Saturday, May 23, 2015

Auditors' are not infallible - Article from The Edge -

We came across this article in The Edge with the title of Auditors, like anyone else, are not infallible:


http://www.theedgemarkets.com/en/article/auditors-anyone-else-are-not-infallible


What the article said is quite true - where the auditors can't guarantee everything within the company is "all right" even though a clean unqualified audit opinion has been issued. However, the market perception seems to be like the company "is ok" since it has been audited and clean audit opinion has been issued?


WHat can be done to change this market perception ?

Saturday, May 16, 2015

Audit manager and audit partner - EQ - managing emotion or temper

Auditors are subject to tremendous stress, as you are responsible to opine on a set of financial statements, which could be subject to lot of reviews or scrutiny or subject to reliance. A bankers place reliance on the financial statement to evaluate the capability of your audit client to repay, public investor rely on the financial statement to evaluate the investment decision. A audit partner need to carry out the audit in accordance with relevant auditing standard and need to defend on their audit opinion on areas that require significant judgement.


Pressure can cause audit partner and audit manager to have emotionally bad day. A distressed audit partner or audit manager need to watch their communication and interaction with different parties carefully to ensure that the emotion or temper is controlled and surrounding others are not affected.


To illustrate,


Audit partner or audit manager should not whack a subordinate without any reason just because you are having a bad day!


Learn how to control your emotion or attend anger management  class or leave the office immediately if you feel that you going to explode.


Short post but hope the audit partner or audit manager can learn.

Friday, April 10, 2015

Audit - authenticity of audit confirmations sent to customers or suppliers

For all audit, auditors request for debtors' confirmations, creditors' confirmations when the balances are material for the purpose of the audit.


Upon receipt of confirmations, if the counter-parties do reply - what would you do if the following circumstances happen:
- replies via email to auditors' email account
- replies to audit client, who then pass the confirmations to the auditors
- replies via email to client's email then the email was forwarded by audit client to auditors


Strictly speaking, the original confirmations should be mailed to the auditor with original stamp. This is the procedures / protocol to be reiterated to all audit client, so that they are on the same page from the beginning.

Nevertheless, after noting the above scenarios - what should auditors do ? Is auditor "ok" to accept the above confirmations? We suggest the auditor to carry out some procedures to test the authenticity of this confirmations, by:
- giving a call to counterparties who have replied to confirm that they have replied the amount stated on the confirmation (note down the phone number, name of counterparties);
- test check the email account of the sender by sending an email to them to request for confirmation
- do a high level reasonableness test on the sales or purchase trend with this particular customer or supplier


From an audit perspective, some additional procedures need to be carried out to gain more comfort on the confirmations received. Maintain professional skepticism throughout the audit.

Overview of component auditors' audit working papers - International Standard of Auditing 600 ("ISA 600")

ISA 600 dealt with the work of related auditors and other auditors in the audit of group financial statement - to elaborate, if your audit client is a holding company, who has a subsidiary audited by another auditor, then you have to consider this ISA 600.


For instance, audit client A is audited by your audit firm. Audit Client A has a material subsidiary in China, i.e. subsidiary B, which is audited by another auditor. If you are required to sign-off consolidated account of Audit Client A then you are required to consider ISA 600 when audit / consider the financial of subsidiary B.


ISA 600 requires the auditor of the parent company to be proactive in participating in the audit of subsidiary B - as, ultimately, the consolidated account will be signed off by the auditor of parent company. Auditor for audit client A should not solely rely on the work carried out by the auditor of subsidiary B.


Hence, the auditor of the holding company should consider ISA 600 seriously and in detail when planning the group audit. The following key factors should be considered:


- significant risk of the Group and subsidiary
- significant accounts of the subsidiary
- audit materiality and methodology for the audit of subsidiary B
- communication protocol
- timeline of the audit
- deliverables by auditor of subsidiary B


The above matters must be considered by the auditor of Client A in planning its group audit - it's also important to go through the above with corporate management to identify if there's any other matters to be emphasized.