Essay on Auditing

2255 Words Mar 5th, 2014 10 Pages
Question 1. Ethical Considerations
(A)
As an auditor when provide professional service and client have to follow the fundamental principle of the code of Ethics
Integrity
An auditor has to be fair and honest to the client. There is an obligation on the auditor to be straightforward and honest in all the professional and business relationships.
In this case, an auditor has to be integrity to present their honest and fair to the client. Even Game’s Limited’s managing director is unhappy with the existing auditing firm has been changed.

Objective
An auditor has to be objective and fair. Auditor has to be fairness and objective to provide financial report. The client’s point of view must not affect auditor’s objective.
In this
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Question 2 Audit Risk and Materiality
(i) Inherent risk- Any risk to material misstatement given the inherent and environment characteristics.
In this scenario, it is inherent control risk. The treasure has realized a small profit for the company through foreign-exchange transaction in yen. The foreign exchange rate is floating every day. It is depend on the economic environment. Past two month, Japanese Yen was at the high position. It could be at the low position sometimes. At that time, there will be lost in the transaction.

(ii)
Inherent risk- Any risk to material misstatement given the inherent and environment characteristics.
In this scenario, Hoover has planned to close inefficient factory, the factory is in efficient depend on the economy. That is inherent risk.
Detection risk- defines as the risk that an auditor’s substantive procedures performed to reduce audit risk to an acceptably low level will not detect a material misstatement
In this case, the financial controller is very confident that he will be able to determine reasonably accurate closure provisions.

(iii) Inherent risk- the risk may not be prevented or may not be promptly detected and corrected by the entity’s internal control.
In this scenario, the bonuses will increase inherent risk of the work’s quality.

(iv) Inherent risk- Any risk to material misstatement given the inherent and environment

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