Understanding of What Materiality and Evidence are and Material Misstatement

Purpose of AssignmentThis assignment is critical for students to gain a fundamental understanding of what materiality and evidence are, how they relate to each other, how the auditor assesses the risk of material misstatement, and to analyze financial needs to make operational decisions.Complete the table in the Week 2 Worksheet in no more than 700 words.Fill in each box.Conduct research, analyze, compare and contrast the included topics.Include citations.The company chosen is Sears and I need examples.
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Name
Professor
Course
Date
Audit and Compliance Management
Introduction
In business, the management team has a task of directing the organisation’s resources and
workforce in processes that advance some of the organisation’s strategic goals. The management
role is somewhat challenging since every manager has to cope with both the planned and
unplanned issues that arise in the organisation, and it is their responsibility to deal with every
situation professionally. Managers have different tasks. The core responsibility is strategic
planning. For example, it is the responsibility of the managers at Vodafone Company to come up
with strategic plans on products (James). Every employer tasks their managers with the
responsibility of developing business goals for the company and device strategies to organise the
company or organisation’s resources to meet the set goals. Also, the managers are tasked to be
the overseers of every operation in the company on a daily basis. It is the role of every manager
to ensure the company’s financial requirements; workforce and legitimate expectations get met
on time for the company’s affairs to run as expected.
Apart from planning, the management team has a task to make the critical decisions on
behalf of the organisation on ways to use the company’s resources in ways that ensure the
company stays in business all times. The health and safety of the employees in any organisation
and any legal duties towards anyone in the organisation affected by their authority or any other
party implicated in the omissions. Management also has a responsibility to deal with errors, since
every employer expects that the manager presents financial statements that are free from
misstatements of any kind. On fraud, management has to create safeguards against fraud using
their internal control powers and conduct internal audits to implement the set safeguards. From
the guarantees set, the administration can obtain absolute assurance on the existence of material
misstatements in the reports.
An auditor is any person authorised to examine accounts and the records, compare the
vouchers charges and run a verification of the balance sheet and the income generated and finally
giving a result. An independent auditor reports with a possibility of illegal acts that a client might
have committed derived from an audit on the institution’s financial statements (Salem). Through
these reports, the auditor can voice their opinion on whether the review follows the set universal
auditing standards. The auditor can identify the circumstances where some principles previously
used in the preparation of a company’s financial statement do not get followed to the letter.
The auditor is responsible for obtaining assurance on financial statements to ensure that
the reports are free from any form of misstatement, an example of this responsibility is the
collection of the records belonging to the warehouse and stock company in Barbados in 2010.
The auditor, however, has no responsibility in detecting fraud at any institution. The lack of
accountability is because the purpose of any audit is ensuring the available for sale records exist
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in a fair manner in when compared to the material aspect and the performance of a business. The
auditor’s role, however, is reducing any possible risk of fraud from the company’s the available
for sale records to a low level. The auditor provides the few charged with governance with a
statement compiled by the auditor that contains the requirements for independence. A good
example of an auditor hired to reduce a company’s risk of fraud is an oil company hiring an
auditor to reduce the BP oil company’s risk of fraud by making sure the company records add up
when compared to the company’s performance in the oil business.
There are a lot of differences between the management and auditors responsibilities in
any given organisation. The main difference is the fact that the management teams are part of the
staff in the organisation while auditors are employees of other firms employed to countercheck
the accuracy in the accountant’s report. The work accountants often do on a daily basis while the
auditors work in annual or quarterly periods to produce their work on accounts. The management
team is a general requirement for business while hiring an auditor is an optional requirement
depending on an employer’s interest in the market. The management accountants come up with
annual financial statements to display an image of the organisation’s financial stability; auditors,
on the other hand, proofread the financial statements and calculate the accuracy of the reports a
good example is the compilation of the Shell Company’s financial statements (Gerrit). The
accountant’s responsibility is to create safeguards against fraud while the auditor’s responsibility
is reducing the risk leading to fraud. Accountants have the power to conduct internal audits
whenever they find suspicious financial statements, while the auditor’s require permissions from
their employers to do a review of the company’s financial statements. Finally, management has a
responsibility to suggesting the forming which the financial statements are released in while the
auditors get confined to expressing their opinion on the financial statements. For example, it is
the responsibility of the Uber Management to compile the company’s financial statements in any
form appropriate while the auditor’s work would solely be analyzing the provided statements
without proposing an appropriate form in which the statements are produced.
There are also some similarities between the management and auditors responsibilities in
the operations of any company. The first analogy is that both the accountant and the auditor’s
responsibilities require broad knowledge in accounting, and in most cases require one to bear a
degree in the discipline (Sarens). Another similarity between the work of an accountant and the
auditor is that both their responsibilities aim at establishing a company’s financial position for
example, it takes the joint effort of both management and auditors of the Vodafone company to
deduce the company financial position after a year of sales. Also, the accountant and the auditor
both get attached to an institution’s information system as it is a significant part of the
managerial control in any organisation, as it is a considerable part of reporting a company’s
financial progress. It is a common habit for both accountants and auditors to carry out a test to
analyse and examine different transactions on a regular basis. Finally, both parties have a
problem when it comes to failed procedures or if there is any ignorance in adhering to the
method in any reporting process in the company. For example, the BP Company will sue the
management and auditors if the annual financial report does not add up or there exists errors after
proofreading by the auditor.
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Work Cited
Sarens, Gerrit, and Ignace De Beelde. “Internal auditors’ perception about their role in risk
management: A comparison between US and Belgian companies.” Managerial Auditing
Journal 21.1 (2006): 63-80.
Salem, Mohamed SM. “An overview of research on auditor’s responsibility to detect fraud on
financial statements.” Journal of Global Business Management 8.2 (2012): 218.
Bierstaker, James L., Richard G. Brody, and Carl Pacini. “Accountants’ perceptions regarding
fraud detection and prevention methods.” Managerial Auditing Journal 21.5 (2006): 520535.
Week 2 Individual Assignment
FIN/590 Version 3
Week 2
Individual Assignment: Understanding of what materiality and evidence are and material misstatement.
Complete the table below by filling in each box.
Conduct research, analyze, compare and contrast, the following topics.
Include citations.
Directions
Operational Audit
Compliance Audit
Describe materiality and
how auditors assess and
identify materiality.
Provide examples from
your selected publicly
traded company.
Demonstrate how the
auditor assesses the
risk of material
misstatement. Provide
examples from your
selected publicly traded
company.
Compare and contrast
materiality and
evidence, auditors
assess and identify
materiality both. Provide
examples from your
selected publicly traded
company.
Demonstrate testing
methods and sampling.
Analyze financial needs
to make operational
decisions.
Copyright © 2017 by University of Phoenix. All rights reserved.
Financial Statement
Audit
1
Week 2 Individual Assignment
FIN/590 Version 3
References:
Copyright © 2017 by University of Phoenix. All rights reserved.
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