Question

What are the advantages and disadvantages of the following topics in audit: ethical responsibilities of independent auditors, professional roles in audit and the audits of high risk accounts.

What influence/impact do the following topics have on an audit: ethical responsibilities of independent auditors, professional roles in audit and the audits of high risk accounts.

Answer 1

1. Ethical responsibilities of Independent auditors :

The fundamental responsibility of an auditor is to maintain the integrity, like not to accept any gifts and any types of obligations. The auditors should try to avoid making false and misleading statements which will damage the good will and reputation of his firm. In other words, all auditors must act in an ethical manner which will bring credit upon themselves, their company and the quality auditing profession.

2. Professional roles in audit :

1) Auditor should always like " watch dog not a blood hound". The auditor need not investigate into the issues of the financial issues, but he or she has to qualify the point in the his report.

2) The auditor has to get through knowledge of the the entity relating to its nature, policy, internal controls, the local government regulations etc.

3) Before arriving at any opinion, he should obtain sufficient evidence and explanation of the queries he raised

4) He should work independently from clients and has to take the own judgement at times to arrive at a decision.

3) High risks accounts :

The accounts are classified as High Risk Accounts basis on its existence in market and competition in the industry. Example,  investing the money in down trend market with the expectation of future growth etc. In these type of accounts, the auditor is very careful while auditing the evidences that on what basis the decision has taken etc.

Disadvantages of the above points :

In all the above cases the main disadvantage of the independent auditor is that there is a risk of incompleteness of evidences if the auditor does not take the majority of population sample for audit. For example if the auditor will take 20% of the sample out of the whole, he may not get the chance of any material differences of the entire process. He has to rely on the out come of only that 20% sampling.

Effect / Impact :

a) Professional ethics affects audit quality, this means that if an auditor always implements a professional code of ethics, the audit results will be in accordance with the conditions of the actual financial statements to publish the true and fair view of the state of affairs of the financial statements of the company.

b) Independence of the auditor has an effect on audit quality. The higher the independence, the higher the audit report produced. This means that the assessment of the audit report carried out by an independent auditor cannot be intervened by other parties and in accordance with the facts found in the field.

c) The more high risk accounts are audited by auditor the more investigation is required by independent auditor. He should be very deligent and extra cautious while performing the audit of high risk accounts. The information may be more sensitive and will be high impact on the report if it is not properly carried out.