Auditing and Assurance Principles and Practice

Question: Discuss about the Auditing and Assurance for Principles and Practice. Answer: Introduction: Fellow and Associates has Health care holdings Group as its audit client and has 100% entities in Total cancer care limited. Tania Fellowes is the audit partner of fellow and Associates conducted some preliminary analysis. If the entity becomes the related entity of the audit client, then the audit firm should identify the current and previous relationships and the interest with the related entity (Eilifsen et al., 2013). This is to be done by taking into account the available safeguards. It is so because this could affect the independence the clients and the ability to continue the audit engagement after the date of the acquisition. Discussion: The audit partner of HCHG (Health care holdings group), which has 100% entity in Total Cancer Care Limited has been asked to undertake an engagement in respect of the linear accelerator. Tania Fellowes has been approached in this regard for providing an opinion that the linear accelerators of TCCL are fit for use. It has been observed by Tania Fellowes that one of the accountant intended to be the part of audit team owns shares in the HCHG. Considering this situation, the Fellow and Associates independence is faced with advocacy threat. Since the accountant to be audit, member team owns shares in the HCHG, which is audit client. There is the most likely chance that the member will promote the clients position to the point that the objectivity of the member would be compromised (Glover et al., 2014). The situation first would also pose familiarity threat to the independence of the Fellowes and Associates. This situation could also lead to self-interest threat, as the audit member is unlikely to criticize his own performed work. He might overlook the unrecorded assets and liabilities discovered during the course of conducting audit. In the second situation, the valuation of the intangibles assets following the acquisition of the shady Oaks hospital by the HCHG is considered material. Moreover, t he valuation is done by the fellow and Associates at different point of time. The threat to the independence of Fellow and Associates arises from materialising. The type of threat using the APES 110 in this regard is self-review threat (Apesb.org.au, 2016). This is so because, fellow and Associates has not properly evaluated the intangibles assets. That is the audit firm did not evaluate the valuation of the intangible assets by the company appropriately. In the second situation, the self-review threat exists because here the audit partner Tania Fellowes would be auditing the balance on which Fellow and associates have placed the valuation. The risks is attributable to the materiality of the intangibles assets. Here, the valuation of the intangible assets involves the valuation of matters that is material to the financial statements (Messier, 2016). The familiarity threat in the first situation would enhance the professional judgement. In order to meet the needs of clients, there is a need to tailor engagement practice. In this case, the documentation of thinking and reasoning is required. All the staffs of the audit firms should be taught to maintain the high level of professional skepticism in all the audit engagements (Kunz et al., 2014). Safeguards are the measures that is taken to eliminate the threats or to reduce them to an acceptable level. The safeguard for reducing the self-interest and advocacy risks would include: The confirmation should be received from the audit clients that they are aware of the referral arrangements. Receiving confirmation from accountant that he or she has no material interest in HCHG Some of the other safeguard that can be taken to reduce the risk of similar independence threats are as follows: The firm may implement procedures and policies so that the quality control of the engagement is monitored (William et al., 2016) The compliance with the policies and procedures should be promoted using a disciplinary mechanism If the valuation of any items in the financial statements, then the audit firms should not provide valuation service to the audit clients. The valuation should be actuarial valuation that is the audit firms should consider key variables. The audit firms should make such arrangement so that the personnel providing such services do not be a part of the audit engagement (Stuart, 2012). Conclusion: Form the analysis of the given case study, which involved the identification of several risk using the knowledge of APES 110. It is concluded that the independence of the audit firm is faced with few potential threats. The self-interest is manifested through the share of ownership of the auditor in the clients entity. The self-review threat observed in the second situation depicts the primary source of value of audit of the financial report. The audit firm is conflicted in the second situation because fellow and associates does not want to expose the problem for the work done by itself or by its audit partner. Reference: Apesb.org.au. (2016). Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 27 Dec. 2016]. Eilifsen, A., Messier, W. F., Glover, S. M., Prawitt, D. F. (2013).Auditing and assurance services. McGraw-Hill. Glover, S. M., Prawitt, D. F., Messier, W. F. (2014).Auditing assurance services: a systematic approach. McGraw-Hill Education. Kunz, R., Josset, D., Scholtz, H., Motholo, V., Graeme, O. R., Penning, G., Rudman, R. (2014). Auditing Assurance: Principles Practice. Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., Thibodeau, J. C. (2013).Auditing and assurance services. New York, NY: McGraw-Hill/Irwin. Messier Jr, W. (2016).Auditing assurance services: A systematic approach. McGraw-Hill Higher Education. Stuart, I. (2012).Auditing and assurance services: an applied approach. McGraw-Hill/Irwin. William Jr, M., Glover, S., Prawitt, D. (2016). Auditing and Assurance Services: A Systematic Approach.Auditing and Assurance Services: A Systematic Approach.