In this report, two recent reports namely REP242 and REP317 are reviewed and the major issues related to these reports have been listed. Issues such as lack of evidence, poor professional scepticism of auditors, poor quality of evidences etc. are reported by ASIC. The recommendations to improve or overcome these issues have been also mentioned in the report.
Major issues identified by ASIC
After reviewing both the report, the main focus of the ASIC was to improve the quality of the audit reports. They find that as per the ASA 500, the provided audit evidences are not sufficient and appropriate. It reports show that as per ASA 200, only a minimal level of professional scepticism being exercised by the auditors can be seen. Since the evidences are not sufficient or on the basis of lack of evidence, they cannot rely over these inappropriate evidences (ASIC, 2012).
The quality of the reports are not up to the mark since 31 December 2010. The ASIC considers that the auditors are not performing all the necessary procedures to attain reasonable assurance about the financial reports. The auditors have not performed the function of fair value measurements of assets and liabilities as per ASA545 (ASIC, Audit inspection program public report for 2009–10, 2011).
It was also found that the auditors have not properly tested and analyzed the journal entries throughout the year. Moreover, the auditors have not properly assessed the risk of fraud (ASA 240).
Some areas such as reliance on the work of experts or other auditors, the risk of fraud to be considered, and the audit of financial statement disclosures, including classification of material loan balances required improvement. Further the firms should maintain and improve the quality of audit in regard to the quality of evidences, professional scepticism and the use of other experts and auditors. The auditors should properly plan and perform the audit accordingly. The partners engaged should understand all the relevant facts and should not only rely over the facts provided by the management. While using external auditors, they should be authorized to give their sufficient independent evidences to support their opinions. They should properly understand and assess the risk associated with the business. And last but not the least, the reliance on substantive analytical procedures should be ensured by the firms. It should be appropriate and does not lead to false efficiencies.
The report of ASIC reflects that the firm is experiencing issues related to the poor quality of evidences, minimal level of professional scepticism is pervasive in the firm. The reports are not even sufficient to rely upon. Thus, is order to overcome these issues, it is important to focus on some areas that include reliance on the work of experts or other auditors, the risk of fraud to be considered, and the audit of financial statement disclosures, including classification of material loan balances. Proper management and planning is also required to improve the level of professional scepticism. Lastly the engaged partners should also critically assess the reports and should not rely only on the management reports.