Review of Archival Auditing Research †Free Samples to Students

Question: Discuss about the Review of Archival Auditing Research. Answer: Introduction: If under the audit procedure any expertise in the field other than auditing or accounting is required for obtaining sufficient and appropriate evidence of audit, the auditor shall determine whether to use the service of an expert or not. However, the auditor must evaluate whether the expert ahs the required competence, objectivity and capabilities for the purpose of audit. In case of the external expert, the objectivity evaluation shall involve the inquiry with regard to the interests and the relationship that may generate the threat to the objectivity of the expert (Kanatov, Atymtayeva and Yagaliyeva 2014). Further, the auditor must obtain the sufficient understanding of field of the expertise for the expert of the auditor for enabling the auditor to evaluate adequacy of the work for the purpose of the audit and to determine the scope, nature and objective of the experts work for the purpose of audit. Looking into the case study of DIPL, it has been identified that regarding the inventory and purchase the obsolescence of the inventory is existed from the last year for covering the projected decline with regard to the value from the impact of the storage hazards. Therefore, to estimate the value of the obsolescence, the auditor shall obtain the services of the expert for measuring the valuation of the inventory obsolescence. Further, the depreciation on the fixed asset of DIPL is calculated on the straight line method (Tanyi and Smith 2014). Therefore, to measure the depreciation and impairment, the service of an expert is required in case of DIPL. By evaluating the case and circumstances of DIPL, the need for employment of service of a proficient assessor is essential for the following mentioned issues: Issues encountered by the firm DIPL Expert necessity whilst undertaking auditing Inventory obsolescence As rightly indicated by Kanatov et al., (2014), the existence of allowance for particularly inventory obsolescence mainly for the purpose of enveloping an approximated decrease in value is owing to storage vulnerability. Additionally, evaluation of the case study on the operations of the firm DIPL replicate that there exists an incidence of allowance for obsolescence of particularly inventory. As such, this is primarily due to storage exposure exerts impact and this in turn led to expected reduction in value that is covered. Analysis of case also reveals that disbursements for inventory are carried out at pertinent currency of nation. Again, board illustrated that allowance for obsolescence of inventory has the need to be written back. As a result, the firm DIPL has the need for expert service for the purpose of estimating obsolescence value. Depreciation of fixed assets The process of utilizing straight line method was mostly for the allotment of cost over approximate economic lives of specific assets (Rkaur, Rani and Garg 2016). As such in this context, for the purpose of enumeration of assets impairment together with depreciation, expert service can be used by the corporation DIPL whilst undertaking auditing. For avoiding issues related to proper monitoring of the work Expertise other than auditor or accountant includes the expertise with regard to the matter related to Estimation of the gas and oil reserves services Valuation of the environmental liabilities and the clean-up costs of the sites. Analysis of unusual tax or complex compliance issues Valuation of the complicated financial instruments, plant and machinery, antiques, works of art, acquired assets and the liabilities under the combination of business, impaired assets and intangible assets Actuarial calculation of the liabilities that are associated with the insurance contracts or the benefit plans of the employees Identification of five factors that can influence the preliminary figures for overall materiality Materiality refers to certain facets, either individually or else in aggregate can be considered to be significant are important for particularly fair presentation of financial assertions in compliance with relevant standards. Analysis of the case study on the operations of DIPL can help in identification of five different factors that can affect the preliminary figures for overall materiality. The misstatements whose impact singly or on the whole are significant enough to affect fair presentation in material respects (William Jr et al. 2016). Again, the misstatements can essentially result from errors or else fraud. In this case, errors indicate towards unintentional misstatements else wise omissions of certain amounts and disclosures in financial assertions. The recognition of five factors and their impact on ascertainment of initial figures on the materiality of process of audit of the corporation DIPL are hereby tabulated below: Factors Reasons behind relevance of the identified factors Description of the way the identified factors can influence the preliminary figures for overall materiality in the entire audit planning procedure Fraud Risk affecting materiality Fraud risk can be considered to be an important factor that can adversely affect the materiality. As per the given study, it can be hereby mentioned that there exists extreme pressure from particularly the board of the firm DIPL, due to which the entire IT division of the firm somehow managed to install a novel system of accounting. Essentially, this process also exposed the company DIPL to risks of fraud as well as materiality (Hayes et al. 2014). Glover et al. (2016) asserts that mistakes occur in the process of gathering else wise processing data from which financial assertions are prepared. Unreasonable accounting approximations also arise from oversight and misinterpretation of diverse facts. Again, fraud can be considered to be a wide concept associated to fraudulent actions that again cause misstatements of financial assertions. The assessors comprehension regarding the internal control of a firm might heighten else wise mitigate the concern regarding the risk of material misstatement. The fraudulent actions owing to huge pressure on employees and process of implementation of new system of accounting have ability to affect the overall financial information (Glover et al. 2016). Thus, the same is said to affect the financial statements and assertions and thereby is said to be relevant from the standpoint of materiality. The manager in the IT department was also not contented with the process of installation of firms machines. In addition to this, huge pressure was also put on members of the staff of the corporation for reconciling and examining the new system appropriately. However, the outcomes of the test reflected the fact that few business transactions that were undertaken during the ending of the end were not suitably allocated during the period (William Jr et al. 2016). Accounting policies affecting materiality In addition to this, the valuation process of diverse raw materials founded on average cost mechanism was necessarily not appropriate. Based on the analysis of the case study, it can be hereby mentioned that inventory valuation process of the raw material particularly at the average cots was not suitable since the present cost of paper considerably enhanced from the currently applied method of average cost (DeFond and Zhang 2014). The accounting procedures that are utilized by the management of DIPL for valuation of raw materials is said to be a relevant factor affecting the materiality. This is because the accounting procedure helps in evaluation of raw materials and thereby helps users to understand the proper state of financial items (Knechel and Salterio 2016). The management of DIPL essentially lack the overall necessity under both integrity as well as objectivity. This in turn can have an effect on the company status in the long term. Also, mistakes also occur in the process of application of specific accounting principles related to amount, classification, way of presentation and disclosures. Additionally, misrepresentation of financial assertions also poses inherent risk as this misrepresent the financial information to specific users of the financial assertions such as the stakeholders, creditors, potential financiers as well as debtors (Acito et al. 2015). Inventory valuation process of the raw material particularly at the average cots was not suitable. The inappropriate suppositions else wise methods of valuation influence the substantive procedures of accounting methods (Hayes et al. 2014). This might affect the evidence of the auditor along with the audit strategy decisions. Environmental factors affecting materiality: Again, there was several business transactions that were not considered at the time of preparation of the financial statements wither purposely or else by fault by the management of the firm DIPL. This necessarily led to inconsistencies in the process of efficient planning with regard to process of marketing and sales action. The company also failed to attain target profit level in comparison to the sales. It is mainly owing to failure on the part of the administration of DIPL as regards recognition of particular items and subsequent of consequent necessities (Arens et al. 2016). Based on the analysis of the case study, it can also be hereby mentioned that the firm failed to analyse different micro as well as macro objectives that essentially should have been taken into account under socio-political and economic factors. Inability to incorporate the environmental factors by the management can be considered to be a pertinent factor affecting materiality. This is so because it negates the effect of the same on the financial results and therefore the audit opinion. Inability of the management to take into account different micro as well as macro factors and omission of certain financial transactions also lead to misrepresentation in the financial statements. The users of the information fail to acquire a fair presentation of assertions that in turn can affect the process of planning and undertaking the audit, analysing the impact of detected misstatements (Arens et al. 2016). Materiality affected by the complications of the process of appointment of CEO The appointment of the CEO in the business concern DIPL can be considered to be very difficult and intricate (Knechel and Salterio 2016). In general, the process of appointment of the CEO, procedure of transition for the prior CEO named Ms Rebecca Styles and commencement actions undertaken by Mr. William Jackson involved various risks since the specified procedure were not in conformation with the requisite stratagems. Essentially, the procedures were started late and the improper engagement by the CEO in the processes and leaving of the members of the staff might also expose the corporation to various risks. Thus, this in turn can affect the overall materiality of audit process of the firm DIPL. The intricacy of the process of appointment of the CEO in the business concern DIPL also affects the overall transparency and obscures the vision of then decision makers. This too thereby can be regarded to be a relevant factor affecting materiality. The appointment of the CEO in DIPL can be regarded to be very intricate. There needs to be an official, thorough and transparentprocedurefor theappointment. Factors related to new system of registering accounts Yet another factor that can affect the overall materiality is the process of maintenance of records of cash receipts by the firms cashiers. In general, majority of the disbursements carried out by DIPL are accepted by means of the electronic payment system. The process of registering and maintaining the copy of receipt after downloading the same from the mail and carrying out reconciliation of the total batch can be prepared by the assistant accountant (Louwers et al. 2015). The reconciliation pronouncement prepared by the accountant need to be prepared more regularly and need not be done at the closing of the month. Moreover, the revenue generated by DIPL by means of marketing of e-book, reprinting of text books might adversely affect materiality. The substantial facets affecting materiality is essentially the procedure of accounting that can be utilized by the corporation DIPL for approximating as well as recording accounting items namely raw materials. Analytical evaluation of raw materials gets support from processes of accounting and this subsequently aids in understanding appropriate use. Disbursements carried through electronic payment system affects the process of maintaining receipt details and presenting reconciliation statement. The inability of business concern to register the cash receipts and reconciling the same can lead to failure of the management to understand importance of a specific amount, business transaction and variances. This in turn can affect the process of presentation of financial statements (DeFond and Zhang 2014). Thus, the auditor might hereby fail to express a specific opinion as regards financial statements specifically in all material aspects. References Acito, A., Hogan, C. and Imdieke, A., 2015.Integrated Auditing Standards and Financial Reporting Quality. Working paper, Michigan State University. Arens, A., Elder, R. and Beasley, M., 2014. Auditing and assurance services-An integrated approach; includes coverage of international standards and global auditing issues, in addition to coverage of.Boston: Aufl. Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016.Auditing and assurance services. Pearson. DeFond, M. and Zhang, J., 2014. A review of archival auditing research.Journal of Accounting and Economics,58(2), pp.275-326. Glover, S.M., Prawitt, D.F. and Messier, W.F., 2016. Auditing and Assurance Services: A Systematic Approach 10th. Hayes, R., Wallage, P. and Gortemaker, H., 2014.Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed. Hellman, N., 2016. Journal of International Accounting, Auditing and Taxation.Journal of International Accounting, Auditing and Taxation,27, pp.13-25. Kanatov, M., Atymtayeva, L. and Yagaliyeva, B., 2014, December. Expert systems for information security management and audit. Implementation phase issues. InSoft Computing and Intelligent Systems (SCIS), 2014 Joint 7th International Conference on and Advanced Intelligent Systems (ISIS), 15th International Symposium on(pp. 896-900). IEEE. Knechel, W.R. and Salterio, S.E., 2016.Auditing: Assurance and risk. Taylor Francis.