Content Audit or Inventory Public Money

Question: Describe about the Content Audit or Inventory for Public Money. Answer: Introduction In large listed companies, public money is involved and so it is necessary that the financial information presented to the stakeholders is free from any material misstatements. An audit serves as a check on the compliance and includes areas like quality management and secretarial due diligence. The audit provides a fair opportunity for the evaluation of the risk management policies and also the effectiveness of the control and governance procedures. For all these reasons, an audit would be beneficial to the entity in more ways than one and hence it is considered to be indispensible. Involvement of the Audit The Audit involves an examination of the books of accounts, vouchers, documents and all such statutory records of the company by an independent auditor. This process helps in ascertaining the true and fair nature of the financial statements. The flaws in the internal controls, processes or the accounts are pointed out and the required measures for the proper maintenance as required by the law are explained by the auditors and the appropriate measures can be taken for the same. The Auditor performs the examination based on the substantive procedures and obtains evidences and evaluates the same based on professional judgment and the opinion of the auditor is communicated to the users through the audit report (Messier Emby, 2005). An auditor first obtains the understanding of the business, identifies the areas that could be potentially materially incorrect, verification of the accuracy of the account balances and transactions and appropriate disclosures, testing the effectiveness of the internal controls and deciding whether the accounting policies are reasonable, assessment of the reasonableness of the estimates and judgments based on which the financial statements are prepared by the management, evaluation of the significant events that have occurred after the balance sheet date and qualifying the audit report for any such material inconsistencies or disagreement with the management or violation of law (Kaplan, 2011). Auditor With reference to a company, the audit refers to the financial audit in which the auditor is required to report the users of the financial statements about the adequacy of the financial reporting and the statutory book keeping. The company can appoint any of the below who are having a valid registration with ASIC and qualified for auditor appointment: An individual (registered for company audit) or A firm or A company (authorized Audit Company). For becoming a registered auditor, years of professional studies and training is required. Even after becoming a registered auditor, the Continuous Professional Training and learning is a mandatory requirement. As auditors are synonymous with trust and integrity, misconduct and violation of principles becomes an offence and such auditors are disqualified and banned by ASIC to perform any audits. A list of such banned auditors is available on the ASIC website. The appointment of auditor is usually done by the shareholders in a general meeting but if they fail to do so, then the directors may appoint the auditor. The first auditor of the company is usually appointed by the Board of Directors within one month from the registration of the company who holds office until a general meeting of the company in which either a new auditor is appointed by the members or the existing auditors appointment or term is confirmed (Parker et. al, 2011). An Auditor holds office until he is removed by the company as per S.329 or the auditor is deceased or the auditor obtains the consent of ASIC to resign as per S.342 or the auditor has to retire from office according to a few provisions covered by S.327 or if the company is winding up or the auditor suffers incapability due to the Corporations Act, Division 2 Part 2M.4. Third party (the auditor) access to their confidential business information Auditor is covered by the statutory responsibility to carry out a verification and examination of the books of accounts and financial statements. An auditor can obtain all such information that is necessary for conducting the audit. The basic qualities that every auditor is expected to possess are integrity, objectivity, confidentiality, knowledgeable and independence. According to these guidelines, where the auditor has obtained knowledge of business during audit, such knowledge should not be used by the auditor in setting up a business for his own benefit or shared with relatives of the auditor or with the entitys competitors. In such way, confidentiality is a necessary requirement due to which the profession of auditors is looked upon with respect. Hence, a good auditor does not indulge in such practices and so it is completely safe to entrust the auditor books of accounts and all other such information required for carrying out the audit. Non-audit of the accounts With the expansion in international trade, business structures have become complex and dynamic; there might be various laws and regulations subject to the business and a proper understanding and compliance of the same is required to prevent big sums of penalties. The innumerable amendments and updating of the legal provisions might anytime trigger the requirements of lodging returns or such other compliances without the Corporate realizing it. There are even companies that run business for years without the knowledge of legal provisions and then suffer a costly compliance exercise (Heeler, 2009). When it comes to a sole trader business or even a small partnership set up, audit might not be mandatorily required. But once a company is formed, it is governed by the ASIC on one side with reference to the taxation matters and the Corporations Act on the other side for all the compliance related matters. As the Board of Directors is busy with day to day affairs of running the business profitably, accounts are often overlooked. Hence, audit is required for Businesses to find out how they are performing. The Shareholders or members of the company have entrusted the running of the business on the Directors. If accounts are not audited, the shareholders might point out to the Directors for any fraud or mismanagement or financial irregularities (Gilbert et. al, 2005). If audit is carried out, the management is given a report of the potential lapse in the internal controls along with the recommendations for rectifying the same thus reducing the risk intensiveness of the entity (Gilbert et. al, 2005). Overall the productivity, efficiency, cost effectiveness, proper and systematic tax planning can all be done by conducting an audit. When the company tries to obtain a bank loan, or is having talks for mergers, acquisitions, joint ventures or such other proposals, then audited financial statements are valued and also lend credibility. If audit is not done, there are chances to miss out on a profitable venture. Thus if an audit is not carried out, then all these benefits will be zeroed down. Audit by Jane Jane is holding 40% shareholding in the company and is also in charge of the day to day management of the company. Even as per the code of ethics, a partner or relative of any of the directors cannot perform the audit to ensure the quality of independence is maintained (Baldwin, 2010). As Jane is a shareholder and also in charge of the management, it is not possible that Janes mistakes are discovered by Jane herself. For this reason also, Jane cannot conduct the audit herself. Even if Jane is a qualified auditor, she cannot perform the audit for the above stated reasons. Using of any information beforehand by any officials is a serious offence. In case the auditors found misusing the business information in any way, for financial or non financial interest, then the client company or the entity can sue the auditor for professional misconduct. This might even lead to ASIC disqualifying or banning the auditor which brings disrepute to the auditor. Confidentiality and independence are considered to be the key traits of an auditor without which the auditor cannot become successful. Therefore, considering such dispute it is essential that the company should have different auditor so that any problem is created. Audit by firm For conducting the audit, one of the crucial factors is independence. This quality requires that the auditor conducts the audit without being influenced by any financial or any other factors that could lead to a biased opinion. Thus if an independent party is appointed as the auditor, who is neither a relative of any of the shareholders or directors or materially interested in the company, then such audit would provide an effective opinion as to how an outsider would look at and analyze the business (Cappelleto, 2010). Choosing a particular firm will create plenty of advantages for the business because it lead to immense transparency and hence, will create a strong level of trust. There could also be cases where the business is currently running profitably and economically, but the auditor has seen cases of potential default in some other clients and companies and so the awareness about the same can be passed on to the existing client and sufficient due diligence exercise can be carr ied out to prevent such defaults due to which other companies have suffered. Audit by firm carries a great deal of advantage because proper information is provided and hence, it intimates the related parties about any adverse situation. Moreover, it enhances the goodwill of the company. Audit by firm leads to better understanding and a level of professional accuracy is maintained because in the case of any fraud or negligence, the firm will be held liable and responsible. Therefore, an audit by firm helps the business to prosper. Conclusion From the above report, it is clear that the selection of auditor must be done with precision because the entire process of reporting depends on it. The involvement of the auditor and providing an independent decision is important therefore, before selection of auditor it must be kept in mind that the auditor should not be related. From the above report, it is clear that Jane is a shareholder and hence cannot be an auditor because of the vested interest. It will impact the quality of the decision. References Baldwin, S 2010, Doing a content audit or inventory, Pearson Press. Cappelleto, G. 2010, Challenges Facing Accounting Education in Australia, AFAANZ, Melbourne Gilbert, W. Joseph J and Terry J. E 2005, The Use of Control Self-Assessment by Independent Auditors, The CPA Journal, vol.3, pp. 66-92 Heeler, D 2009, Audit Principles, Risk Assessment Effective Reporting, Pearson Press Kaplan, R.S. 2011, Accounting scholarship that advances professional knowledge and practice, The Accounting Review, vol. 86, no. 2, pp. 367383. Messier, W Emby, C 2005, Auditing Assurance Services: A systematic approach, McGraw-Hill. Parker, L, Guthrie, J Linacre, S 2011, The relationship between academic accounting research and professional practice, Accounting, Auditing Accountability Journal, vol. 24, no. 1, pp. 5-14.