Accounting management help: Audit accounts to IAS
Do publically listed and private companies get good value from their accounts being audited? 
The auditor of the public listed companies will be the member of the ICPA and will conform to IAS. The process of the auditing is related upon the concepts, reporting, standards and practices imposed by AICPA. The code of AICPA comprises 6 principles such as accountabilities, the interest of public, independence, objectivity, integrity and nature and scope of services. The company level control comprise: controls associated to control environment, control over the overrides of the management, the process of the risk assessment of the company and comprising actions of internal functions of audit and policies which address considerable practices of risk management and business control. It has been observed that PCAOB referred as non profit company formed by the Congress to view the audit of the public corporations to safeguard the investor’s interest and public interest in formation of accurate, independent and informative audit reports. The PCAOB views the audit of the broker –dealer comprising compliance report filed to the federal security law to advance protection of the investor (CLERP (Corporate Law Economic Reform Program, 2002). This example shows that PCAOB helps public corporations to safeguard the interest of the investor and the interest of the public in type of independent, informative and accurate audit reports. It has been viewed that the committee of the audit for every registered company should form methods for obtaining from workers on the anonymous concerns, complaints or basis about auditing and questionable accounting matters. In general, the SEC educated companies for forming the system which works better with their corporate structure and individual circumstances. In assuring the efficiency of the committee of the audit of the listed company, that every audit committee should have the responsibility to retain advisors and counsel as audit committee finds out necessary to execute its responsibilities (Ramsay, 2001). For public company, the directors first appoint the company auditor. The auditors hold the office till the first meeting of company at which directors make its accounts in front of members. On the other side, for private company, the directors first appoint the company auditor. The members might then appoint and reappoint the auditor each year at the meeting of members of the company or through written resolution throughout 28 days of directors sending accounts to members. While working as the private or public accountant, individual should be objective, intellectually honest and free from any conflicts of the interest. The auditors of the privately owned business should follow the code of the conduct. While working as the auditor, he should follow the code of the conduct and pursue the code of the conduct formed by AICPA and CPAs. At last, it can be said that publically and private companies obtain good value from their accounts being audited like PCAOB. The PCAOB offers oversight for the auditors of the public company comprising forming quality control and auditing standards for the public company audit and executing quality control inspections at the audit firm and executing those audits.
From an audit perspective, what is the link (if any) between testing a client’s internal control system and the level of substantive testing that is performed?
It is very clear that test of control tests client’s internal control mechanisms and check whether the mechanisms are operating efficiently or not. The client may take out monthly bank reconciliation to make sure that cash account is operated accurately or not (Coffee, 2000).The auditor would test this by choosing 2 months on spot and verifying that appropriate bank reconciliation is carried out. The auditor could depend on the internal control for offering reasonable assurance that year-end balance of the cash is free from any kind of material misstatement. On the other side, substantive test views at the amount in financial statements and ask how that the amount would be verified directly neglecting the survival of controls. For the cash balance, the substantive test could be viewing at the certificate of the bank and matching this with the figure of the balance sheet. There could be on-going control over accuracy and the valuation of the receivable recording throughout the year. It has been analyzed that the auditors execute test of control when their evaluation of risk of the material misstatement at assertion stage comprises the expectation that the controls are working effectively. This shows that the auditors use test of control when the system survives and when the system has control. The efficiency of the test of control is to form whether control in the system is actually working effectively so that auditors may find out whether they can depend on the control or not. On the other side substantive test considered as the procedure designed for testing the dollars irregularities and errors and affecting the accuracy of the balances of the financial statement. Auditors use substantive test in the audit for detecting the material misstatement at assertion stage (Tomasic, Bottomley & McQueen, 2002). At last, it can be said that there is the relation among testing the clients system of internal control and level of the substantive testing which is performed. In general, auditors use test of control when their valuation of uncertainty of material misstatement at the assertion stage comprises the belief that the controls are working efficiently. The auditors rely on the internal control for providing assurance to the clients that their year-end cash balance is not affected by any type of the material misstatement. On the other side, auditors use substantive testing during the process of the audit for detection of material misstatement at the assertion stage. At last it can be said that both test of control and substantive test detect any kind of material misstatement from the financial statements at the assertion stage.
What is the difference between the auditor’s liability to the client and the auditor’s liability to third parties?
It is very clear that the auditor is in the contractual association with the client. In case, if auditors do not execute their duties as per the terms of the contract then the client may sue for the violation of contract (Fogarty & Lansley, 2002). There are some remedies for clients for the breach of the contract such as particular performances, common monetary damage for the losses prevailed as the outcome of breach and consequential damage which prevail indirectly as the outcome of breach. Auditor is believed to execute his work in the careful and honest manner and he can be made responsible for the negligence in following ways such as if he does not carry out his work as needed by the client, if auditor is not able to safeguard the interest of several financial statement users and if he is not able to carry out his work with proper skill and care. In general, there is the contractual association among the auditors and their clients. Under this agreement, it is supposed that auditors shall carry out their work with proper care and skill. But degree of the skill and care needed shall majorly rely on the kind of the work undertaken. Normally, if auditors are complied with ISA, then it becomes complex to prove that the auditors were negligent (Ford, Austin & Ramsay, 2003). In absence of any suspicious situations, the auditors shall not be responsible for any error and fraud. In general, for client to win in the claim for the financial loss, client should convince the court in association to matters.
If current duty of the care is enforceable by law
If the duty performed by the auditors was negligent in performance in comparison to be judged by the professional standards
If the client has suffered the loss due to negligence of the auditor then auditor becomes liable to pay the loss to the client.
Liability to Third Parties
In general, auditors might be responsible for the negligence not only throughout the contract law but also with tort law. If the individual to whom he obliged the duty of the care has faced a loss as the outcome of the negligence of the auditor. For third party, to win he should prove
The auditor obliged him the duty of the care
If auditor was not responsible for the work
If the client has suffered a loss due to the negligence of the auditor
It is currently formed that before the third party may succeed in the action for the negligence against the auditor, it should be confirmed that auditors considered not only identified information recipient but also the motive for which auditors could estimate that information could be relied on (Frankel, Johnson, & Nelson, 2002). Traditionally, the difference among privity of the agreement with the client and inadequate privity of the agreement with the third parties was mandatory in the general law. The inadequate privity of the agreement with the third parties shows that the third party could have no any rights in concern to the auditors except in situation of the gross negligence. The auditor’s liability to clients may result from the failure of the auditors to properly meet their agreement for services whereas auditors liability to the third parties throughout the common law prevails from the loss made by claimant because of the dependence on the misappropriate financial statements.
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