Risk assessment procedures
- i) The aim of risk assessment process to provide the assistance to auditor to gain a good understanding regarding client audit. The following method states evidence of auditor risk assessment procedure regarding material misstatement in financial statements. Along with this, it delivers different segments of transactions at the client end. On the basis of this, the auditor able to determines various risks during auditing process.
- ii) There are various sources of audit evidence that auditor can use as part of risk assessment procedure. These are observation of organization activities by inspecting its financial statements, by communicate with management and other key personnel, using the process of ratio analysis of client financial data.
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Issues that needed to be considered when providing services to Serenity client
- Required skills: Mal & Co should ensure that either they are capable to deliver auditing services to business client or not. The reason is because auditing company only has seven partners and to carry out the audit process of Serenity, it has important to make sure organization has required staff members with important skills or not.
- Self review threat: If Mal & Co is planning to introduce a new control system then it will essential to adopt those auditing systems which become part of the statutory audit. In this context, it is an issue in front of company to make sure that the available staff members are skilled or not to drive the new control system.
- Acceptance of non-audit work: There is a possible threat that Mal & Co can breach any kind of statutory or ethical framework during the work.
- Free income: As per the ACCA’s Code of Ethics and Conduct, the amount generated from free income from the client should not be more than 15% for non PLC companies. In the context of Mal & Co may be breach this policy during serving the clients.
- Client growth: As per the given case, Serenity Company is growing with exponential speed but the poor internal control may create a high financial risk for company. In this, context, Mal & Co may not give focus on this issue during auditing process.
- Internal audit: In the case of Serenity Company, internal auditors will take time to understand working of new system and this may affect the quality and level of internal audit of the firm.
- Association threat: Serenity Company is starting to produce a new mobile telephone but the legal status of this product is still unclear. In this case, there may be a threat that company will produce illegal goods without taking confirmation.
Explaining the term negative assurance and its application during reporting on a cash flow forecast
The meaning of negative assurance is when an auditor carries out work on forecasting cash flow but accuracy of that work cannot be confirmed. In the other words, the cash flow may be reasonably prepared but it does not seem to be true and fair. It is used to forecasting of cash flow which assists the organization to take future decisions regarding working capital.