Professionalism vs Commercialism Non Audit - MyAssignmenthelp.com

Question: Discuss about the Professionalism vs Commercialism : Non Audit Services. Answer: Introduction Auditing is one of the most important services within an organization as it determines the progress of a given firm. It is therefore very important for a firm to ensure that audits are always perfect and accurate. The accuracy and authenticity of audits can however be influenced by various factors which may come from within the audit firm or team as well as the firm whose accounts has to be reviewed. This factor which threatens the authenticity of audits is determined as threats to audit independence. For a successful audit, the audit firm as well as the auditors should be given freedom to operate on their will. The freedom to auditors is known as the audit independence and it is very crucial for uncompromised audits. The content of this paper therefore reviews case studies given within the instruction in order to determine various threats to audit independence. The content of this paper is organized into two sections where section one of the writing identifies various threats to audit independence and give relevant safeguards to the audit threats identified. Section two of the content looks into a case study identifying two business risks in relation to the second case study, discusses specific audit risk and finally various accounts which are likely to be affected by the yet to be conducted 2015 audits. As mentioned above, audit independence which is a very important factor in determining the success of an audit can be compromised by various factors (Christopher, Sarens and Leung 2009). In such cases where auditors independence is compromised, the validity of the audits cannot be justified and the audit results are therefore not reliable. Considering the given case study one of CJ, several audit independence threats can be deduced as follows: Auditors familiarity and Audit trust Based on the Fourth and the second conversation s in the given case study, it is quite evident that auditors independence is likely to be compromised based on the familiarity and trust developed by Michael and Annette (Blay 2015). Audit independence becomes vulnerable in cases where auditors are so familiar with the client firm. From the conversation with Annette, she says that, based on the current audit she and the team conducted on the client tax books of accounts, there will be no much audit work to be done again in such accounts. From her statement, it is clear that there is likelihood of fraud covering in such books without intense audit reviews (Stewart and Subramaniam 2010). Annette has also developed trust which is likely going to influence her audit judgments. From the conversation with Michael, it is also evident that his work is going to be influenced by trust and familiarity. Michael is so familiar with the client firm and his father is one of the top officials in the cl ient firm managing all firm records. Basing the argument on the family issue Michael will cover for the father in case of any fraud. This one of the factors affecting audit independence and may as well compromise auditors judgments leading to unreliable audits (Ye, Carson and Simnett 2011). The client firm as revealed from the case study is planning take two top officials of the audit firm CJ to a fully sponsored tripe. Considering the definition of the self interest as a threat to audit independence, taking the two officials to a trip will compromise their audit judgments. This threat to audit independence comes as a result of tokens and gifts from the client or client firm. In case where an auditors receives a token from the firm to be assessed then their independence is considered gone since human beings will always return favors (Stewart and Subramaniam 2010). Therefore in this case the CJ firm will return favors by covering various frauds by the top client firm officials. Another factor that is likely to affect audit independence is intimidation and humiliation of and auditor. From the situation one given in the case study, the client firm management team is planning to suck CJ as their audit firm in case Gaffer fails to give a speech on the firm. In this case the CJ Company is likely to operate in the favor of the officials in order to keep their contract (Stewart and Subramaniam 2010). Audit independence in such cases is not valid as the audit team will make audit judgments suitable to the employer and keep the contract. Being fired is always sad and humiliating there threatening to suck the company from its duty as the main audit firm is a way of intimidation and is likely to influence the audits yet to be done by the audit firm CJ. Safeguards to audit independence are various ways in which threats to audit independence can be limited, removed or controlled. Based on the above discussed threats, various measures or safeguards can be put in place to cover CJ as an audit firm. The following are some of the ways CJ audit independence cab is maintained. Audit shifts in this case means application of audit team returns where various auditors who performed an audit assignment do not perform or carry out audit services on the sane firm. This will enable the audit firm to minimize threats to audit independence which may be as a result of familiarity and trust. Regarding the conversation with Annette, her work is likely to be compromised based on the reason that she had worked in the client firm prior to the current yet to be conducted audits, therefore does not see the need for proper audit reviews on the tax books records (Goodwin and Yeo 2011). To avoid such threats the company can therefore use new auditors in cases where some of the team are familiar with the audit firm such Michael and Annette in this case. Observation of audit rules and codes of conduct From the case scenario one where the company is planning to intimidate the audit firm the audit team can event such intimidation by standing firm according to their code of conduct. Performance of non audit services always leads to loss of audit independence thus against the audit rules (Sharma and Sidhu 2011). It is therefore on the part of the audit firm to refuse such intimidations based on the law. Observation of audit rules also enables an audit to work independently resulting into reliable audits. According to the given case study, several factors which can result into the company receiving less profit than the projected can be determined. Business risks are factors within or without the firm structure which can limit a firm from achieving their main aim which is maximum profitability (Craswell, Stokes and Laughton 2012). The content of this paper however analyses two main risks from the case study as follows: The company in the given study deals with sales of various machines or equipments as well as their spare parts leading high maintenance services required. The company offer maintenance services to their clients located in various parts if the country (Ashbaugh, LaFond and Mayhew 2013). As revealed, various mechanical experts are hired by the firm to conduct maintenance services to the clients. Hiring of such experts is very expensive as they travel from one place to another reaching out various clients. Since most if the company clients are remotely located, the firm management spends a lot of money in order to reach out to them. The company employs a market strategy where clients interest is always preserved and met before any other factor. In other words the client interest is always firsts (Ashbaugh, LaFond and Mayhew 2013). Based on such strategy the firm provides maintenance services to their clients as a warrant. During such operations as already mentioned, the firm hires experts for such services whose all expenses are covered by the company. This reduces the profit margin which the company would have made without after sale services such maintenance. The specific audit risk which may be as a result from the business risks is the inherent risks. An inherent risk occurs at the stage of audit reports. It is always as result of fraud which are likely to occur based in the kind of operations the firm is involved (Beeler and Hunton 2012). During the maintenance services fraud is likely to occur as mechanical experts as well as the company supervisors in the field may quote higher value used during the operations compared to real value leading to an inherent risk. The given company in the case study deals with payable accounts which are likely to be affected by the 2015 audits. A purchase account is one of the payable accounts which are likely to be affected by the audits as most of the company operations involve purchases (Beeler and Hunton 2012). During purchase of the stock the likelihood of value misquotes us very high making these accounts to be vulnerable to the 2015 audits. References Ashbaugh, H., LaFond, R. and Mayhew, B.W., 2013. Do nonaudit services compromise auditor independence? Further evidence. The Accounting Review, 78(3), pp.611-639. Beeler, J.D. and Hunton, J.E., 2012. Contingent economic rents: Insidious threats to audit independence. In Advances in Accounting Behavioral Research (pp. 21-50). Emerald Group Publishing Limited. Blay, A.D., 2015. Independence threats, litigation risk, and the auditor's decision process. Christopher, J., Sarens, G. and Leung, P., 2009. A critical analysis of the independence of the internal audit function: evidence from Australia. Accounting, Auditing Accountability Journal, 22(2), pp.200-220. Craswell, A., Stokes, D.J. and Laughton, J., 2012. Auditor independence and fee dependence. Journal of Accounting and Economics, 33(2), pp.253-275. Goodwin, J. and Yeo, T.Y., 2011. Two factors affecting internal audit independence and objectivity: Evidence from Singapore. International Journal of Auditing, 5(2), pp.107-125. Sharma, D.S. and Sidhu, J., 2011. Professionalism vs Commercialism: The Association Between Non?Audit Services (NAS) and Audit Independence. Journal of Business Finance Accounting, 28(5?6), pp.563-594. Stewart, J. and Subramaniam, N., 2010. Internal audit independence and objectivity: emerging research opportunities. Managerial auditing journal, 25(4), pp.328-360. Stewart, J. and Subramaniam, N., 2010. Internal audit independence and objectivity: emerging research opportunities. Managerial auditing journal, 25(4), pp.328-360. Ye, P., Carson, E. and Simnett, R., 2011. Threats to auditor independence: The impact of relationship and economic bonds. Auditing: A Journal of Practice Theory, 30(1), pp.121-148.