MAA705 Corporate Auditing Assignment Sample
Due date and time: Friday, 8th April 2022, by 8:00 pm (AEST)
Percentage of final grade: 20%
Word count: 1500 words (excluding reference list)
Description for Assignment Help
Probuild is a large commercial construction firm with construction projects across
Australia. On 23 February 2022, Deloitte were appointed as administrators to Probuild’s Australian parent company WBHO Australia Pty Ltd. In the court documents, Deloitte noted that the appointment of the administrators followed the decision of Probuild’s ultimate parent company, Wilson Bayly Holmes-Ovcon Limited’s (a South African-based construction firm) decision to withdraw financial support to the Australian subsidiaries on 22 February 2022.
Among those affected are the 786 employees who are collectively owed more than $14 million (according to the records of the companies). Insolvencies such as this would also leave unsecured creditors at risk of not being paid.
It is important to note that there are usually several factors (both internal and external) that can cause a firm to enter into administration, which are not related to the audit quality. However, in cases where the client company fails, Kadous (2000) finds that the auditor is more likely to be found “guilty” even when they provided higher-quality audits. This points to the expectation gap relating to audits of financial reports.
In April 2020, the International Auditing and Assurance Standards Board (IAASB) ventured on a new project relating to going concern in an audit of financial statements.
According to the IAASB, the “aim of this project is to determine if, and to what extent, the IAASB should take further action on going concern in an audit of financial statements.
Addressing the identified issues and challenges may involve possible future standard-setting, issuance of non-authoritative guidance, or other actions.” They expect the auditing standard relating to going concern (ISA 570) to be updated in December 2023.
The going concern project is important as corporate collapses are often used as a metric of audit quality, especially in the eyes of the public. Research has provided some support for the reasons auditors can fail to issue going concern modified opinions for financially stressed clients. Basioudis et al. (2008) find that financially distressed companies with high non-audit fees are less likely to receive a going-concern modified audit opinion, suggesting that non- audit fees can impair auditor decision making. Second, the concentration of supply by the Big 4 audit firms is documented to reduce audit quality, especially among complex firms despite an increase in audit fees (Gunn et al., 2019).
Given the importance of going concern in an audit of financial statements, the task in this assignment is to envision yourselves submitting a report to provide research-based evidence on the issues surrounding the going concern reporting.
You are to write a professional report in which you:
• Define who the stakeholders of a firm are and define the audit expectation gap.
• Identify Probuild’s stakeholders and discuss the main causes of the expectation gap among the identified stakeholders relating to going concern in the audit of Probuild’s financial reports.
• Consider what can be done to narrow the expectation gap among Probuild’s stakeholders.
• Discuss whether non-audit services impair auditor decision making and elaborate on a
suggestion to mitigate potential issues.
• Discuss whether reduced competition can affect audit quality and elaborate on a suggestion to mitigate potential issues.
Although there is no specific structure for the report, consider the following structure/sections:
1. Introduction [consider providing a general discussion on auditors’ responsibilities relating to going concern. You can provide a definition of stakeholders and the audit expectation gap here.
2. Probuild’s stakeholders and the expectation gap [here you can identify and elaborate on at least 3 stakeholders. Also, consider discussing at least 2 causes of the expectation gap and provide a solution.
3. Non-audit services and auditor decision making [providing research-based evidence and 1 potential solution.
4. Audit market competition and audit quality [providing research-based evidence and potential solution.
5. Conclusion [a summary of the main points of the report and your thoughts about the importance of going concern in an audit of financial statements.
6. List of references
Auditor's responsibilities and a quality audit are based on the review of a project along with its quality and effectiveness in this perspective. In order to produce better results and the fact-finding mission of a project, the auditor's responsibilities play a crucial role to maintain all the objectives and aims of this particular project. The study is mainly focused on the case study analysis on the basis of the stakeholders and their performance along with the expectation gap relevant to Probuild's. ISA 570 is an ongoing concern in this case and indicates material uncertainty and auditor’s responsibility in this case of ISA 570 is to obtain betterment of audit evidence along with the appropriate management and financial statements. In this regard, there is an uncertainty of material that must be focused by the stakeholders in Probuild’s construction. Major responsibility of auditors’ is to manage the ability of performance and maintain the financial statements in an appropriate way.
On the basis of auditor's responsibility for a construction industry like Probilud's, several possibilities need to be managed by the auditors, and these are as follows:
Preparing of audit report
Necessity and its exact activity in this regard
Making of inquiries
The lending of assistance in case of branch audit
Reporting of fraud
Complying with auditing standards
Managing of investigations
Focusing on code of professional conduct and code of ethics
Stakeholders are mainly defined as a particular person or organisation that can be helpful to manage all the conditions relevant to the organisation by influencing several kinds of factors. In this case study, it is seen that Deloitte has been appointed as administrators to Probuild's Australian parent company and that it will be represented as WBHO Australia Pty Ltd in 2022. Apart from that, expectation gaps indicate the difference between organisational expectations and providing results by the auditors and this case study, financial report and its statement is considered as an expectation gap for Probuild’s.
2. Probuild’s stakeholders and the expectation gap
In order to identify and illustrate brief management of Probuild's stakeholders, three major stakeholders for the company can be chosen "Deloitte", "Wilson Bayly Holmes-Ovcon Limited", and “International Auditing and Assurance Standards Board” (IAASB). As a commercial large construction company, Probuild has a better reputation over Australia, and in the year 2022, Deloitte has appointed Probuild's Australian parent company as administrators and named "WBHO Australia Pty Ltd". In this particular manner, the major role of IAASB is to determine the proper action and its plans that can manage all financial statements and auditing roles in a promising way for Probuild's.
From analysing the particular case study relevant to this Probuild's construction company, two expectation gaps are observed, such as administrator issues and improper managing of audit in financial statements and its reports. Deloitte has been appointed as the Australian parent company, and that is named WBHO Australia Pty Ltd. Based on this decision, the firm of African construction has taken a decision about withdrawing financial support for the Australian subsidiaries in 2022, and this has very much effect on employees and a big financial loss to the company (Kadous, 2000). For mitigating this issue, it can be undertaken that insolvencies like this can be left unsecured creditors at risk and not to be paid.
Additionally, IAASB ventured is considered as a new project relating to concern, and that is fully based on the audit of financial statements. The overall financial report of Probuild’s is not good, and that is not properly arranged for maintaining the process with good delivery of project and employee management (Mitchell et al., 1997). The main aim of this process is to identify the issue and determine the proper action plan relevant to financial statements. In order to identify the solution for this, an ongoing concern "ISA 570" is to be updated by 2023, and for future development, all challenges and issues need to be addressed by IAASB. This can be fruitful for Probuild’s, and a better concern about financial reports and its audit management can be possible in a significant way.
3. Non-audit services and auditor decision making
Non-audit services are connected with the audit services, whereas the financial statement is not involved. In such correspondence, not-audit services are provided by the auditors. Along with that, as a metric of audit quality, various corporate collapses are used. In such circumstances, various supports can be provided, whereas different modified opinions blended with the stressed clients can be failed to issue (Basioudis et al., 2008). Furthermore, a concerned modified opinion is taken by the non-audit services. Furthermore, the decision making of the auditor can be impaired by the audit fees. Besides, the label of confidence is not impacted through this process.
On the basis of the court documents, it followed the appointment of the administrators, and that was managed by the parent company Wilson Bayly Holmes-Ovcon Limited. It is a South African construction firm and has taken the decision to withdraw financial support from the better subsidiaries in Australia in 2022. On the other hand, IAASB ("International Auditing and Assurance Standards Board") ventured on a new construction project regarding audit financial statements and its ongoing concerns.
For solving different issues, the cost regarding the audit observations has to be communicated. Besides, the regulatory effects blended with the non-confirming protocols have to be explained. Through the statement, the role of the management regarding the audit program has to be explored. Along with that, for the management, an audit report has to be distributed (Gunn et al., 2019). There are multiple kinds of factors, including internal factors and external factors, in order to enter the firm into administration. Public subsidies have to be identified as a decision blended with the case study.
4. Audit market competition and audit quality
WBHO has decided to withdraw the financial support to the Australian subsidiaries in 2022. Additionally, IAASB ("International Auditing and Assurance Standards Board" has started a new project and ongoing concerns corresponding to audits regarding the financial statement. Furthermore, taking different kinds of actions blended with the financial statement is the main target. As per the case study, auditing standards will be concerned in December 2023. Along with that, as a metric of audit quality, various corporate collapses are utilised. Besides, various modified options corresponding to financially stressed clients are not issued by the auditors (Basioudis et al., 2008). According to this case study, an audit market competition helps to track major competitors within particular measurements based on the project like construction Probuild's company, and that can be visible online. After that, the aim is to discover the better working process as well as strategic work within the industry on the management of competitive advantages. It is good to involve Deloitte and IAASB in Probuild's construction company to manage administrative and financial statements by providing quality audits. In this regard, audit expectation gaps also occurred in these particular scenes, like improper management of financial reports and bad quality administration to overcome the employee issues (Xu & Kalelkar, 2020). According to this case analysis of Probuild's construction, an expectation gap such as the users regarding financial statements perceives the audit profession to claim the proper conduction of the audit. For example, it is seen that expectation gaps regarding audit and stakeholders' performance, 786 employees are affected, and those are collectively owed approximately $14 million on the basis of the company's record.
On the other hand, in order to manage the solution and identify exact mitigation to the financial supports and its statements, a concerned modified audit option is less likely to be received by different financially distressed companies along with different non-audit fees. In such circumstances, the decision making of the auditor can be impaired by the non-audit fees. For this company, supply is processed from 4 big audit firms, which has been documented for reducing the quality of audit, whereas the concentration of the supply has been documented. In addition, audit fees are increased for various complex firms. In such accordance, the audit market competition is too high where the financial statement of the company has great importance.
From the above discussion of the entire case study regarding audit quality, stakeholders of the construction company and expectation gap, it can be concluded that audit of financial statements management is really important for every construction industry like Probuild's Australia. In this manner, responsibility of stakeholders’ depends on the appropriate financial management and its activity to grow material productivity by mitigating the uncertainty under the ongoing concerns ISA 570. On the basis of this report analysis, a major concern is to take better action plans by IAASB in case of audit financial statements. Moreover, for addressing the identified issues and challenges regarding the ongoing concerns “ISA 570” relevant to financial statements and material uncertainty, a betterment of standard needs to be added in a suitable way. In the case of issuance in non-authoritative guidance and further settings in financial reports, this particular ongoing concern (ISA 570) is to be updated by 2023. Therefore, it can be realised that the construction company of Australia can manage their issues and faults in audit and non-authoritative concerns by including several stakeholders' roles and responsibilities within a certain time period in an adverse way.
Basioudis, I. G., Papakonstantinou, E., & Geiger, M. A. (2008). Audit fees, non?audit fees and auditor going?concern reporting decisions in the United Kingdom. Abacus, 44(3), 284-309.
Gunn, J. L., Kawada, B. S., & Michas, P. N. (2019). Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients. Journal of Accounting and Public Policy, 38(6), 106-693.
Kadous, K. (2000). The effects of audit quality and consequence severity on juror evaluations of auditor responsibility for plaintiff losses. The Accounting Review, 75(3), 327-341.
Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts.
Academy of Management Review, 22(4), 853-886. Xu, Q., & Kalelkar, R. (2020). Consequences of going-concern opinion inaccuracy at the audit office level. Auditing: A Journal of Practice & Theory, 39(3), 185-208.
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