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The guiding principle for using the work of expert in the auditing of financial statements of an organization is done in accordance with International Auditing and Assurance Standard Board. It is required by auditors to consider some pre requisites before carrying out audit work and analyzing the existence of material misstatement. The audit planning and information usage should be incorporated and it act as evidence. Specialist or expert is employed by organization for providing advisory advices and substantive test performances for evaluating material financial statements assertions (Alzeban & Sawan, 2015). It can be depicted from case study of DIPL that it is certainly possible for auditors to encounter some subjective and complex matters that are potentially material to their financial statements. An auditor might be required to use the work of specialist or hire expert in the following events, however, it is not limited:
Sufficient and appropriate evidence is required in the process of auditing by experts in the field other than auditing. An organization is required to make the assessment about requirement of expert or specialist service. Furthermore, firm or organization hiring service of expert is required to determine whether experts are capable, competent and has the objectives of carrying out audit. Auditors might require expert’s service because in order to analyze and gain an in depth understanding about environment of entity and identifying the existence and risks associated with material misstatement (Gay & Simnett, 2015).
Issues faced by DIPL | Decision regarding expert requirement in audit of DIPL. |
Depreciation of fixed assets | DIPL has employed straight-line method o calculate the depreciation on fixed assets. Employment of this cost has been done for allocation of cost over useful life of assets. Measuring asset impairment by incorporating depreciation might require service of experts while conducting audit (Reding et al., 2013). |
Valuation of raw materials inventories | It is reported in the case study that using average cost to value inventories was not appropriate, as average cost was much below the current cost of paper. As per analysis, it is considered necessary to allow for inventory obsolescence so that estimated decline in value of covered. However, board resolves inventory allowance by writing back and using another method. Concerning this, service of expert is required for valuing inventory using approximate value. |
The application of materiality is done in evaluation of effect of identified material misstatement on audit of financial statements of organization. Material determination is a matter of professional judgement and it is influenced by perception of auditors about financial information presented by organization. The preliminary materiality figures of financial information of DIPL are influenced by several factors. It has been analyzed while making assessment of given case in respect to functionalities. The fair representation of material aspects of financial information is considerably impacted either separately or aggregately by presence of material misstatement in financial assertions (Messier et al., 2014). While performing and planning audit of any organization, auditors perform the application on concept of materiality. The factors influencing determination of preliminary figures for overall materiality of financial information of DIPL are listed below:
a) Factors influencing preliminary figures determination of DIPL | b) Reasons attributable to factors relevance in calculation of preliminary figures for overall materiality | c) How the identified factors influence preliminary figures in process of audit planning for overall materiality |
Risk of fraud influencing materiality- Risks pertaining to fraud seem to have negative impact on overall materiality of financial statement assertions. As depicted from case study that, implementation of new accounting system is due to extreme pressures from board. However, the responsibility of installation, proper reconciliation and testing of system was placed on staffs. Fraud risks rests due to absence of insufficient staffs in the handling on new accounting system (Graham, 2015). | The calculation of preliminary figures of DIP is considerably impacted by prevalence of risk of occurrence of fraud. As evident from case study that there is not, enough staff members to perform reconciliation and testing of new system. In such situation, it is certainly possible that collection and processing of data while preparation of financial reports of DIPL might not be accurate and free from errors. There might be errors in valuation and classification of several items while application of particular accounting policies. | Information technology manager was not satisfied with the implementation procedures of new information system. Installation of new accounting system was pressurized on staffs and it was depicted in preliminary testing that the allocation of some transactions was not done in correct period. This would have material impact of financial information and thereby affecting planning process of audit. |
Materiality impacted by accounting practices of DIPL- Accounting policies of DIPL was not appropriate in carrying out measurement and recognition of several items of financial statement. It has been ascertained by carrying out case study analysis that using average cost for valuation of inventories is not proper. This is so because the cost of raw materials inventory has considerable increased their current cost. | Pervasiveness of inherent risk is one of the factors that have influencing effect. There is no objectivity and integrity in administration of DIPL that has the likelihood of making produced results material. Due to improper measures used for valuation, it is certainly possible that employees will get involved in fraudulent activities. | The procedures and measures adopted by DIPL in evaluating their raw materials for inventories were not appropriate. Impractical and unsuitable assumptions in the valuation process have influenced the overall functional process of carrying out audit and accounting (Duncan & Whittington, 2014). This specific factor relating to improper accounting and unreasonable accounting policies will probably impact the overall confirmation given by DIPL as preliminary figures are considerably impacted. |
New process of registration of accounts- The procedures of maintaining several accounts such as cash receipt are perceived to have a considerable impact on financial statement materiality (Louwers et al., 2015). Some payments are received by DIPL by cheques and by electronic fund transfer. Majority of expenditures that are borne by corporation are transacted through electronic payment. Preparation and reconciliation of accounts is required to be prepared by accountants periodically and more frequently. In terms of generation of revenue by re publishing, marketing and printing, it is certainly possible that materiality of financial statements would be influenced. | Process of accounting of DIPL is one of the significant factors affecting materiality of financial statement used by DIPL. Recording and measuring raw materials inventories of corporation are not appropriate. | Electronic system of making transactions significantly influences the overall process of recording and maintaining details. There is a possibility that there will be down fall of business resulting from insufficient and improper recording of data (Ricchiute, 2014). It would severely affect the financial statement preparation due to materiality prevalence resulting from various issues identified in relation to DIPL business. |
Complicated selection procedures of Chief executive officer- The procedure involved in new Chief executive officer appointment is complicated and lengthy as ascertained from analysis. Procedures of appointing CEO carries a certain amount of risks as indicated by commencement of various activities and transition process involved in selection of CEO. The improper appointment of CEO and abrupt leaving of workers | The lengthy and complicated procedures of appointing CEO of corporation would have a significant and noticeable impact financial information transparency. This would make it difficult for decision maker in upper level of management to deal with certain business transactions effectively and efficiently. Ultimately, the materiality of financial statement of corporation would be adversely impacted. | Materiality of financial information would be significantly impacted by the convoluted process of hiring and selecting CEO in running business of DIPL. Therefore, the appointment of procedures of hiring CEO for corporation should be transparent and filtered. |
Various environmental facets impacting materiality- It has been ascertained while evaluating the case study that the preparation of financial statement does not incorporate recording of some transactions because of human errors or deliberately on part of employees in an attempt to conduct fraud with business of corporation (Gwiazda et al., 2017). Considering this, there were inconsistencies in planning of activities related to marketing and selling activities. | Complex procedures of appointing CEO have the possibilities of affecting the financial information transparency that would have an undesirable impact on audit planning and process (Coetze et al., 2015). This particular factor would have considerable influence on materiality because ambiguity of decision maker. | The identification of macro and micro environmental factors as analyzed from the case study depicts that appropriate DIPL. Overall planning of audit did not employ method of financial accounting is considerably impacted by information presented in financial statements and thereby leading to materiality. |
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