MA611 Case Study Discussing Legal Responsibilities of Auditor Assessment Answer
The audit report is the key deliverable of the audit process conducted by the qualified auditor of the company. The users of the financial statement such as investors, shareholders, lenders, and other key stakeholders take their economical decision by considering the audit report. Therefore it is necessary to conduct the audit as per the auditing standard by the qualified chartered accountant. In this report, Shirley Simms has been appointed as the auditor of the Shifty Builders private limited to conduct the audit before the float of the company can be initiated ( Khodjaeva, 2020).
2. Appointment of the auditors
The fact of the case
Shirley Simms is the sole proprietor of the Sims & Coy. And register the company auditor. She has been appointed as the auditor of the Shifty builder’s private limited by Mr. Shifty on the recommendation of her brother Mark who is the CEO of the same company.
As per the Australian auditing standard 210 and the ethical guideline, the auditor should be engaged independently and he or she should not have any relationship with any of the board directors or key managerial persons in the company for which they are appointed as auditor. Because it can lead to a conflict of interest and also affect the independence of the auditors (Yu, Kwak, Park, & Zang, 2020).
By following the above law and regulation it can be observed that Shirley's appointment as the auditor is not legal because her brother is CEO of the company as and it will lead to compromise the independence of the audit.
3. Scope of audit
The fact of the case
Shirley Simms has been appointed to conduct the audit within the month as asked by the Shifty to meet the requirement of the ASX and ASIC.
As per the auditing standard and other guidelines issued by the relevant authority, the scope of the audit should be determined by the auditor through the engagement letter and the audited company cannot force the audit to conduct the audit as per their terms.
Hence it can be observed that Auditor must consider the above law and should not be ready to conduct the audit in hurry just to earn audit fees because many stakeholder believe the audit report for their decision making.
4. Hiring the unqualified audit staff
The fact of the case
Shirley Simms has hired the audit staff to conduct the audit fast so that float of the company can be initiated as soon as possible. A graduate person has been appointed as the audit manager and first year’s student has been appointed as the audit senior. (Kaptein, 2020)
For the audit, only qualified audit personal are eligible to appoint in the audit team. He must have technical knowledge and certification from the relevant educational institute.
It can be observed that the audit team is not qualified and cannot be appointed as the audit staff hence auditor firm should appoint a qualified team that can assure the audit work by compliance with auditing obligation.
5. Document and fact verification
The fact of the case
Audit team appointed by the Shirley has conducted the document verification through asking for the receipts of the deposits and also sent the external confirmation letter to debts and creditors of the company. They have found everything in order.
As per the auditing framework, an auditor should ask for the verification of the fact and documentation to assure the appropriateness of the financial transaction and to obtain the audit evidence. It will help to form an opinion on the financial statement of the company.
The above verification and auditing procedure implemented by the audit team and not by the Shirley which make it less useful verification because the audit team was not experienced and qualified to conduct the audit by themself. The main auditor Shirley should have conducted the review work of the audit team and also apply the auditing framework and standard to conduct the audit herself to assure financial statements.
After the above scenario of the various facts, it can also be observed that Shirley has issued a clean audit report for the company. Mr Shifty has also been disappeared with the money deposited by the shareholder in the float trust account.
In this case, an auditor can be responsible for any action taken by any of the employees or top management of the company, he is responsible for the work he has conducted. Therefore it would be not justifying to making the Shirley for Mr Shifty action.
6. Notice served by the ASIC and Disciplinary committee
As the money of the shareholder deposited in the float trust account has been empty and Mr shifty could not be found due to which the ASIC and Disciplinary committee have served the notice to Shirley concerning the matters. Auditors of the company are bound to repay the relevant authority concerning the matter so that they can further investigate the matters. These authorities are the overseen mechanism that takes care of the relevant standard and maintains the high quality of auditing work because people trust the auditor for their opinion and take their economical decision appropriately. Hence Auditor of the company has to provide them all the details concerning the audit and all the examination of the fact and documentation has to be provided so that he can justify that auditing work has been done by following all the relevant law and regulation and auditing standards. If auditors failed to prove then he will also be liable to penalize as per the disciplinary committee action on this behalf (Amyar, Hidayah, Lowe, & Woods, 2019)
From the above, it can be observed and conclude that an auditor should follow the legal guidelines and norms as determined by the relevant authority concerning the auditing work. In the given case appointment of the auditor was not authorized as a relative was the CEO of the company in which Shirley was proposed to be the auditor. Auditing team should be qualified enough to conduct the audit otherwise audit will not have its objectivity.