Report on business auditing- to strengthen financial management

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Business Auditing

With the help of audit and assurance method, it becomes easy to strengthen financial management. It helps in creating business transparency and a clear view of the finance and financial statement of an organization. Auditors’ perform end number of tasks such as checking journal entries, trial balance and balance sheet of a company. All these programs help an organization in creating a strong financial record. There are many factors and risks which can affect the company’s financial position. Few reasons are wrong asset evaluation, wrong inputs in journal entries, and mismatch in balance sheet etc. The primary purpose of auditing is to design an effective finance structure which can quickly rectify the loopholes of finance-related risks (Knechel, & Salterio, 2016). All the auditing procedures are being followed under the supervision of an experienced auditor, so auditing helps in removing financial discrepancy efficiently. The crucial thing to understand why auditor’s report or suggestions are trustworthy and valid? Due to the specified auditing laws and regulations, auditor’s report is termed as credible and effective. 

Four risk factors are associated with the auditing and auditing procedures:

1. Valuation risk: There might be a high chance of wrong evaluation of previous financial statements done by auditors or certified chartered accountants. In this case, an auditor is also bound to evaluate false financial reports. Instead, the error will be caught, but at the same time, it will not be 100% accurate (AICPA, 2018). So it is a significant loophole of auditing standards that it can rectify previously modified valuation errors. Due to the wrong evaluation of Accounting inventories and statements, it can be converted into high risk of contingent loss (Chan, & Vasarhelyi, 2018). Previously also during auditing of Punjab National Bank, it is found that in the year 2012 that the bank was facing the loss of over 1.4 million. It happens due to the wrong recording of accounting transactions and issue in certified auditing reports. With the help of KPMG and few renowned auditing companies, it is found that this loss is being carried-forwarded from the last eight years. Due to the mismatch in entries, this loss is shown, in suspense account of the companies. It is the root cause of the huge loss to the bank.

2. Insufficient auditing knowledge: It is being stated in Auditing Standards ASA 701, Auditing and Assurance Standards Board that any auditing company or individual who practices or performs auditing work need to have a senior practitioner having 5-7 years of experience with him during the process of auditing. It is being found that previously, that after practising auditing work 2-3 years an individual or firm get certified for performing auditing works. During the auditing of Deloitte Company, it is found that senior auditors of this company are involved in the scam of 91000 crores. The company was doing some severe fraud auditing with the help of unprofessional and uncertified auditors. These auditors were not sending the final audit reports to any of the statutory body neither to a senior auditor. As per Auditing Standards ASA 230, Audit Documentation and Reporting it is mandatory for companies and auditors to submit their reports to auditing statutory body or either to any senior certified auditor to get their report evaluated (Abcaus, 2019).

3. Physical existence: It is the responsibilities of joint auditors to cross-check the auditing of last 2-3 financial years. It helps in removing discrepancy from auditing reports. Companies who deal in large accounting transactions and having daily financial deals need to prepare proper income statement to get an accurate idea of companies financial positions. As per Auditing Standards ASA 299, Responsibility of Joint Auditors, it is mandatory for joint auditors to follow carry forwarded transactions carefully (Abcaus, 2019). It can be a big issue because many times companies or organizations procure a big financial deal, but due to some reasons, they cancel it. Now as per companies financial report this transaction is done as per their expenses but due to deal cancellation the returned money is still in carrying forwarded from means as per the deal the transaction is done, and material is procured, but in reality it does not exist (Maksymov, Nelson, & Kinney Jr,.2017)..

4. Updation in Auditing rules: It is mandatory for every auditor to follow updated auditing standards during their auditing process. Few discrepancies arise when auditors do not submit auditing reports as per updated guidelines. Because of this reason, auditors provide an incorrect financial document. It is mandatory for every organization to disclose its real financial position in public (Zimbelman, 1997). Many companies or big organizations do not even know why they carry forward contingent loss every year with them.

Conclusion: Due to the small level of study and decentralised accounting committees still there are many loopholes which cannot overcome audit limitations. The risk associated with auditing principles and accounting fraudulent leads to biggest failure in accounting and auditing history. There are several areas which are associated with audit failure and investigating primarily into deceptive techniques of the audit process is bit complex extremely hard to analyze. There is vast area to investigate, and due to the limited boundaries audit principles, we have generally focussed over audit environment, both factors internal and external due to which audit failure rises. To improve these issues, audit governing bodies should take help of big audit consultancy as well as reputed & experienced audit practitioners who can guide on audit loopholes. 

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