Developing Quality Assurance and Improvement Program

Question: Discuss about the Developing Quality Assurance and Improvement Program. Answer: Introduction: In accordance with the Generally Accepted Accounting Principles (GAAP), the auditors are responsible for dissecting the overall organisational data to find out any type of manipulations or misstatements, which might obstruct its financial progress. Since the auditors are responsible for depicting qualified or unqualified audit reports to conform to the GAAP rules and regulations, King Queen has presented that the financial reports of Impulse Pty Limited are not qualified. According to such unqualified report, it has been found that Impulse Pty Limited has complied with all the necessary regulations in disclosing its financial reports. As commented by Bagshaw (2013), the qualified and unqualified audit reports primarily depict that the organisation has represented the values of the different items in the financial reports in an accurate manner. On the contrary, Ahmed Haji et al. (2016) are of the view that the auditors often adopt unscrupulous measures to maximise their financial gain by providing firms with unqualified audit reports, which are not prepared in compliance with the GAAP rules. In addition, from the provided case, it has been found that the auditor has provided unqualified auditor report to Impulse Pty Limited. This implies that the organisation has developed its financial statements by complying with the GAAP rules. However, the problem of liquidation is inherent, as could be observed from the financial statements. Hence, it signifies that EFL has not analysed the financial statements of Impulse Pty Limited carefully before associating itself in the scope of investment. Along with this, the organisation has not adopted effective asset valuation methods, which requires an audit report to evaluate the financial reports. According to Bedard, Cannon and Schnader (2014), it is the responsibility of the auditors to conduct valuation methods, which is necessary to perceive the financial position of an organisation. However, as argued by Chambers and Odar (2015), the auditors often use qualified connotation for the organisations, which do not depict sufficient financial information in their annual reports. The liquidation issue of Impulse Pty Limited primarily depicts that the organisation has been struggling to settle off its short-term dues and obligations. This is because the debtors turnover and inventory turnover have decreased over the period. Such cash flow minimisation has further aggravated the liquidation problem of Impulse Pty Limited, which has hindered the ability of the organisation to make payments. In this context, Christensen, Glover and Wood (2012) stated that with the assistance of the auditors, the firms are able to guard their liquidity issues and present sound financial conditions. However, the pertinent regulations and cases could be located, which would contribute to understanding the actual value of liability of King Queen. As cited by Cohen and Simnett (2014), the Liability Limitation Agreements (LLAs) of 2008 provide an opportunity to the auditors to minimise any type of litigations, which could be depicted in the audit report of the firms suffering from losses. The unqualified audit report presented on the part of King Queen for the year 2012 has not signified any type of liquidation issues faced on the part of EFL. However, the main liquidation issues have primarily lead to losses, which was acquired on the part of EFL. The particular cases like Lehmann Brothers and Dick Smith have lead to significant losses for a number of investors. Moreover, the CEO and the directors of the organisations have been prosecuted in the court, while the auditors have been fined a meagre amount. The regulatory authority has arrived at a decision that the auditors could not be held liable for payment of any loss acquired on the part of the investors. In the provided case, the financial situation is depicted in the annual report of the organisation, which has been used on the part of EFL for investment conduction. Thus, such wrong presentation in the financial reports denotes the negligence in terms of the responsibility of the auditor. In this regard, Decaux and Sarens (2015) argued that the audit firm primarily depicts authenticity in the financial statements, which could be manipulated for monetary benefits. The particular cases such as Law Society vs. KPMG Peat Marwick and Others; CHD 3 NOV, 1999 and Hedley Byrne and Co Ltd v Heller and Partners (1964) AC 465 depict the influence framed on the part of the auditors for making investment-related decisions. The above two cases resemble the negligence of the responsibility of the auditors, which have resulted in significant losses and scandals. Hence, after evaluation of the above two cases and the liability limitation agreements (LLAs), it could be evaluated that the auditors are somewhat responsible for the organisational misstatements. However, after the intensification of liability limitation agreements (LLAs) in 2008, the auditors are excluded in relation to any type of negligence or misjudgement detected in the audit report. As commented by Duncan and Whittington (2014), after the initiation of LLAs, the investors utilise the report of the auditors as references for completing the financial analysis before making any investment decision. Description of a different situation if EFL had contacted King Queen in making decision: The modification in the provided scenario signifies upon the confidential rules, which have been laid out in the rulebook of GAAP. King Queen is required to maintain the confidentiality of the financial statements of Impulse Pty Limited from EFL, since the latter is a third party investor. Along with this, the EFL approach mainly depicts that the audit firm is responsible for evaluating the financial position of Impulse Pty Limited to ascertain its current feasibility. As stated by Hodge (2014), the investors mainly select the auditor services for evaluating the financial position of the organisation to depict its future scope and return, which could be provided by investment. Since EFL has approached King Queen to dissect the financial position of Impulse Pty Limited, the audit firm would be responsible for any loss incurred. The request for collecting information and depicting the financial reports in accordance with the GAAP rules is sufficient. Hence, by conducting the same, King Queen would not be violating the confidentiality law. This is because it has been only representing the things inherent in the financial report without disclosing any internal information. Under such a condition, the audit firm of King Queen would be responsible for covering the losses incurred on the part of EFL from the investment conducted from their database. As mentioned by Knechel (2016), Goldman Sachs has been liable to pay money to its investors, as presenting the financial reports and evaluation have been conducted, which lead to huge losses. Hence, it could be stated that King Queen is liable to EFL, if the audit firm has been appointed before the conduction of investment. Definitions and importance of actual and perceived independence: The external and internal auditors are provided with independence relating to both actual and perceived auditing, which signify the financial importance of an organisation (McDonald 2014). The auditors independence mainly denotes the absence of external impact on the auditors at the time of preparation of the financial reports. In this context, Pitt (2014) advocated that the non-affected auditors depict the actual financial position of the organisation in the report of the auditors, which could be used for investment decision-making. The below-mentioned auditing independences are given to the auditors during their audit process: Actual independence: The actual independence depicts the situation, in which the auditors are not prevented to make overall evaluation of the financial position of the company. This kind of independence is needed for every auditor, which enable the investors to make sufficient financial decisions by dissecting the entire risk associated with investments. As argued by Riedl and Dunn (2013), the lucrative benefits often distract the auditors to adopt unscrupulous measures by not complying with the actual auditing independence. Furthermore, the actual auditor independence primarily depends on the attitude towards the entire condition and the keenness to depict accurate and feasible reports to the pertinent users. In this regard, Shah and Jarzabkowski (2013) remarked that the stringent regulations and rules have restricted the auditors depending on actual independence during the process of auditing. In opposition to such scenario, the auditors might be punished, which would have a negative impact on their professional careers. Listing of regulatory requirements and professional standards for the different provided situations: According to the provided situation, Bob is required to carry out the assignment provided on the part of its university, which requires a thorough evaluation of the financial condition of Club Casino. However, while performing the evaluation of the financial information, Bob has used the internal information of the organisation in its report, which is mandatory to comply with the assignment brief. Such utilisation of internal information signifies a breach in the auditing procedures, which violates the prevailing audit rules and regulations. According to the regulations, the publishing of the audit report in the absence of any prior notice to the organisation might attract lawsuit, which would negatively affect the brand image and smudge feasibility of the audit reports. As mentioned by Shah and Nair (2013), stringent audit regulations are initiated to proscribe the rivals from taking benefits of the organisational secrets, which would impede its market position. According to the provided information, Wendy has been involved in acting as the secretary of the organisation, since Ace Limited has no secretary at the present state. It has been observed that the person is sitting in the secretarial position of the organisation for the last six months. This has clearly desecrated the GAAP rules and regulations pertaining to the audit procedures. According to the GAAP guidelines, the organisation is liable to comply with the prevailing rules of GAAP, which denotes that the company needs to have an independent secretary to manage the internal company affairs. However, after the breach of such auditing rules, it is necessary for Wendy to resign from the secretarial position. The vacant position needs to be filled by recruiting a qualified personnel to handle the business affairs. As stated by Wisniewski (2013), the GAAP regulations and rules are there to prevent any unethical practices, which might hinder the business performance of the organisation. The provided scenario depicts that Leo has been recruited at the time of vacation for the position of temporary auditor in the context of Precision Machinery Limited. The appointment is arranged, since Leo is the eldest son of a factory worker and the person is engaged in the system of internal audit. Therefore, this appointment decision has breached the auditing regulations, as per the GAAP guidelines. The overall rules applied to the audit members denote that no family member or staff acquaintances could be appointed as the internal auditor. Therefore, the appointment of Leo as the internal auditor has violated the GAAP guidelines. As commented by Ahmed Haji et al. (2016), the investors often consider the audit report and the associated auditors involved in preparing such report. Therefore, any one out of Leo and his father needs to resign from their position to comply with the internal audit procedure of GAAP. According to the provided case, Classic Reproduction Pty Limited has not able to settle the entire audit amount to Chan Associates. The audit fees are due for the last three years. In order to settle off the dues, Classic Reproduction Pty Limited has sold furniture, which is 50% of the furniture and 25% of the business stake. Therefore, this arrangement has violated the principle of auditing relating to any type of bribe from the client. Along with this, the entire change acceptance could not be conducted, since the organisation is yet to be incorporated. Thus, the auditing organisation is required to return the entire share and furniture, which is given on the part of Classic Reproduction Pty Limited for service exchange. In addition, for their payments, the audit firm could pull out its consent form the financial reports of Classic Reproduction Pty Limited, which might represent the poor financial condition of the organisation. References: Ahmed Haji, A., Ahmed Haji, A., Anifowose, M. and Anifowose, M., 2016. Audit committee and integrated reporting practice: does internal assurance matter?.Managerial Auditing Journal,31(8/9), pp.915-948. 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