Various Cases of Auditing

Questions: a) Define actual and perceived independence, and explain the importance of each. b) For each of the above independent situations list any professional standards and regulatory requirements breached and discuss possible alternative courses of action the auditor should have taken in order to properly discharge their professional responsibilities. Answers: (a). 1. In the first case, the actual independent is to use the information of various sources for the university studies and the perceived independence is to remove the reference, the sources from where the information is collected. This hides the name of the author thus, hiding the real identity of the information. 2. Wendy will be appointed as the company secretary. Being an engagement partner, wendy can handle the role of company secretary efficiently. The actual independence in this case will be that of wendy has been the engagement partner over a number of years and the perceived independence will be her appointment for the secretarial position of the company. She engages the parties of the Ace Limited audit. Her role being a secretary of the company will be bit similar to her role such handling the meetings of the board, writing the minutes of the meeting, making the agenda of the meeting, etc. 3. In this case, the actual independence is Leo the eldest son of firms major client Precision Machinery Limited. The perceived independence will be the work of Leo to audit the precision machinery, by testing the internal control of the cash payment system. Being the Foremans son, he works as an auditor and test the internal control of the cash payment. Thus, are the two different aspects. 4. In this case, the actual independence is Chan Associates are the Auditors of Classic Reproductions Pvt Ltd. The perceived independence is the holding of the shares of the company of which the Chan Associates are not the auditor. As, the Classic Reproductions Pvt Ltd was suffering from the financial difficulties, in order to recover the audit money, they decided to offer new office furniture to Chan Associates and the 25% of the shareholding in the unrelated listed company. In order to continue audit, Classic Reproductions Pvt Ltd, offered the above mentioned options which is forming 75% of the audit charges. (b). In this case, the independent situation is the use of information from the various sources which come under section 2320 of Analysis and evaluation where the internal auditor needs to come to conclusion based on the analysis as well as evaluation. It also include the documenting of information under section 2330. For proper discharge of their professional responsibilities, auditors need to control the access over the engagement. Policies need to be framed that will govern the internal and the external parties. (Irish, 1972) The two sections of the professional standards such as, the 2320 for analysis and evaluation and the documentation of information as per section 2330 need to be complied with. In order to perform the functions properly, Wendy need to undergo suitable training to perform the functions of the company. Wendy being the engagement partner can perform her task efficiently. She should ensure that there is no breach of act and should follow the suitable provisions of the companies act. Appointment of the engagement partner can breach section 2450 which include overall opinion for such appointment. For discharge of the professional responsibilities properly, the auditor need to comply with the above mentioned sections. It is necessary to comply with the section 2420 which is the quality of communication. Here, in this case, the independent list is the eldest son of the factory foreman Leo. He is assigned the audit of Precision Machinery. He tests the internal control of the cash payment system. The professional responsibility of the auditor is to see that the testing is done as per the norms set and there is no breach of testing.(Irish, 1972) It is necessary to comply with the section 2320 of the international standards which involves evaluation and analysis. In this case, the independent list is the Chan Associates the auditor of the large wholesale in furniture Classic Reproduction Pvt Ltd. Classic Reproductions Pvt Ltd was suffering from the financial difficulty so, decided to offer new furniture for office and the shareholding of 25% to Chan Associates in favor of the audit fees. The professional responsibility of the auditor is to check that whether there is acceptance on both the sides. The act needs to be done in accordance with the adherence of the law. References Robertson, J. (1990). Auditing. Homewood, IL: BPI/Irwin. Howard, L. (1982). Auditing. Estover, Plymouth: Macdonald Evans. Saxena, R., Srinivas, K., Rai, U. and Rai, S. (2010). Auditing. Mumbai [India]: Himalaya Pub. House. Millichamp, A. (2002) Auditing. London: Continuum. Bell, W. and Johns, R. (1952). Auditing. New York: Prentice-Hall. Ricchiute, D. (1995). Auditing. Cincinnati, Ohio: South-Western College. Irish, R. (1972). Auditing. Sydney: Law Book Co. Silvoso, J. and Bauer, R. (1965). Auditing. Chicago: South-Western Pub. Co.