Auditing Principles – Inherent Risks Factors Of Financial Auditing

Introduction

The Auditing Standards engages a major set of principles that is been applied for executing a quality auditing that can able to analyze and evaluate every accounting and financial measurement of business organization (Leung, 2011). It has been stated financial auditing provides series of inherent risks that need to be analysed, to engage more reasonable, accurate and assured information on the financial health of the company. The particular study provides a clear specification on the assessment of key inherent risks assessed by Elders Limited in relation to financial statement auditing to engage and gather information on the financial positioning and performance of the company in the market place.

Auditing Principles M

1.0 Identification of Key inherent risk factors

The Elders Limited is stated to be an Australia based company that is engaged in the agricultural business. In the resent year of 2013, the company is been enhanced its agribusiness along with the sales and investments in the different business sectors. The company is been stated establishment of networks of about 226 branches of rural distributional systems and 327 distributional channels and services probating (Elderslimited.com, 2014).

In the elders limited there are different principles under the risk planning and management in relation to decline the impact of the risk. As per the Risk Management Assignment Help as we can see of the company, it is necessary to execute a proper planning on the inherent risks as the debts, incomes, bonds, investment and business risks are the potential risks that create illness or unexpected accidents of financial health and positioning of the company in the market place (Elderslimited.com, 2014).

The death or illness of financial statement effect the business organizations with end number of losses might result to bankruptcy of the company in the market place. Thus the analysis and evaluation of accountings auditing as per the accounting standards need to be assessed on the financial areas concerned might impact on different areas of financial statement like Human Errors (Harrison et al.2007). It also includes budgeting, Bad Judgment evaluations, financial forecasting, equity valuations, repayments of loans and advances, sustainable income and expenditures, evaluation of the employee’s reinforcement.

1.1 Five Major Risks impact on Audit of elders Limited

The inherent risks factors that influence possible risks\are such as frequent changes in inventories, changes in the economic situations, expiry of the patents of company financial miss-assessment (Auasb.gov.au, 2014).The five major inherent risks that can make an impact in the financial, mismanagement and omission of financial element value of the company can be evaluate das following:

1.1.1 Inherent Risk- Human Error

Why?

The human error is one of the major inherent risks that is been stated as inherent that impacts in the organizational   (Le, 2009). It has been stated that the human error is one of the major risk that is been assessed by management of the organization. Some of the major inherent risk that is been analyzed and evaluated by the risk managing that provides impact in the quality of the production, performance of the employees, safety of the employees and issues of the customer services (Saxena et al. 2010). As per the evaluation, it has been stated that this risk is been addressed as inherent as organization cannot assess and estimate the individuals thinking and intentions thus cannot stop them in making international and unintentional errors caused by the employees. It has been evaluated that the human errors are mostly seen in the miss assessment of financial reporting such as wrong incorporation of financial figures in journals, ledger and other financial statement that certain creates fake or wrong financial information of the company. Centner (2011), the Human Error is stated to be one of the inherent risks as it forms a poor sales delivery, supply sales and rights of sales. In relation to gain the confidence, support and regular rate of investment of potential investors. It has been stated that the human error directly impact on performance if an individual along with hampers the workplace environment and functioning (Franzetti 2011).

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Evidence- In the elders limited, in the year of 2012, there is end number of complexes financial recording has been founded in the financial auditing of the company. The company has led to make a large sell of its assets that is about $ 166.5 million although it has been recorded the assets sales been valued to $ 303 million. As per the management, the auditing reports stated that the cause of such completed transactions and reporting has happened in the organisation due to incorrect assessment and recording of the automated assets valuation account (Lynch, 2013). The report of 2012 of Elders Limited has provided close investigation that the company has made inappropriate strategic and financial decisions based on the assets information been recorded in the financial statement of the company that has resulted to failure of some of the major planning’s of the company.

1.1.2 Fraud

Why?

Russell (2007) mentioned that the Fraud is stated to be another inherent risk that is been witnessed and faced by different organisation. As per the evaluation it has been states that m osdt of the time management observes some changes in few of the employees in the organisation. The changes in the behaviours and interactions are stated to be commitment of any fraud actions by the particular employees. (Bornemann and Kick, 2010) investigated that the behaviours of employees are said to be the red flag that estimates series of signs elaborating the employee has done something negative out of the job responsibilities. According to the Australian Auditing standards, it has been stated that the Fraud is legally international organisation crime that is stated as one of the major inherent risks mostly found in the business entities(Messier and Austen, 2010). As per the evaluation, it has been stated that the Fraud is majorly categorised in two basic categories removal of financial assets and making misinterpretation in the financial statements of the company. There is end number of causes of occurrence of fraud in the organisations, although some of the major causes that are mostly witnessed and analysed are dishonestly of the employees towards their job roles and responsibilities, motivations and satisfaction is another major cause that provides reasons for and individual tro commit fraud.  As per Saxenaet al.(2010) another reason of commitment of fraud is opportunities that are not bee provide to the employees in the organisation.

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Evidence –In the year of 2012, the Australian based company Elders Limited reported a misinterpretation and misevaluation of an asset by $ 24 million. The auditing report of the company stated that the company has been witnessed a removal of assets fraud that is been executed by some of the employee in the organisations. The overstatement of 2013 first half of the organisation, it has been evaluated that a hand full of individuals caused the error of assets fraud in the organisations that has misevaluated and miscalculated financial statement of the company (Elderslimited.com, 2014). In the elders limited it has been reported that the company has threatened to make a police complaint and case in returns of the frauds that is been executed by the handful of individuals in the organisations. As per the evaluation, the company has engaged a forensic investigation and analysis in the fraud of $ 24 million over the period in the year of 2012. The elders limited has been started the investigation in the October 201 2that has been ended in the half past financial month of 2013. In the current year of 2013 the company has eliminated its seven senior employees convicting the major peoples been invovl4ed in the fraud case that has been commenced hand made a loss of millions for the organisations in the particular year.

1.1.3 Bad Judgment

Why?

The bad judgement calls are another inherent risk that is considered one of the major risks hamper the business growth and development. Hogan and Wilkins (2008) have stated that the bad judgement call arte mostly done by the upper level management following to the certain planning and evaluation of business activities had been provided to the employees under them. As per the evaluation the bad judgement call is caused due to miss interpretations and miss evaluation of certain information been evaluated form the financial statement and the decisions been taken as per the information’s gathered (Messier and Austen, 2010). The bad judgement is certain stated to be one of the major inherent risk as it provides a vital impact on the organisation operational and functional activities been commenced in the organisation. As the bad judgement call is stated to be the conclusions and final actions taken by the employee’s in the organisation it certainly makes a vital impact directly on the operational and functional activities in the organisation as there is no options to make review or taking a analysis based on the assumptions or the decisions been taken by management of the company (Gendron and Spira, 2009). The evaluation states that the wrong decisions, based on the incorrect conclusion and findings been made by the management certain provides a wrong direction of movement of the company that certain not provide estimated result tor to meet certain objectives been decided by the company in the particular financial year (Rahaman, 2009).

Evidences-   In the year of 2012, it has been evaluated and analysed that the Australian based company Elders limited is focusing on protecting the securities in the stock market place neither deriving the ability to make the proper sales of the assets (NewsComAu, 2014). As per the management of the company, the  company has selling its assets and finances in relation to secure the rural facilities that might has impacted on the operational activities of the company. As per the investigation of the auditing inherent risk compliances, it has stated that the company has made a bad judgement call on the sale of assets in the market place as it can hamper its goodwill in the market place certain can enhance its creditability in the market place (Elderslimited.com, 2014). In the same year of 2012, it has been witnessed that the company is about sale about 3000 hectors of timber plantations. It has been stated that the company has announce that the sales of the timers certainly increase the sales or revenue growth of the company in the marketplace, In the following month it has been estimated that the sticker price of the company has been fallen and recorded a lower rate of 11.5% percent than it’s actual pricing in the Australian Stock Exchange market (NewsComAu, (2014).

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1.1.4 Liquidity Risk

Why?

The liquidity risks are stated to be the risks that are related to the assets that cannot be transacted in money value to decrease the impact of loss faced by the company. As per Franzetti (2011), these inherent risks engaged in the company through two different types, market liquidities cause clearance of cash reserves and funds liquidity results to the liabilities that increase risk credit of company to meet its short coming obligations.

Evidence- The elders limited current assets in the year of 2013 is been valued $ 545725 m that is less that the current liabilities of company that is been valued $596769 with current ratio of 0.91:1 that is below the standard liquidity ratio that is 2:1 (Elderslimited.com, 2014).

As per the evaluation, the liquidity risk is been faced by the company is an inherent risk that significantly affect pricing of the assets valued in the market place. The decrease in liquidity enhances the pricing of current liabilities that will be tough to cover for company and increase cash flow rate form the company. This misbalancing might decrease the profit evaluation and goodwill value of company in market place (Chang et al. 2008).

1.4.5 Override of Internal Controls

Why?

The internal control is been stated as the controlling measuring and monitoring the financial resources of the organizations. As per the evaluation, the internal controlling by the management specifically been executed in relation to protecting form any king of frauds, miss assessments and bad information providing by the operational and evaluation of financial resources in the organisations  (Kenny et al. 2014). However, the override of information’s and measurement control certainly creates possibilities of the fraud and human behavior inherent risks in the organisations. Thus, the override of the internal control is been stated as one of the major inherent risks that is been caused by the management of organisations in handling and evaluating the financial decisions and information. As per the evaluation, it has been stated that there tare basically three major categories of overriding internal control risks by the management such as common management miss evaluations, financial documentations worth handling and making adjustments in the financial journal entries while preparing financial accounting in the organisations (Nwogugu, 2011).

Evidence- In the year if 2013, the elders limited has been witnessed making proper investigations related to the inconsistency been seen in the livestock of the company in the particular year. As per the investigation, it was founded that the miss evaluation and miss interpretation and evaluation of one of the senior manager in the company the livestock valuations is been providing a wrong information due to incorrect valuations been made as per the reports (TheAustralian, 2014)

As per the analysis and evaluation of the Australian Agri-business Elders limited, the Auditing standards has been analyzed 5 major possible inherent risks that might impact on the company. As per the Australian Accounting standards, there are four principles that is been maintained by the management of Elders Limited while execution of auditing in the firm.  The principles of auditing are safeguarded the assets, preventing for inherent risks, maintained of financial accounting and preparation of financial statement with close inspection and analysis (Chang et al. 2008). There are five major risks Human Errors that creates misevaluations and misinterpretations if it is not been analyzed properly, the investment risks impacts in different manner that results to inappropriate evaluation of financial reporting that effects the decision making process of company, changes in the organizational culture and structure that effects employees empowerments in the company, out dated stock of products, Bad Judgmentthat declines interest payment rates impact on decrease in investment of shareholders, Liquidity risks assessing short term creditability of firm impacts on goodwill value and Override of Internal Controls increase the interest rates of loans and borrowings payments. The risks are analyzed and monitored by execution of Audit Model that engages been identification, detection, controlling procedures and effectively auditing of the risk (Auasb.gov.au, 2014).

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Conclusion

The Auditing Standards are stated engages principles that are been used in relation to evaluate the possible inherent risks that can in financial statement and analysis of Elders Limited. The particular study provided a brief evaluation on the five possible inherent risks that is Human error, Fraud, bad judgement, Override of Internal Control and liquidity risk. In the study, the use of Audit Risk model has also executed in relation to control, detect, analyze and audit the