Auditing and Assurance Framework Enterprises

Question: Describe about the Auditing and Assurance for Framework Enterprises. Answer: Introduction The Audit quality and auditors liability provide an important framework to the business enterprises for the effective implementation of the robust financial reporting and financial decision-making. An efficient and quality auditing provides the external checks on the reliability and integrity of the financial statements. The transparent and credible financial reporting with an efficient audit function provides an adequate control on the financial system and is imperative for the financial and economic growth of the business enterprise by managing the financial statements and accounting data properly (Arens, Best, Shailer, and Fiedler, 2013). This report will discuss the potential liability of the auditor in the case of the global financial crisis by presenting the auditing report for Sally through conducting researches for the economic and financial growth of the company. Global Financial Crisis and causes The global financial crisis is a serious financial problem that is caused from the insolvency of the financial corporations (banks, money lenders, insurance company, and finance institutions). It hampers the economic growth, financial position, product portfolio, and sales performance of the company. The global financial crisis is caused due to economic fluctuations, financial instability, and slowdown, stagnation, and decline in the economic and financial activities in the global markets. The global financial crisis affects the capital investment and purchasing decisions, economic and financial forecasting activities, customers buying behaviours, mobility of goods and labours, raw material costs, and labour charges, and financial standings of the company in the relevant market. The auditor is liable to present the auditing report to Shally by informing consistently about the economic activities and financial conditions in the global markets (ACCA, 2011). Due to the global financial crisis, the business enterprises experience the low investment opportunities, low customers spending, corporate business failure, fall in the share prices, low industrial outcomes, decline in sales performance, and low employment opportunities. The global financial crisis has been seen the sharpest and largest dropdown affecting the economic activity and financial position of the business firms in the modern era. The political instability, ineffective government fiscal and monetary policies, capital markets liquidity risks and falling currency value are such factors that majorly contribute to the rise of the global financial crisis (Ariff, Farrar, and Khalid, 2012). The global financial crisis results in rapid fall in the value of exchange rate, fall in industrial outcomes, higher unemployment, negative economic growth, fixation or falling in the capital markets, fall in supply of money, and losing control of the banks on the consistent money supply. Auditors liability under legislations The audit committee is an important financial conducting authority of a business enterprise which is responsible for the preparation of all financial statements and presentation of the data accurately and comprehensively for the use of the decision-makers. The auditors play an important role in the financial growth and economies of the company by ensuring the solvency and financial liquidity of the enterprise. The auditor also plays an important role in the business relationships with the third party by assisting the management in giving proper financial advice while making the business dealing with them. The liabilities of an auditor are as followings:- Liability of Negligence- The auditor is liable for the negligence actions when he/she fails to perform his/her duties carefully which can cause for the loss for company in the form of losing the financial position of the company. The liability of negligence arises when the auditor fails to implement the proper financial statements because of failure/unable to perform the action with care and diligence and doesnt comply with the statutory requirements of the company (Australian Government, The Treasury, 2010). Liability of the third parties- The third parties, such as government, investors, creditors, financiers, tax authorities, shareholders, and business analysts are dependent upon the auditors report. The auditor is liable to present the financial reports and data with accuracy and properly by avoiding the material errors or counting mistakes. In the case of finding frauds and material errors in the reports, the auditor is liable to pay the damages caused due to negligence action. Civil and criminal offence liabilities- The auditor is liable for paying the damages caused from the civil and criminal offence activities. The auditors liability arises in the course of action of breach of contract and breakdown of laws and regulations (CTI Reviews, 2016). The auditor is found for the criminal offence in the case of not complying with the requirements of law, falsified accounts and inaccurate presentation of the reports knowingly. Thee auditor presents the inaccurate reports and false financial statements that can cause for the loss of the business growth and financial position of the company. Misstatement in prospectus- The auditor is liable to pay the damages caused from the misstatement in prospectus. The prospectus invites the people to share the debentures or share of the company, while the auditor is liable to pay compensation to the person who subscribe for purchasing the debentures or share of the company on behalf of the prospectus. The misstatement in prospectus can cause for the loss of the client and losing the credibility with the prospectus. Liability of professional misconduct and misstatements- The auditor is liable for the professional code of conduct and accurate presentation of the financial statements for presenting the real picture of the financial position of the company (Fiedler, 2011). In the case of finding accused for the professional misconduct, the council can withdraw the auditing certificate of the auditor and he/she could be suffered from the penalty in the form fine or jail or both. Auditors liability in the case of the Global Crisis Management The auditors play an important role in maintaining the subsequent financial position of the company in the critical situation of the global crisis management. The Auditors role becomes important while the enterprises face the problems of economic recession or crisis which can result into the loss of the financial position, decline in sales performance and customer spending activities, and fall in the share prices. The auditor plays a significant role in ensuring the higher economies and financial growth of the company by maintaining all financial reports and accounting records effectively and accurately (Fiedler, 2011). The auditor is liable to present the proper and accurate financial reports through the preparation of all financial statements of the company. The Auditor is liable for presenting the report to Shally regarding the market risks divers, underlying assets, capital investment, budgeting, financial and economic risks, and portfolio management, financial and economic forecasting, economies, and policy-making of the company. The auditor is liable for presenting the financial statements to gain assurance and ensuring that the data and accounting information are being reported accurately, fairly presented, and properly measured. The auditor is liable to present the financial statements accurately and to give the reasonable assurance by avoiding the fraudulent activities and material errors (Gay and Simnett, 2015). The auditor is required to have relevant auditing skills, judicial information, financial and accounting knowledge, financial analysis, and knowledge related to mathematics, informatics, and ethics. The auditor can show his skills, knowledge, and talent to Shally through updating the report about his potential liability (Arens, Elder, Beasley, and Hogan, 2016). The auditor is liable to verify the compliance of the financial statements with requirements of the company. The auditor is liable to provide the accurate report regarding the measurement of the global financial and economic risks, capital investment and budgeting, and the estimation of financial and economic forecasting through presenting the reliable, accurate, and materialistic financial statements with reality. The period of the 2007-2009 is considered as the time of global financial crisis causing for the slowdown in the market because of the financial irregularities, market fixation, less customer shopping activities, slowdown of capital markets and money supply, huge decline in the share prices and fall in the economic activities. This period caused for the global financial crisis due to the insolvency of the financial institutions and failure of the auditors to understand and execute their liabilities and responsibilities to the enterprises in an effective manner. The auditors were failed to determine the major capital market risks, liquidity risks, economic forecasting and fluctuations in the market (Leung, Coram, Cooper, and Richardson, 2015). Due to the negligence action and criminal offence liability, the auditors were caused for the financial insolvency and inconsistent market growth that resulted into the financial loss and decline in the business performance. In the contingent situations of the global financial crisis, the auditor is liable to present the accurate financial data, statistics reports, and accounting information to the financial authorities and third party so that these financial representatives could take the appropriate decisions. Lehman Brothers was a case of an ineffective internal auditing system causing from the misleading and improper financial statements by the auditors, Ernst and Young. The unfair financial methods were used by the auditors and didnt comply with the auditing standards and statutory requirements of the company act. The debts were not appeared in the financial statements and the auditors didnt show their not liabilities toward the financial growth of the company (Leung, Coram, Cooper, and Richardson, 2015). As a result, Ernst and young were accused for the criminal offence liabilities and filed lawsuit in the form of penalty of millions of dollars against the damages caused from the presentation of th e misstatement. The auditor is liable to present the accurate financial audit reports by utilizing his/her skills, knowledge and capabilities in order to reduce the adverse impacts of the global economic recession on the company financial position. The auditor is liable to make the right entries in the reports as well as presenting the debts and credits accurately and effectively in the financial statements so that the financial management authorities could take the right decisions regarding the budgeting, capital investments, purchasing of the materials and customers data (Plessis, Hargovan, and Bogaric, 2010). The auditor is liable to present all financial, accounting, and statistical data accurately which will assist the management to determine whether the firm is continuing in the right direction toward the growth and is able to get the substantial profitability and high-growth potential. Some Australian business enterprises didnt follow the International professional financial and auditing standards as the directors were involved in the default and fraudulent activities that encouraged the auditors to present the falsified report for the financial management consultants and business analysts (Rahim and Idowu, 2015). Due to lack of effective corporate governance, most of the business enterprises were failed to have control on the internal auditing system within the organizations. The Bannerman case was an example of failure of the internal audit caused from the potential exposure of the auditors to litigation from the third party to whom the liabilities were not claimed (Louwers, 2013). As a result, the financial position and credibility of the firm were suffered from the disclaimer of the liability. Some business enterprises didnt comply with the International Financial Reporting Standards and the owners, directors, and mangers were involved in the fraudulent activit ies, falsified reports, misappropriation of the assets, and misstatements of the financial data. So, an ineffective internal control system and lack of corporate governance are also responsible along with the auditors misstatements or inaccurate financial presentation at the time of the global financial crisis. Recommendations for improving the auditing liability toward enterprise On the basis of above studies, it is highly recommended for enhancing the auditors role and liability for improving the financial performance and economic activity of the firm. The auditors should have adequate controls on the internal auditing system of the firm by preparing and presenting the financial statements properly and accurately. The auditor should present the right accounting information and financial reports to the senior management so that the management could take right decisions regarding the capital investment and budgeting, economic and financial forecasting, material purchasing, pricing policy, and asset management (ACCA, 2011). The auditor should enhance his/her own skills and potential liabilities to enhance the probability to rely more on the auditors reports and audited financial statements which are more relevant, accurate, and unbiased for in the use of the decision-makers (business analysts, financiers, tax authorities, accountants, and shareholders) . Along with this, the financial corporations (bankers, lenders, insurance firms, and financial institutions) should pay attention to the risk assessment and management for reducing the possibilities of the financial instability and insolvency. The auditor should express his potential liability by providing an opinion on the fairness of the financial and accounting standards to gain assurance of the people. The auditor should represent the auditing reports and financial data by following the national accounting and auditing standards (International Monetary Fund, 2012). The liability limitation agreement will be effective for the firm to ensure the liability limitations for the auditors owed by the company in the conditions of negligence, breach of contract, default, misstatements, breach of duties or trusts. It could also be effective for the businesses to ensure the freedom or independence of the auditor from the management influence. The informal meetings or private discussions with the auditor in the presence of the management of the company will encourage the auditor to be transparent on material issues of the financial statements and audit reports. Conclusion From the above discussions, it can be concluded that an auditor plays an important role in the financial and economic growth of the company by preparing the auditing report accurately as well as presenting these reports and accounting data effectively for assisting the financial authorities and business analysts in the decision-making. The auditor liability is not only limited to the preparation of the financial statements but also focusing on areas, such as risk management, assets management, and corporate governance. By considering the all aspects of auditing, the auditor can contribute to the organizational financial and economic growth. The auditors liability becomes important for securing the financial position of the company in the case of global financial crisis. By understanding his/her liability toward the enterprise, the auditor can protect the business enterprise from the impacts of the global financial crisis. The auditing report was presented by the auditor for sally by including the potential liability in the case of global economic and financial crisis. The auditor also showed his potential auditing liability by giving suggestions to the senior management which can assist in taking the right decisions regarding the capital investments, budgeting, financial and economic forecasting, and risks management. He showed his liability for the proper functioning of the accounting system and adequate internal control system of the enterprise by adopting the national auditing standards. References ACCA (2011). Audit reform: aligning risk with responsibility. [Online]. Available at: https://www.accaglobal.com/content/dam/acca/global/PDF-technical/audit-publications/tech-af-arar.pdf. (Accessed: 15 September 2016). ACCA (2011). Regulatory Impact Statement Audit Quality in Australia. [Online]. Available at: https://www.ris.dpmc.gov.au/files/2011/11/02-Audit-Quality-RIS.rtf. (Accessed: 15 September 2016). Arens, A. A., Best, P., Shailer, G., and Fiedler, B. (2013). Auditing, Assurance Services and Ethics in Australia. Australia: Pearson Education. 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