Professionals Responsibility for Fraud Detection

Question: Discuss about the Professionals Responsibility for Fraud Detection. Answer: Introduction: Auditing refers to the process of examining and verifying the various financial business accounts of an organization or a business. Auditing is a vast area that needs some specific steps to complete (Glover, Prawitt and Messier 2014). The most important and the first step in audit process is Audit Planning. Audit planning is the process to develop the strategies for conducting the audit and to identify the main and crucial audit issues. In this step it needs to be ensured that that appropriate attention is given to the most important areas; the potential and crucial problematic areas are properly identified and there is enough coordination for the audit process. On a more precise note, it is the step where the audit issues are identified that needs to be addressed in the documents of audit planning and the nature, timing and extent of audit are determined (DeZoort, Harrison and Schnee 2012). Based on the given three case studies, the crucial audit issues are identified below: As per the given scenario, City Ltd is a major property developer in Brisbanes central business district. However, it has been seen that the commercial property sector is not going well due to a massive downturn in this particular business sector. On the other hand, there is an abundance of office spaces of the city. For these two major reasons, no buyers are secured to buy the any property in that particular area. This reason contributes to business losses for City Ltd as the company is not able to develop or sale any kind of properties. Two major audit issues need to be addressed in the audit document. The first issue is to find out the reason for the downturn in that particular business sector. The second major issue is to find out the reasons that lead to the abundance of the city office spaces in Brisbanes central business district. According to this cases study, Web Ltd. is a business organization that has purchased new computer software. There are certain reasons behind the purchase of this computer software as the new software will provide more reliable and effective information to the organization so that the quality of the management reporting can be improved. In this regard, the main audit issue is to find out the efficiency of the new installed computer software. For this purpose, the new software need to be run through a trial so that it can be identified that whether the software is able to provide the essential information or not. On the other hand, the running and maintain expenses are another audit issues that need to be addressed. All these expenses need to be in the budget of the company. These are the two major audit issues in this regard (Kim, Nicolaou and Vasarhelyi 2013). As per the given scenario, Beauty Pty Ltd. has established a overseas branch and the inventories have been transferred to this branch so that lead time can be reduced. In this process, there are some major audits issues are there. First of all, it is needed to be made sure that the establishment of the overseas outlet will be profitable for the company. After that it needs to be taken into consideration that whether the decision of transferring the inventories will contribute to the minimization of lead time or not. The next audit issue is to find out that wheatear it is a wise decision to distribute the free samples of the products of the company as a part of marketing strategy. These audit issues need to be addressed. Two types of audit approaches can be seen; they are Test of Control Approach and Substantive Approach. The deciding factors about the selection of one of these approaches are discussed below: Test of Control Approach: Test of control approach is adopted in order to test the internal control system of the audited firm. On a more precise note, test of control approach is the test of the control procedure used by the audit client in order to prevent or detect material misstatement from the financial statement of the business organization (Grimm and White 2014). There are four kinds of audit procedures that are used in the test of control approach; they are Observation, Inquiries, Inspection and Reperformance. In the reperformance process, the auditors may start a new transaction in order to test the control approach adopted by the client and to measure the effectiveness of that approach. In the observation process, the auditors of the business may observe any business action process to test the control of the procedure. In the inspection process, the auditors examine and verify different business document for the approval signature, stamps, checkmarks and others. Overall, it can be said that test of control approach is adopted by the auditors to test the processes or procedures carried out by the audit client. Substantive Approach: The auditors adopt substantive approach in order to detect the possible material misstatement in the different financial report of the audited organization. In the process of substantive approach of audit, the auditors make it sure that the figures in the financial report of company are true; and they match those figures with the source documents of those transactions (Seidel 2014). There are various kinds of financial reports like income statement of the company, balance sheet and others. It needs to be remembered that the auditors do not test the entire financial document in the substantive approach; they take some samples based on the risk and judgment and they audit those documents. In case the internal control of a company is effective, the auditors will use less substantive method of audit. However, the auditors will use more substantive methods of audit, if the internal controls are less effective. As per the above case study, three kinds of risks are there; they are Inherent Risk, Control Risk and Detection Risk. Inherent risks refer to the errors and omissions in the financial reports that arise due to the failure in the control process of the company. Control risks refer to the material misstatement in the financial reports of the company. Lastly, detection risks are the risks which can be detected in the near future. The audit approaches are adopted based on these three kinds of risks. Substantive approach will be adopted in case of the control risks as material misstatements are there. Test of control approach will be applied in case of the inherent risk as these risks arise due to the ineffectiveness of internal control of the organization (Reason 2016). In case of the accuracy and completeness of depreciation expenses, test of control will be the optimal approach that can be adopted. There are certain reasons behind this statement. Setting up the method of depreciation is the internal control process of the company. On the other hand, maintaining the expenses of depreciation is also the internal control matter of the company. Hence, it is optimal to adopt the test of control for depreciation. However, at the time of preparing the annual report, substantive approach can be adopted at a minimum level to verify the source and figures of the depreciation expenses (Lee 2016). Accounting is the process of collecting, recording, processing and storing different kinds of financial data and information from the daily activities of the organization so that they can used for the purpose of the preparation of the financial reports of the company (Kaplan and Atkinson 2015). These accounting data and information also help the senior management of the organization in the decision making process. On the other hand, auditing refers to the process of examination and verification of those accounting as well as financial data so that the financial report of the company can reflect the true financial image of the company. It is necessary that the annual report of any organization include the true and relative financial information about the company as the investment decision of the investors wholly depends on the annual report. Thus, from the above discussion, it can be understood that there is a deep connection between the accounting system and the auditing as for the s uccessful completion the audit process of a company, the effective communication of the relevant accounting information is utmost important. In this regard, it can be said that accounting and auditing are the two sides of the same coin. At the time of conducting the audit process, it is desired that the internal as well as the external auditors are provided with the necessary relevant data and information for the ease of their work. This can only be possible by the effective communication of the accounting information. For this purpose, organizations are fond of establishing effective as well as efficient accounting information system so that there is the proper flow of accounting and financial information to the auditors. The role of the accounting information system is to collect necessary information from the various activities of the organization. After that these information is processed so that they can be used to the decision making process of the organization and the audit process. Lastly, they are stored in a safe place so that they can be used for further references. At the time of the audit information, the auditors need different kinds of data and information related to sales, purchase, inventory, debtors, creditors, receivables, payables and many others. With the help of the proper communication of accounting information, the auditors can verify the source of each figure in the financial reports and the accounting information system helps to deliver the necessary information to the auditors (Hall 2012). The audited financial report in the presence of all relevant and necessary accounting and financial information reflects the true financial position of the company. On the contrary, the mis communication of the accounting information to the auditors can lead to the preparation of the audited report that does not reflect the true financial position of the organization. This is the reason it is desired that there is a proper communication of financial and accounting information in the organization so that the internal as well as the external auditors can be helpful from that (Lobo and Zhao 2013). Hence, it can be concluded that there is a connection between auditing and the communication of accounting information. References DeZoort, F.T., Harrison, P.D. and Schnee, E.J., 2012. Tax Professionals' Responsibility for Fraud Detection: The Effects of Engagement Type and Audit Status.Accounting Horizons,26(2), pp.289-306. Glover, S.M., Prawitt, D.F. and Messier, W.F., 2014.Auditing assurance services: a systematic approach. McGraw-Hill Education. Grimm, S.D. and White, S.W., 2014. A Simulation Study of the Influence of PCAOB Regulatory Guidance on the Internal Control Audit Process: An Analysis of Relationships, Risk and Information Sharing.Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Volume 18) Emerald Group Publishing Limited,18, pp.33-67. Hall, J.A., 2012.Accounting information systems. Cengage Learning. Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning. Kim, J., Nicolaou, A.I. and Vasarhelyi, M.A., 2013. The Impact of Enterprise Resource Planning (ERP) Systems on the Audit Report Lag.Journal of Emerging Technologies in Accounting,10(1), pp.63-88. Lee, J.E., 2016. Internal control deficiencies and audit pricing: evidence from initial public offerings.Accounting Finance. Lobo, G.J. and Zhao, Y., 2013. Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements.The Accounting Review,88(4), pp.1385-1412. Reason, J., 2016.Managing the risks of organizational accidents. Routledge. Seidel, T., 2014.The Effective Use of the Audit Risk Model at the Account Level. UNIVERSITY OF ARKANSAS.