Auditing - Assurance Services and Ethics

Question: Discuss about the Auditing, Assurance Services and Ethics. Answer: Introduction: Based on the given information, it the company does not clear the outstanding bank overdraft, then legal proceedings for companys liquidation may be initiated by the bank. Hence, in such situation there are significant concerns with regards to the going concern in relation to the company. The exact level of going concern would need to be assessed by the management and the directors of the company and captured in the financial statements.. Further, in case the financial statements of the company do not capture the risks regards going concern, then an adverse opinion should be issued by the auditor (Arens et. al., 2013). As per AASB 102, the inventories need to be reported in accordance with the FIFO method. However, the local company here has violated this norm by using the LIFO method. This would tend to have an effect on the level of inventories reported in the annual report and also the profits reported in the income statement. This would lead to a significant impact on the financial result as explained above. It does not matter that the impact of this is limited on the other aspects of the financial statements. In view of non-adherence to AASB 102 and material misrepresentation in the inventory would occur which would misrepresent the profits and hence adverse opinion is issued by the auditor (Gay and Simnett, 2012). It is apparent that adverse opinion would be issued by the auditor as the misstatement would be material since the company fails to comply with relevant AASB standards. With regards to PPE valuation and recording, the following two methods are recommended (Arens et. al., 2013). Represented in balance sheet at the acquisition cost minus the accumulated depreciation Revaluation model whereby the assets fair value needs to be determined periodically by a person who is qualified to ascertain the same by considering the available information. However, this has been breached in this case by the company. References A Arens. et. al., Auditing, Assurance Services and Ethics in Australia, 2nd edn., Sydney: Pearson Australia, 2013, pp. 57-58,76-77. G Gay. and R Simnett., Auditing and Assurance Services in Australia, 5th edn., Sydney: McGraw-Hill Education, 2012, pp.103-105.