing to lack of various lawful manipulations, the corporation BSF Limited can defend the future rewards through substitute actions or trials. References Christensen, B.E., Glover, S.M. and Wood, D.A., 2012. Extreme estimation uncertainty in fair value estimates: Implications for audit assurance.Auditing: A Journal of Practice Theory,31(1), pp.127-146. Homb, N. M., Sheybani, S., Derby, D., Wood, K. (2014). Audit and feedback intervention: An examination of differences in chiropractic record-keeping compliance.The Journal of chiropractic education,28(2), 123. Ahmed Haji, A., Anifowose, M. (2016). Audit Committee and Integrated Reporting Practice: Does Internal Assurance Matter?.Managerial Auditing Journal,31(8/9). Shah, M., Nair, C. S. (Eds.). (2013).External Quality Audit: Has it Improved Quality Assurance in Universities?. Elsevier. Simpson, S. N. Y., Aboagye-Otchere, F., Lovi, R. (2016). Internal auditing and assurance of corporate social responsibility reports and disclosures: perspectives of some internal auditors in Ghana.Social Responsibility Journal,12(4). Chambers, A. D., Odar, M. (2015). A new vision for internal audit.Managerial Auditing Journal,30(1), 34-55. Pitt, S. A. (2014).Internal Audit Quality: Developing a Quality Assurance and Improvement Program. John Wiley Sons. Graham, L. (2015).Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework. John Wiley Sons. Lowell, R. (2016). COMPLIANCE AND RISK MANAGEMENT.Managing the Long-Term Care Facility: Practical Approaches to Providing Quality Care, 199. Chambers, A. D., Odar, M. (2015). A new vision for internal audit.Managerial Auditing Journal,30(1), 34-55. Christensen, T.E., Baker, R.E. Cottrell, D.M., (2014). Advanced Financial Accounting. The McGraw-Hill Companies, Inc. Chychyla, R., Leone, A.J. Minutti-Meza, M., (2015). Financial Reporting Complexity and Accounting Expertise. Cohen, J.R., Krishnamoorthy, G., Peytcheva, M. Wright, A.M., (2013). How does the strength of the financial regulatory regime influence auditors' judgments to constrain aggressive reporting in a principles-based versus rules-based accounting environment?. Accounting Horizons, 27(3), pp.579-601. Australian Accounting Standards Board (AASB) - Home. (2016).Aasb.gov.au. Retrieved 14 September 2016, from https://www.aasb.gov.au Auasb.gov.au. (2016).Auditing and Assurance Standards Board (AUASB) - Home. [online] Available at: https://www.auasb.gov.au [Accessed 22 Sep. 2016]. Duncan, B., Whittington, M. (2014, September). Compliance with standards, assurance and audit: does this equal security?. InProceedings of the 7th International Conference on Security of Information and Networks(p. 77). ACM. Hegazy, M. A., Farghaly, M. (2016, August). Internal audit practices and standards: external and internal auditors' perceptions on Compliance in an Emerging Economy. InAmerican Accounting Association Annual Meeting.