Financial Analysis Business Decision Guide

Question: Discuss about the Financial Analysis for Business Decision Guide. Answer: Introduction: King and Queen will be held liable for any losses suffered by EFL limited. It is the duty of auditor to render its services in an honest manner as he holds a fiduciary position. An auditor is liable in two cases-one is civil liability and the other is criminal liability. Criminal liability occurs when there is a dispute between the government or state and the organisation.Civil liability occurs due to dispute between an individual and the organization. Punishments for both liabilities are different depending upon the severity of the case. Every auditor has a responsibility to obtain sufficient appropriate audit evidence before he reaches to any of the conclusions. In case he is not able to obtain proper evidences to base his opinion on he should issue disclaimer of opinion. One should never forget that an auditor occupies a position of high trust and value. Many investors confidence is bestowed on him (John Hoggett,Law Edwards,John Medlin 2014). An auditor should reflect real independence in his work. He should note down all the obligations which comes to his notice during audit of books. He should ask for written representation from the management wherever necessary. Along with that one should also make sure to obtain external references to verify written representations provided by the management. Regarding each and every aspect of the business he should conclude his opinion(Rick Hayes, Philip Wallage,Hans Gortemaker 2014).On the basis of the reports issued by him, many stakeholders take their decisions. Shareholders decide whether to keep their funds invested in the business, credit decide whether to continue long term relationship with the company or not, government decide upon the tax regimes and financial institutions come to the conclusions whether to extend credit or not. No, the answer would remain the same even if EFL limited writes to King and Queen for their advise whether to grant the loan to Impulse Pty Ltd or not. An audit should always be conducted on the basis of generally accepted accounting principals and the needed ethical requirements of the profession. Before forming any opinion an auditor should confirm whether sufficient appropriate evidences have been received or not, and should compare and confirm those evidences before reaching to any of the conclusions. For this he should inquire the management and those charged with governance to obtain an understanding of the structure of the government, its operations and types of risks faced by it.One should confirm whether proper internal control systems are in place or not. To draw more appropriate evidences analytical procedures should also be performed by the auditor(Mark Beasley,Frank Bucklers,steven Glover,Douglas Prawitt 2014).Proper inventory count should be obtained and required extern al confirmations of debtors should be received. After all the above procedures are carried out he should reach to an appropriate conclusion on which his opinion will be based. His opinion holds high value and confidence of many stakeholders relies on it. He can also place his reliance on the audit work performed by others but he will be continue to be responsible for his opinion. As in this particular case EFL places reliance on King and Queen audit report, they are in a loss now. So if any losses are faced by EFL ltd due to gross negligence of King and Queen, it will be born by King and Queen Ltd too. Actual Independence Auditors independence is a very crucial and important element of the audit profession. Independence means the auditors capacity to present his opinion in an impartial way away from biases and conflicting responsibilities (Alvin Arens,Randal Elder,Mark Beasley,Chris Hogan,2016). Actual independence is the real independence which enables the auditor to take independent decisions in situations of under pressure. It reflects the independence of mind ( Steven Bragg,2014).It is the art of giving an honest decision. Auditors main purpose is to express his opinion on the financial position of the company that whether they reflect a true and fair view of the company and whether they are reliable or not. He has a position of high importance as the confidence of stakeholders is bestowed upon him. An auditor should completely disclose all the obligations that come to his knowledge during the engagement. Perceived Independence Perceived independence is not the true independence. It is due to avoidance of facts which are true attributes of an audit of financial statements.Perceived independence is encouraged only when an auditor is either familiar with the key personnel of the company or it has some sort of self interest in the entity itself.In that case he wont be able to deliver an opinion free from biases.( Steven Bragg,2014). If the independence of an auditor is only in appearance then reliance cannot be made in his opinion. It is essential to know the true state of mind of an independent auditor as it helps in making the judgment on the reliability of his assurance. Quality of the audit report can be determined only by knowing of the reliability and assurance levels of the audit report. 1.Bob has breached Sec 140 of Confidentiality of APESB and ASA 200.According to this section an auditor will be guilty of misconduct if he discloses or uses any information he acquires in the conduct of an audit without his clients consent. Similarly ASA 200 deals with overall objectives of an independent auditor and the conduct of an audit in accordance with Australian Auditing Standards in which confidentiality is one of the main objectives of an independent auditor( Janice Loftus,Ken J Leo,Kerry Clark,Victoria Wise,2012). Bob can always take the help of different books and online reference material to complete his assignment. In this way he wont be breaching any of the sections. Wendy has breached Sec 120 of objectivity, Sec 210 of professional appointment and sec 290 of independence of APESB.Sec 120 says that an auditor should always act in an independent manner while delivering his responsibilities. Sec 210 says that appointment of an auditor should be as per the laws prescribed and Sec 290 talks about independence of auditor in delivering his responsibilities. In this case Wendy should suggest some other Company Secretary to take over the tasks of ACE Ltd. He should continue working as an engagement partner. He should make sure that appointment of company secretary is as per the prescribed rules. Leo has breached Sec 290 of APESB of Independence of auditor. He has an indirect interest in Precision Machinery Limited. As his father is a foreman in that comapany.Independence can be of two types-real and perceived independence. Real independence is the independence of mind where the auditor can take decisions free from conflicting interests. Its the judgment without any undue pressures. Perceived independence is the independence which is only for the outside appearance. An auditors opinion is not reliable in such kind of independence. Therefore in this case Leo independence is seem to be seen as perceived independence. It has also breached ASA200 of Australian Auditing Standards which talks about auditors independence in his work. Some other auditor who doesnt have any direct interest can takeover the audit of Precision Ltd. In that case he can exercise professional judgment and can base his opinion on true facts and figures. His decision wont be under any undue influence and will be free from any bias. His independence will be termed as real independence. Whereas if Leo would have done the audit, his independence would be seen as perceived independence(Rick Hayes, Philip Wallage,Hans Gortemaker,2014). Chan Associates has breached Sec 240 of APESB of Fees and other types of remuneration. Fees given should be in terms already decided at the time of engagement. Any deviation from the standards is not valid. Whenever an auditor is appointed in the annual general meeting of the shareholders, his remuneration is decided in that meeting itself. Manner of payment of remuneration is also decided in that meeting itself. Later on terms and manner of remuneration can be changed if agreed by both the parties(Thomas R. Ittelson 2011). Therefore, Chan Associates can ask their fees to be paid on the terms already decided between them and the management. References John Hoggett,Law Edwards,John Medlin(2014).Accounting.John Wiley and Sons,9th revised edition.Melbourne Janice Loftus,Ken J Leo,Kerry Clark,Victoria Wise(2012).Understanding Australian Accounting Standards.John Wiley Sons.Melbourne Thomas R. Ittelson(2011).Financial Statements:A step by step guide in understanding and creating Financial Reports.Career pr Inc.USA Steven Bragg.(2014).Financial Analysis:A Business Decision Guide.Accounting Tools,2nd edition. Rick Hayes, Philip Wallage,Hans Gortemaker(2014).Auditing of Financial Statements-Principals of Auditing.Pearson Publishers.UK John Hoggett,Law Edwards,John Medlin(2014).Accounting.John Wiley and Sons,9th revised edition.Melbourne Janice Loftus,Ken J Leo,Kerry Clark,Victoria Wise(2012).Understanding Australian Accounting Standards.John Wiley Sons.Melbourne Thomas R. Ittelson(2011).Financial Statements:A step by step guide in understanding and creating Financial Reports.Career pr Inc.USA Steven Collings,Maire Loughram(2013).Financial Accounting for Dummies. John Wiley Sons.Melbourne Mark Beasley,Frank Bucklers,steven Glover,Douglas Pramitt.(2014).Auditing Cases:An interactive learning approach.Pearson Publishers.UK Alvin Arens,Randal Elder,Mark Beasley,Chris Hogan(2016).Auditing and Assurance Services.Pearson.UK Dyson, J.R. (2010)Accounting for Non-Accounting Students [online]. Harlow:Financial Times Prentice Hall. [Accessed 02 March 2014]. Kieso, J., Weygandt, J. and Warfield, T.D. (2011) Intermediate accounting.[online].New Jersey: John Wiley Sons. McLaney, E.J. and Atrill, P. (2012) Accounting: An Introduction.[online]. Harlow:Pearson. Robert Allan Hill(2013).Strategic Financial Management.Retrieved from https://bookboon.com