Audit Assurance and Compliance of Luxury Travel Holidays Company

Questions: 1.For each situation, identify and evaluate any threats in relation to auditor independence? 2.Identify any safeguards to those threats identified above? 3.In relation to the purchasing of equipment and spare parts, describe two business risks to MSL that Crampton and Hasaad will consider in planning the 2015 audit? 4.For each business risk identified in describe a specific audit risk that could arise. Each responses should include the identification of account balances that are impacted directly by the audit risk ? Answers: 1. As rightly indicated by Duncan and Whittington (2014), independence of auditors refers to independence of both internal as well as external assessors from diverse parties who might perhaps have certain kind of financial interest in the business that is under assessment. Homb et al. (2014) opined that the independence of internal assessors indicates towards independence from different parties who might perhaps be affected by the consequences of the assessment. Again, independence of external auditor refers towards independence of the assessors from essentially the parties who have specific interests in the results issued in financial reports of the particular business entity. In itself, the assessors need to comply with different generally accepted notions diligently with certain objectives in mind and try to maintain honesty, integrity, and objectivity and try to present a true as well as a fair opinions. Threats encountered Services offered by the auditors that is outside the purview of audit can be regarded as non-audit service. Nevertheless, the non-audit service might perhaps consist of diverse management service, advices related to tax management of the firm, suggestions for boosting the business. These non-audit services are offered against certain payments are essentially additional earnings or else any type of non-economic advantages (Ege 2014). Therefore, the deliverance of these kinds of non-audit service might lead to damage of individuality of the auditor. By itself, another important issue of audit is the maintenance of quality of assessment as audit procedures are often critiqued by different stakeholders along with regulators. In addition to this, one of the superlative threats to particularly the independence of the auditor is necessarily the threat of advocacy that happens at the time when the auditor boosts the clients business and presents opinions in a way that might question the obje ctivity of the process. Situation 2 In essence, independence of auditors are threatened in varied cases where the assessor otherwise the audit firm acquires any kind of monetary as well as non-monetary additional advantage outside the fees that is decided for the audit work (Warren 2014). Nevertheless, this threat might possibly stem from availing any additional advantages that is not within the audit engagement agreement. Situation 3: Spouse of the assessors, dependent or else independent children, parents as well as siblings can be considered to be close family members. By itself, financial concerns consists of assurance for debt, diverse short as well as long term securities possessed by different individuals, along with different other individuals otherwise though different in-between related entities (Lenz and Hahn 2015). Particularly, as per the given case study, the father of the proposed accountant is the financial controller of the particular client. Thus, if Michael provides consent regarding taking up the offer or agree to be a part of the particular audit team, then it can certainly harm the independency of the assessor. Situation 4: There certainly arises the risk of particular influence when there exists close relationships of the assessor with clients, employees or else directors of the company (Vinnari and Skrbk 2014). Specifically, in such kind of situation, the auditor might get attached and get sympathetic towards the personal relationship with the clientele. Personal relationship with the clients also leads to undue faith with the particular client and might possibly lead to inappropriate representation. Again, there remains possibility that the representation by the auditor might get affected since the assessor remains aware of different information of the client as she has worked with LTH previously that is a month ago. Moreover, she was also carrying out different services that is related to tax enumeration and arrangement as well as preparation of important accounting entries as on the period 30th June during 2015. Fundamentally, the auditor is also not supposed to carry out evaluation of their own wo rk. 2. Process of prevention to diverse threats to audit As correctly indicated by, there are diverse measures that can be followed for maintenance of independency of the assessors. Some of processes are hereby mentioned below: Rotation of different partners of audit as rightly indicated by Lenz and Hahn (2015) rotational scheme of different partners of audit helps in removal of familiarity risk along with self-benefit. In turn, this can assist in upholding objectivity without incurring substantial amount of cost. Institution of effective committee for audit Institution of efficient committee for audit be is an important tool for maintaining independency of assessor (Brawley et al. 2015). Maintenance of Global consistency along with requirement for independency of assessor as correctly indicated by Brawley et al. (2015),independency of audit can be necessarily strengthened by application of vigorous over and above strong ethical principles namely, Auditing standards, regulations, directives along with ethical codes of practice. Oversight of definite independent appraiser An appraiser, who is certainly independent possesses the quality to control, standardise and contribute considerably towards maintenance of audit quality along with independence (Warren 2014). 3. Analytical evaluation of risks involved with different spare parts inventory Management of risk can be reflected to be a crucial component of management of predominantly spare-parts inventory. In this connection, it can be mentioned that majority of business units consider the fact that there exists diverse facets of risk management. Ege (2014) opines that these facets assist in risk evaluation and supposition of vital steps for alleviation of risks in different business firms. Nonetheless, this investigation are basically delimited to different reputational risk, risk linked to safety along with health as well as different commercial risk (Homb et al. 2014). Other than this, there also might possibly be different downtime risk that can lead to financial loss. Essentially, majority of business units do not really take into account procedure of implementation of technologies related to management of risk of specific spare parts. However, there are two diverse risk that can be associated to purchasing of spare parts along with equipment. The risks that principa lly Cramption and Hasad have the necessity to consider at the time of planning the audit are operational along with strategic risk. As rightly indicated by Winer et al. (2015), Strategic risk can be associated to inventory management of precise spare parts and this risk basically orients around the process a company can handle the stock of diverse spare parts. Administrations of business units might choose to essentially be ad-hoc. In turn, this reflects the fact that spending on different items such as purchase of items, use of no policy that are basically formal and require knowledgeable managers to deliver judgement on diverse procedural features. Nevertheless, operational risk is basically not that type of risk that can be associated to specifically operational downtime. Essentially, operational risk can be observed as a risk that can be linked to the way a particular method can be executed. Majority of business concerns develop policies for strategic management aptly, but administration of the corporation find it hard to execute the policy effectively (Duncan and Whittington 2014). For instance, businesses might perhaps execute a specific policy for arriving at conclusions associated to standardization. Businesses that cannot properly handle operational risk by appropriate application of different approaches encounter difficulties in inventory management. 4. Diverse categories of audit risk and influence of the risks on account balance Ricchiute (2011) opines that risk that can be associated to particularly strategic risk is basically inherent risk that arises due to material misstatements, errors or else omission in different financial pronouncements. This risks thus arises as a result of different factors other than essentially control factors. However, the inherent risk occurs essentially owing to material misstatement risk in different financial announcements. Necessarily this risk arises when the transaction nature of business is complicated. Different business circumstances have the need for superior process of judgement for different financial projections as well as estimates. Thus, lack of superior judgement can lead to inherent risk. Fundamentally, inherent risk affects inventory account balance along with account of receivables of a firm. However, inherent risk also exerts varied influence on different accounting balances depending upon categories of trade of a business. Also, risks that can related to operational risk are the detection risk. Nevertheless, in detection risk there is a possibility that the auditor might perhaps fail to detect material misstatement in financial declarations of corporation using substantive test procedures (Christensen et al. 2012). Nevertheless, detection risk are predictable when appraiser does not implement correct measures and when procedures are not appropriately used. Moreover, detection risk influences specific accounting balance and this is not always appraised by the assessor. 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