241935232927 False assurance assignment 1
Auditing
890000 False assurance assignment 1
Auditing
leftbottomHannah Roslan
s3586280 | Monday 2.30 pm 890000Hannah Roslan
s3586280 | Monday 2.30 pm 1000075565015000160401079500
Questions 1
Tom Noble, represent person A who carries the role as Director, Global sales. As the Director of Global Sales in D-Merton, He is mainly responsible in developing the company growth plan and annual budget for global sales with consistent management reporting and forecasting to the CEO and other key stakeholders. Moreover, his also responsible for managing all sales efforts and improving D-Merton revenue and sales. He is also responsible for ensuring the financial report is prepared so as to provide a true and fair view. No, He hasn’t. This is because he has disobeyed the company regulation and shows lack of integrity such as when he was discovered to have been accepting bribes from a third parties. This shows that he has violated the section 176 of the Companies Act (2006): Duty to not accept benefits from third parties (Legislation).
Liz Harris represent person B who carries the role as the Auditor and Risk Committee Chair at D- MERTON. She is responsible for identifying every sign business risks at financial report levels (page 57). She is also responsible for the ensuring all responsibilities are discharged effectively in risk identification, internal control system, statutory reporting and legal proceedings. No, she hasn’t exercised her professional responsibilities accordance to the companies’ act section 172 (2006). This act stated that a director has the duty to “promote success of the company for the benefit of its member as a whole’ (Legislation 2006). Based on the facts, she shows some disagreement in Mr Tillmans proposition and suggestion out of spite and not based on the best interest of the firm.
Person C is Patrick Lyon, an audit partner. Patrick as an audit partner at TYSL Accountant is responsible for detecting any underlying reasons for material misstatement made on the company financial reports. He should be responsible for management and planning of audit engagement. It is expected that he should be maintaining knowledge on client’s standards, regulatory frameworks and policies. No he hasn’t. This is because he has contributed to the fraud by taking bribes and violation of ISA 200 where requires auditor to conduct auditing process by maintaining professional judgement and professional scepticism throughout the whole time (PAGE 5). Violation of ISA 220, leadership responsibilities for quality control on Audits.
State the responsibilities of both D-MERTON and TYSL Accountants in relation to their professional relationship, and are these responsibilities being discharged adequately? Give an example for each company. (2 points)
The TYSL Accountant should conduct their audit in accordance with the ASA 240.5(ISA 230.5), which requires the accountant to identify any reasonable assurance relating to material misstatement such as fraud and error to prevent any fraudulent activity to takes place in the financial report. The TYSL Accountant is D-Merton ‘s Auditor team which makes them responsible for identifying any reasonable assurance that could lead to material misstatement in the financial report.
According to the ASA 240.12 (ISA 240) (page 91), when assessing the risk, the TYSL Accountant must carry a professional scepticism approach when planning and conducting audit along with exercising reasonable care and skill to ensure that a possible fraud is thoroughly examined. The TYSL Accountant should consider client’s business accounts and transaction (page 13), potential management override of controls so that information gathered are in fairly presented.
To make sure the whole engagement team is aware of the responsibilities and risks of fraud and error, ISAs requires that a discussion is held within the team and for members who are not present at the meeting, D-Merton’s audit partner should determine the matters that should be communicated to them.
Questions 4
Identify and briefly describe TWO business risks of D-MERTON and explain how TYSL Accountants have responded to each risk, in planning the audit of D-MERTON. (2 points)
One of the business risk associated with D-Merton includes related parties payments made to Premintel by Tom Noble and Richard Dalton while the CEO’s brother-in-law, Mike, remains a director of Premintel. Richard did not disclose the fact that Mike is a family member and this lead to integrity of management which will increase the chances of misstatement being present in D-Merton financial reports. Sarah Hancock deals with this situation by approaching Dalton to questioned him about his relation with Mike; he denied all Sarah question. After that she found out that Mike and Richard’s sister divorced some time ago. The case is resolved.
Another business risk is the payments made to Premintel by Tom Noble and Richard Dalton happening between D-Merton and Premintel company. The engagement between D-Merton and Premintel company has ended. However, payment to Premintel is still continuous and has become much more frequently than last year without any records of transaction. After a thorough investigation made by Sarah, she founds out that Richard Dalton is the one responsible for authorized payment to Premintel. Sarah Hancock have been struggling to get a hold of the reports produced by Premintel; she deals with this situation by approaching Dalton to questioned him regarding the report and she seeks to see the reports in order to believe it actually exist. The TYSL accountant then finds out it is suspicious and proceed to report this. Lastly, Richard Dalton being question by the police on suspicion of diverting company funds to Premintel and involvement of his sister in the payment of bribes. The unthorough investigation by the Auditor has lead to the high level risk detection. Sarah Hancock and Patrick Lyons should have conducted their job better through the use of more thorough investigation.
Lastly, another business risk is the upgrading the IT system process. Information technology is an important aspects of the auditor views of organizational structure (page 196). D-Merton day-to-day activities is associated with the IT system. This shows that the company depends on IT to operate at its best. However, funding issues were associated with the IT systems upgrades on which best alternatives to decide with. After deciding which alternatives is the best, D-Merton decided to go with the second option. This lead to massive change in the IT system which cause the data in the older systems not being able to read on the new system which then lead to errors. The TYSL Accountant handled the situation by demanding an independent technology expert to meet with Kris Perry, which was followed by Dalton’s dismissal of the technology experts’s report about D-Merton’s IT system, despite Liz’s attempt to persuade him.
Questions 3
Summarise TWO issues associated with the fraud. How do these fraud issues affect the company’s financial position AND the year end audit process? (4 points)
One of the issues associated with the fraud is familiarity threat where Richard Dalton is associated with Premintel Payments and is related to the Director of Premintel. The payments made to Premintel was authorized by Dalton and has been going on frequently even though the agreement has ended, this is where the fraud takes place. He paid out the bribes in order to illegally manipulate figures in favour by boosting values like sales and shares price. Moreover, The lack of input by the board of directors in providing access for TYSL Accountant to view the Premintel report is one of the reason behind the fraud as Richard Dalton did not comply with the code of ethics and company obligations. Based on the Companies act (2006) section 499, An Auditor in a company should have the right to access all financial information at all times in any form (Legislation 2006).
Secondly, the unethical decisions made by weak board of directors and the lack of knowledge within Non executive directors and senior executive directors are the issues associated with fraud. The CEO of D-Merton participates in a fraudulent activity which will have detrimental effect to the company. Roger tillman was a weak chairman and failed implementing the correct measures. This shows a self review threat since Patrick had been promoted to senior partner and he would not want his previous work to be criticised.
This affect the company year end audit process as to making it difficult for TYSL Accountant audit of D-Merton having to re-analyse the newly attained report to see the link between the two reports to come up with a conclusion. Moreover, the integrity concern will lead to material misstatement being present in the financial reports this is because two executives were involved which makes the fraud have greater material impact on the company. This will affect the company’s financial position which result to D-Merton revenue and profit margins to decrease and losing shareholder trust and loyalty in the company.
Questions 4
Have two audit juniors, Sam Keating and Dan Sommers, exercised their duty of care as the auditors?
If your answer is YES, please explain TWO reasons. If your answer is NO, please explain TWO reasons and what should he/she have done differently? (4 points)
No, Sam Keating and Dan Sommer did not exercised their duty as the auditors. The juniors’ accountant is overworked and the schedules are too tight. Sam Keating has violated Code of Ethics Section 140 of APES 110 where all member of professional bodes are obligated to not disclose any information to people even in a social environment (page 48). The confidentiality concern arises when Sam Keating and Joe Russel discusses client’s business at a party where the conversation between them can be overheard easily.
However, Sam Keating has exercised her duty of care as an auditor by taking care of problem when it raised and go out of her way to find out whether Premintel still exist as a company. She did some research to find more information after Dan Sommers pass her file contains Premintel company information, which led her to approach Sarah Hancock regarding this situation. After her research, she couldn’t find any reports on last year file and she finds out payments are still being made after the engagement has ended. She took initiatives to inspect Premintel premises which led to find out that the company no longer exist.
Dan Sommer has not exercised his duty of care as an auditor due to his lack of integrity and professional behavior. In this case, he was assigned and trusted by Joe Russell to look over the Premintel report. However, he did not stay over to finish his job and was unable to finish going over the Premintel report instead he went to see his girlfriend and lies about it to Joe Russell in the end. Finnaly, what Dan Sommer could have done would be priorities his work and have a passion.
Their opinions were not taken seriously by the seniors. This did not create a culture of trust and openness instead resulting to more lies.
has violate IFAC Code of Ethics
TYSL Accountant
Poor leadership
Dint uphold expected codes and duties
Absecene of open working environement
Overtime and pressure work
Richard Dalton. His sole responsibility are to promote the success of the company for the long term. W eare of opinion that he paid out the bribes in order to illegally manipulate figures in favour by boosting values like sales and shares price. In doing so he is purposely deceiving shareholders, customers and fellow colleagues. Tom noble is aiding and abetting Mr. Dalton’s illegal behaviour potentially to try and remain in Mr. Daltons’s good graces but as was evidenced by Mr. Nobles incarceration this is not how the business should be conducted.
The downfall of D-Merton is Roger Tillman. This is because as a chairman, he should be more aware of the firm’s internal affairs. He may have had the right ideas but he was a weak chairman and failed implementing the correct measures/
once it was discovered that many of the payments made for the IT contracts were to bogoues suppliers, Patrick do not want sara to share concerns about Richard authorizing more fake payments to Premintel as well. He was not keen on her doing this because he did not want to tarnish the auditors reputation but this does not hold integrity and objectivity and also present her self interest.
According to paragraph A2 of ASA 200(ISA 200), The director responsibility is to ensure that the information in the financial report are free from material misstatement and is true and fair and complies with Corporation Act and Australian Accounting Standards.
Reference
https://www.legislation.gov.uk/ukpga/2006/46/section/176https://www.legislation.gov.uk/ukpga/2006/46/section/172 https://www.legislation.gov.uk/ukpga/2006/46/section/499https://www.legislation.gov.au/Details/F2016C00022
