Understanding Relation Financial Reporting -Myassignmenthelp.Com

Question: Discuss About The Understanding Relation Financial Reporting? Answer: Introducation Evaluating integrity of prospective client- In order to evaluate integrity of Randall Inc, it is required by new audit partner to personally meet with directors, senior managers and owners. Verification of termination of clients relation with previous audit firms should be done and that it was not because of disagreement regarding outstanding invoices and business operations. Risk consideration related to engagement- For evaluation of risk, CPA firm should consider the factors relating to specific engagement such as financial condition, turnover, realization and profitability of engagement, future and current regulatory environment (Bowlin et al.). Incorporating professional competence in performing engagement- Audit firm should also consider whether they would be able to competently provide requested service according to professional standards that are applicable (Knechel et al.). Investigation should be made into issues such as ethics, business procedures and policies, staff qualifications, expectations reasonableness and bill payment by contact predecessor audit firm of client. A credit history of financial planning and individual tax planning of clients should be obtained. Reviewing of financial ratings and public records of entity should also be done. Five independent considerations of WWS related to potential new client Randall Inc are listed below: Examination of existing relationship of Randall Inc by auditor is one of the independent considerations by WWS. Enquiry should be made by auditor whether the directors, significant shareholders and management of potential clients and assessing the happening of potential conflict by identifying that they are involved with existing clients (Bowlin et al.). Appropriate officer of prospective clients should also be enquired if there exist any relationship that would lead to potential independence impairment. Business risk of clients should be considered by audit firm by gaining strategic understanding of their business. Performance measurement system of client should be considered by auditors for assessing any manipulation of amounts and setting unreasonable objectives. Audit firm should consider the planned audit responses to specific risks in their overall audit strategy throughout the audit plan development. Some key audit risk factors that should be considered by WWS for assessing new potential client that is Randall Inc are listed below: It is required by new auditor to make the assessment of previous results and evaluating the fact that misstatements that are found in auditing of previous year has the likelihood of occurring again. Furthermore, the way organization take steps in making changes and is the misstatement are systematic in nature, then this leads to arising of audit risk. Judgments in recording account transactions and balances also affect the risk of audit. Moreover, complexities in transactions such as lease agreements, transactions using foreign currency and any leave entitlement related to issues of employees are also the factors that impacts audit risk. Procedures of conducting audit also impacts the risks in auditing. One of the important parts in audit risk determination is continuance and client acceptance (Messier et al.). Involvement of firm in any fraudulent financial reporting should be assessed by audit firms. Such activities might involve intentional omission or misstatement of disclosures or amount for deceiving users of financial statements. If the management takes some deliberate actions for meeting objectives of earnings, then it affects the audit risk. Improper recording of non routine transactions such as acquisition of major property, fire losses and making misstatements during process of conversion also influence the audit risk (Gaynor and Lisa Milici). Three practices that could be implemented by WWS for avoiding litigation issues with Randal Inc are as follows: Documentation of specific services- There should be separate engagement letters for each service such as compilation of tax, audit review, consultation services and any other services offered to acquire client. Setting of realization standards- The proposal of audit firm should be aligned with the expected services to be delivered to clients and this would help in service accomplishment objectives. Using compilation report should be restricted in circumstances of high risk (Newton and Nathan). Engagement with client should incorporate procedures and policies of quality control that are intended to decrease exposure to legal liability. Such documentation should also involve the applicability of such policy and job procedures References list: Bowlin, Kendall O., Jessen L. Hobson, and M. David Piercey. "The effects of auditor rotation, professional skepticism, and interactions with managers on audit quality."The Accounting Review90.4 (2015): 1363-1393. Gaynor, Lisa Milici, et al. "Understanding the relation between financial reporting quality and audit quality."Auditing: A Journal of Practice Theory35.4 (2016): 1-22. Knechel, W. Robert, and Steven E. Salterio.Auditing: Assurance and risk. Taylor Francis, 2016. Messier, William F., Steven M. Glover, and Douglas F. Prawitt.Auditing Assurance Services: A Systematic Approach. Qing hua da xue chu ban she, 2015. Newton, Nathan J., et al. "Internal control opinion shopping and audit market competition."The Accounting Review91.2 (2015): 603-623.