Primary Task Response: Within the Discussion Board area, write 500–750 words tha

Question

Primary Task Response: Within the Discussion Board area, write 500–750 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas.

The following situations have caused you to become concerned about the quality of the upcoming external audit:

Because of the fact that the audit will not begin until February after the books have been closed, the external auditors will not be able to confirm the accounts receivable cutoff, physically examine the inventory, and examine other important procedures.

You have just been advised that the auditing firm has been acquired by a larger auditing firm, and the auditor that is coming to Bovar Company will be unfamiliar with Bovar Company.

One of the acquiring auditing firm's principal partners is related to the chief executive officer (CEO) of Bovar Company.

Some areas of control that have been of concern to the auditing department will not be audited because of workload and timing constraints.

Some of the methodology used in the accounting department to compile the financial statements may not comply with generally accepted accounting principles (GAAP).

Generally accepted auditing standards (GAAS) provides three categories of standards and ten standards by which an audit should be performed. You are concerned that some of the aforementioned situations may be in violation of the GAAS standards, and you have decided to review the GAAS standards to detect any possible violations. Complete the following:

List each of these standards in their correct category.

Identify those standards that you believe may be compromised by the aforementioned situations.

Describe specific actions that you believe should be taken to comply with the GAAS standards.

Explanation / Answer

Ans;

Defining the GAAS Rules in Relation to the Bovar Company Impending Audit

            The importance of this paper is to place particular items that are posing question regarding the upcoming external audit of the Bovar Company. The concern associated with the external audit of the Bovar Company is associated with some rules, procedures or methods of accounting practice that Bovar uses that are not in compliance with the Generally Accepted Auditing Standards (GAAS). This paper will list out which rule, procedure or accounting practice that Bovar is using goes into which of the categories for the GAAS. Additionally, this paper will identify the standards that might be compromised by the listed violations of the GAAS. And finally, this paper will address actions that can be used to be able to comply with GAAS standards for the Bovar Company.

List of Standards Violations by Category

            When looking at the categories for which the GAAS is broken into for determining the standards violations that must be listed, it is important to understand what categories are used. The GAAS system has only three categories in which items are classified under, these categories are: general standards, standards of fieldwork and standards of reporting (Audit IT, 2011-2015). By acknowledging and understanding that the standards and procedures for conducting audits are broken into three specific categories it is easier to determine how to classify all possible items that fall under each category.

            Based on the five different situations that must be placed into the right classification it is easier to do knowing what the three category classifications are. The five situation(s) that are being categorized, the ones that fall under the general standards category are:one of the acquiring auditing firm's principal partners is related to the chief executive officer (CEO) of Bovar Company. The situation(s) that are being categorized under the standards of fieldwork are: you have just been advised that the auditing firm has been acquired by a larger auditing firm, and the auditor that is coming to Bovar Company will be unfamiliar with Bovar Company. And the final situation(s) that are being categorized fall under the standards of reporting, which are: because of the fact that the audit will not begin until February after the books have been closed, the external auditors will not be able to confirm the accounts receivable cutoff, physically examine the inventory, and examine other important procedures. Some areas of control that have been of concern to the auditing department will not be audited because of workload and timing constraints. Some of the methodology used in the accounting department to compile the financial statements may not comply with generally accepted accounting principles (GAAP) (“Task List”, August 2, 2015). By classifying each of the five situations given from the task list into the specific location that it is required or in which it fits best for the following the rules, regulations and standards set forth by the GAAS.

Compromised Standards Being Used by Bovar Company and the Auditors

            After carefully reading and understanding what the GAAS has set forth as the rules and regulations for each of the three categorized standards: general standard, standards of fieldwork and standards of reporting. It is evident that some of the situations or standards in use by the Bovar Company and the Auditors are compromised. The rules and regulations set forth for the general standards are: audits are to be performed by a trained and proficient auditor, all matters relating to the assignment should be addressed with independence in mental attitude, due professional care is to be exercised. While the rules and regulations set forth for the standards of fieldwork are: work is to be adequately planned and properly supervised, to assess the risk of material misstatements, a sufficient understanding of the entity is necessary, competent audit evidence is to be obtained through auditing procedures performed to afford a reasonable basis for an opinion. And finally the standards for reporting rules and regulations involve the following: report whether the financial statements are presented in accordance with generally accepted accounting principles, report the circumstances in which principles have not been consistently observed in the current period, informative disclosures in the financial statements are to be reasonably adequate, report an expression or opinion regarding financial statements (Kinyo, L., April 28, 2015).

            Understanding these rules and regulations for conducting the audit as allowed by the GAAS, helps to determine which of the situation(s) are or could be compromising the audit of the Bovar Company. By having any compromising situation(s) between the auditors or auditing firm and the Bovar Company could result in some major ethical violations. The compromising situation(s) that are going to be potentially hazardous and fatal to the contractual agreement between the auditing firm and the Bovar Company are: one of the acquiring auditing firm's principal partners is related to the chief executive officer (CEO) of Bovar Company.Some areas of control that have been of concern to the auditing department will not be audited because of workload and timing constraints.Some of the methodology used in the accounting department to compile the financial statements may not comply with generally accepted accounting principles (GAAP) (“Task List”, August 2, 2015). These three situations are compromising the contractual obligation between the auditing firm and the Bovar Company to follow the regulations and standards set forth by the GAAS.

Actions to Take to Be in Compliance With GAAS Standards

            When considering all the previous information about the information and requirements of the GAAS standards it is necessary to find ways to stay within the compliance with the GAAS standards for auditing. By not only becoming but staying in compliance with the GAAS standards for auditing, not only will the auditing firm but all the company (i.e. Bovar Company), stay within the federal guidelines of proper Generally Accepted Accounting Principles (GAAP) standards for financial reporting. The information that needs to be changed for the two organizations to be in compliance is all the factors that are currently compromising the two companies.

            Actions that can be taken to be in compliance with the GAAS standards are to: not only change some of the initial situations associated with the two organizations and the audit being conducted. But also to effect the following changes to the two organizations: change the audit documentation, audit the files, change the documentation completion date, ensure that the auditor is experienced and report the audit release date (Perry, L., January 26, 2015). By working on and implementing these changes or actions will help both the auditing firm and the Bovar Company to successfully complete the audit as it should be conducted and without any issues that will cause a compromise or noncompliance issue based on the GAAS standards.

Conclusion

            Therefore, in conclusion, it is necessary for the auditor to properly research the rules and regulations set forth by the GAAS to ensure that the guidelines that are set forth by the company that is being audited (i.e. Bovar Company). By understanding the various categories established within the GAAS allows for different situations or scenarios to be classified appropriately. Also, once the scenarios or situations have been appropriately classified then the auditor is able to determine which ones are causing a greater compromising situation or scenario for the two companies. And finally, the information collected will be able to be converted into actions that will assist in being able to determine how to become GAAS compliant, for not only the auditing firm but also for the Bovar Company. By understanding and determining all of this information the auditing firm, auditor and the Bovar Company will be able to have all financial reports and audits conducted as per the GAAP and GAAS standards established.

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