Extreme Estimation Uncertainty And Audit Assurance

Question: Discuss about the Extreme Estimation Uncertainty and Audit Assurance. Answer: Introduction: As per the given case, a downturn is going on in the commercial property sector in Brisbane. On the other hand, there is abundance in the city office space of Brisbane. Due to these two reasons, City Ltd, a property developer in Brisbane is facing serious losses in business. Hence, there are two crucial audit issues of audit planning that need to be solved in the audit planning process. The first audit issue is to identify the reason for the downfall in the commercial property sector in Brisbane. The second audit issue is to spot out the causes for the abundance of the Brisbane city office spaces (Glover et al. 2014). Some major reasons are there behind the purchase of new computer software in an organization like the free flow of various kinds of organizational information, storage of data and many others. According to the given case study, Web Limited has purchased new computer software for the ease of their organizational operation. In the mentioned scenario, the major audit issue is to test the efficiency of the new computer software. Hence, the new computer needs to go in a trial so that it can be seen whether the computer software is providing the necessary information or not. Another audit issues is to evaluate the expense related to the software. It needs to be made sure that the running and maintaining expense of the new computer software is well in the budget of the company (Farrugia 2016). Lead time refer to the time gap between the production and delivery of a product to the end customers. As pet the given case study, the first audit issue that needs to be addressed is to analyze that whether it is profitable to establish the overseas branch or not. The second issue is to analyze that whether the transfer of inventories will reduce the lead time or not. The last issue that needs to be address is to evaluate that whether it will be profitable to distribute free samples among the customers or not. These are the three audit issue (Christensen et al. 2013). Test of control approach is used for the purpose of analyze the internal control of the organization. On another words, auditors use test of control approach to detect or find the material misstatement of the financial documents of the organization. There are four steps in this approach of the organization; they are observation, inquiries, inspection and re-performance. All these steps are taken to test the internal control of the audit client. Substantive approach is done by the auditors to identify the material misstatement in the various accounting and financial documents of the organization. In this process, the auditors of the organization verify the amounts in the sample and they also look for the source of those incomes or expenses. Hence, substantive approach is taken on order to find the fraudulent, manipulation, theft, mistakes or others in the financial documents of the organization. Auditors will issue more rigid substantive approach of accounting in case the internal control of the company is not effective (Dow et al. 2013). The given case study sheds lights on the three kinds of risks. They are Inherent Risk, Control Risk and Detection Risk. The failure in the internal control process leads to the development of inherent risk as this type of risks means errors, omissions and others in the financial documents. Various kinds of material misstatements in the financial documents of the company contribute to the development of control risks. Detection risks have the possibility to be detected in the future. Hence from the above discussion it can be concluded that, substantive approach will be suitable for control risks; test of control approach will be suitable for both inherent risks and detection risk (William Jr, Steven Glover, and Douglas Prawitt 2016). As per the above discussion about risks and audit approaches, it is evident that test of control approach will be suitable for the measurement of the accuracy and completeness of the depreciation expenses of the organization. It is the duty of the internal control of an organization to adopt and maintain various aspects of depreciation in the organization. Internal control has the responsibility to set the percentage of depreciation in the organization, to maintain the expense of depreciation and others. On the other hand, test of control approach is adopted for internal control. Hence, it is beneficial for the organizations to use test of control approach for maintaining various aspects of depreciation. Substantive approach can be adopted at the time of test the amount and source of the depreciation expenses. An existence of a connection between auditing and accounting information can be seen. Accounting is the process to collect, process and record or store the various financial data of an organization. On the other hand, auditing is involving in the process of testing and verifying those financial accounts. The communication of the accounting information refers to the process of reaching the necessary accounting information to the auditors so that they can be helpful for the auditors. At the time of conduction an audit operation, the auditors need various kind of data and information like information about purchase, sales, production, inventories, debtors, creditorss and many other. It is necessary that all these accounting information is properly reached to the auditors for the smooth running of the audit process. In this regard, accounting information system or AIS is an important factor as it ensures the smooth flow of accounting information in the business. The accounting informatio n system collects all the necessary accounting information in the organization, processes them and store them so that they can be used for further references. Thus, it is crucial for the business organizations to employ an efficient accounting information system in order to maintain the flow of information in the organization. The audited financial report in the presence of all accounting information shows the actual financial position of the organization; and based on this audited report, the investment decisions are taken. On the other hand, the financial report which is prepared in the absence of proper accounting information does not show the actual financial image of the business and hence, fails to earn the faith of the investors. Thus, it can be concluded that there is a important connection between auditing and the communication of accounting information as the success of an audit program vastly depends on the supply of accounting information (Lobo, Gerald and Yuping Zhao 20 13). References Christensen, Brant E., Steven M. Glover, and David A. Wood. "Extreme estimation uncertainty and audit assurance."Current Issues in Auditing7, no. 1 (2013): P36-P42. Dow, Kevin E., Marcia Weidenmier Watson, and Vincent J. Shea. "Understanding the Links Between Audit Risks and Audit Steps: The Case of Procurement Cards."Issues in Accounting Education28, no. 4 (2013): 913-921. Farrugia, Lara. "User perceptions of the small statutory audit: an analysis." Master's thesis, University of Malta, 2016. Glover, Steven M., Douglas F. Prawitt, and William F. Messier.Auditing assurance services: a systematic approach. McGraw-Hill Education, 2014. Lobo, Gerald J., and Yuping Zhao. "Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements."The Accounting Review88, no. 4 (2013): 1385-1412. William Jr, Messier, Steven Glover, and Douglas Prawitt. "Auditing and Assurance Services: A Systematic Approach."Auditing and Assurance Services: A Systematic Approach(2016).