How to Perform an Audit and Prepare a Report

Question 1 

The auditor should exercise due professional care while planning, carrying out an audit and preparing a report. It is the responsibility of the auditor to observe reasonable care in their duties. They should not assume that the management is dishonest nor honest but ensure that they are independent and their work. An auditor should not be prejudiced or biased because they will not be objective in their task. By assuming that the client is either dishonest or honest, the auditor is likely to underutilize their skill and develop an opinion that can mislead their judgment (AICPA, 2014; Hossain, 2013). 

Question Two 

An auditor should be independent in all their engagements irrespective of the duration they have worked for a client. Having worked for a longer period might be beneficial to an auditor because they are aware of the firms and its operations. However, auditors are likely to under look material facts that can affect their opinion. An auditor is therefore likely to develop biased opinions based on the information that they have disregarded. Similarly, extended engagement periods might force an auditor to issues reports that do not show the true and fair view of the company, especially where they want to maintain the commitment (AICPA, 2014; Hossain, 2013). 

Question Three 

An audit engagement can be influenced by a myriad of factors that emanate from previous encounters. The independence of an auditor can be affected by the size of the firm, the management, the tenure, and competition. An auditor who is familiar with the management or client at a personal level cannot be independent. Adverse interest emerges when the auditor has only one client or represents a sizeable proportion of their business. Having such a relationship can affect independence because the customer can threaten to withdraw therefore affecting the audit. Undue influence from the management or the audit committee can jeopardize the work of an audit and prevent them from making an independent opinion. An auditor who lacks self-review or one who does not have management support nor has a self interest in the firm they are auditing is likely to be biased and will require independence (AICPA, 2014; Hossain, 2013). 

Question Four 

Self-review is the largest threat that can affect the independence of an auditor. This risk occurs when an auditor has prepared accounting statements for the firm. The audit cannot be independent because they are inspecting part of their work and they are aware of the shortcomings. This threat is profound in small organizations where there are close relationships between the staff and the management. In large organizations, it is possible for the auditor to be independent because the roles are different and tasks are allocated to different people (AICPA, 2014; Hossain, 2013).