One.Tel Company Overview

Discuss about the Auditing and Assurance for One. Tel Inc. Case Study.

The organization management is bestowed with the responsibility to maximize wealth on behalf of the shareholders. However, sometimes the management may not owner the agency relationship between them and the shareholders and thus end up advancing their personal interests at the expense of that of the stockholders. This calls for the involvement of the independent external examination which will ascertain if the organization operations, and activities are in line with the goals and objectives of the shareholders (Tepalagul & Lin, 2015, p. 115). It is at this point where the need for auditing arises.  Auditing of the financial statements and other assuring services offered by the auditing firms play a very fundamental role in instilling and maintaining the stockholder’s confidence on the management of the organization (Kuenkaikaew & Vasarhelyi, 2013, p. 45). Again, the auditors perform a vital by acting as the link between the providers and the users of the business information. To ensure that the auditor gives out an unqualified report about the statement of affairs of the company, the management should ensure that the financial statements have been prepared appropriately and in a manner that shows that the organization is a going concern. This essay seeks to address these two critical auditing aspects about One.Tel Company using financial statements for the years ended 30^th June 2000 and 30^th June 1999.

One.Tel Company is an Australian based company launched in Sydney in 1995. The core company activities entailed the provision of mobile services and the networking associated products such as the internet. The company strategic goals were customer centered whereby it aimed at providing high quality and innovative telephone services at low cost. Like any other company the company comprised of the management board which included nine members of which five of them were non-executive members while the rest were from the company top management team. The board the responsibility of executing various functions. First, it approves all financial plans as well as the corporate strategies. Second, spotting and coming with the solutions for the several areas with impactful risk facing the company. Third, evaluating and controlling the company’s management process. Fourth, monitoring of the company financial performance. Finally, appointing and approval of the company’s senior managers. From the duties of the board, it has comes out clearly that management played very critical roles if not properly handled can put the company into risks or hamper its operations in the foreseeable future. Corporate board roles are critical in determining the future survival and success of the company.

Inherent Risk Assessment at the Financial Report Level

Inherent risk is one of the major component making up the audit risk (Florea, et al., 2012, p. 48). The other risks include control and detection risk.  Inherent risk is defined as the material misstatement of the financial statements as a result of omissions or errors associated with other aspects rather than the inefficiency of the internal controls (Johnstone, et al., 2014, p. 34). This type of audit is considered to be high whereby the transactions of the entity are a bit complicated, or there is high involvement of individual judgment and estimation. For example, the assessment of the audit risk of the new entity in a given industry engaging in complex activities and operations may be higher than that of a well-established company undertaking its activities in the stable environment.

Inherent risk assessment at the financial report level depends majorly on the management of the company (Chandler, 2016, p. 22). There are certain factors that that may influence the management to manipulate the books of accounts to provide information that looks excellent to the users of the accounting information. Concerning the One.Tel Company inherent risk assessment at the disclosure of the financial company states should be largely focused on the management team.  This the structure as well as the functions of the company’s corporate seem prone to contribute to inherent risk thus forcing the auditor to carry deep and extensive scanning of the financial report.  Some of the factors that might contribute to this type of assessment have been briefly discussed below:

If the attitude of the board towards the company is questionable, there is likely of the manipulation of the books of the account to suit its intentions. Additionally, if the trustworthy of the corporate company board is shaky, there is a possibility of the management interfering what was honestly prepared by the company accounting department to hide its fraudulence activities (Tysiac, 2015, p. 30). The auditor may know this may this by requesting to meet each member and then asking them a few designed questions pertaining the activities and operations of the company.

Some of the giant’s companies such as Enron and Parmalat collapsed because of the corporate board members you had a conflict of interests (Mohammed Al-Matari, et al., 2014, p. 36). Bearing in mind the core responsibility of the board is to safeguard the interest of all shareholders, the company financial report may put into extra scrutiny to assess any element of the inherent risk.  This is because the four board executive members may be very influential to some of the five independent board members and thus the whole board ends up furthering its interests instead of the shareholders. The auditor will be able to identify this going through the list of the corporate board members to examine their relationship with the company.

Factors Contributing to Increased Inherent Risk Assessment at the Account Level

Company top management provides direction the organization will take ( Ljubisavljević & Jovanovi, 2010, p. 129). Through approval and authorization of the implementation of the strategic goals, the corporate board determines whether the company will operate in the foreseeable future or its activities will come to a halt shortly (International Federation of Accountants, 2009, p. 5). To eliminate this unfavorable uncertainty, the board members should be endowed with the comprehensive and extensive knowledge of the industry (Davidson, et al., 2005, p. 255). However, One.Tel Company seems to lack the knowledgeable corporate board members. For this reason, the auditor will be forced to increase his or her assessment of the company’s financial report to determine whether there is any inherent risk. The order can identify these by requesting for the qualifications of the board members as well as the number of years they have been in the industry.

The objective of any company is to obtain a competitive advantage in the industry (Al-Khaddash, et al., 2013, p. 215). Company performance is one of the primary factors behind the positioning of the company in any industry. From the analysis of the Australian telecommunication industry, it is evident that it is very competitive. There are only a few recognized companies in this industry and One.Tel seems not to have established and positioned itself in the industry. Therefore, the company is under pressure to improve its performance. The auditor can identify this by evaluating the comparing the company performance with that of the industry. 

Depreciation and instant variations of the inventory levels are most likely to result to inherent. This is because of the frequency and a continuous number of transactions done when the stock changes. Similarly, depreciation is prone to this type of audit risk due to changes brought by the disposal of the old company assets as well as the acquisition of the new ones. From the analysis of the cash flow statement, the investing entry indicates that the company had done several disposals of the assets as well as the new. These frequent and complicated transactions when accounting for accumulated and depreciation expense may result to errors and thus calling for a need for risk assessment.

Despite the fact that the accounting is carried out for different periods, there is always a link between the previous accounting transactions and the current ones (Ferguson & Francis, 2003, p. 435). There are certain scenarios whereby the books of accounts have to be adjusted to suit the current accounting transactions. Similarly, One.Tel Company has faced the same scenario. For example, provisions and tax transactions will require deep examination by the auditor.

The companies sometimes engage in unusual transactions. The findings have found that unusual transactions, especially by the management, has been mostly used to fraud the company wealth (Carcello & Nagy, 2004, p. 665). Therefore, the auditor should examine all strange transactions especially the ones at or towards the year end to ascertain whether they duly deserved and whether they have been wholly recognized in the books of accounts.

Accounting and Finance department in any organization is responsible for the preparation of the company financial statements. If the accountants lack the competency needed this may result to errors which may, in turn, lead to inherent risk if not identified. These errors may be error of omission, compensation error and error of commission among many others. To avoid this, the auditor should carry the investigation on all the company transactions including the ledger accounts of recording debtors and creditors’ transactions.

Organizations are founded on the assumptions that they will continue operating in the foreseeable future. It is assumed that there is no point in time they will come to cease their operations and that their existence will supersede that of those who owns them as well as those who operates them (Haron, et al., 2009, p. 9). However, this does not always hold due to the dynamics in the world of business. With the pervasive technology fueled by the increment in creativity and innovations very big and International Corporation have found themselves out of the business. Therefore, it becomes critical for the businesses to adopt the right strategies as per the surrounding environment or else a going concern concept will be a nightmare to them.

The going concern concept it is not much important for the management of the company as it is for the company shareholders (Socol, 2010, p. 296). The shareholders are the owners of the company, and thus their objective is to continue reaping the benefits of their investments in the long run. To ensure that the managers are running the company according to their interests and expectations, they engage an independent external auditor as their watchdog. The duty of the auditor will be to assess whether the company operations and activities reflect that the company is anticipating to continue operating in the future (O’Reilly, 2010, p. 293). This calls for an auditor to determine whether the going concern will be assessed either as high, medium or low.

This essay recommends that an auditor should carry out high going assessment concerning One.Tel Company. As per the analysis of the Australian telecommunication industry, One.Tel Company seems to have no place in this industry. The statistics show that the company market share is very limited. Alternatively, there has been the rampant disposal of the company assets compared to the acquisition of the new assets in the last two years. This leads for an auditor the question the continued existence of the company. Again, the era of the internet seems to be kicking the company out of the market. The key players in the industry to be taking the advantage of the internet while One.Tel Company does not feature anywhere. Therefore, the approach to the assessment of the going concern should be high to ascertain whether the management of the company is focused on having the operations of the company existing in the long run.

Conclusion

Auditing is a very critical aspect for any company. It is through auditing where the conflicts between the management and the shareholders are solved. This ensures that the company management is kept on the check as it executes to achieve the goals and objectives of the organization. Therefore, it always vital for auditors to provide a properly arrived at the report to remove any doubt between the management and the stockholders. The auditor can achieve this by identifying all risks that may derail the realization of the shareholders goals or may derail the operations of the company in the foreseeable future. In support, this essay recommends that the auditor should carry out an extensive examination of all the company’s financial transactions in order to avoid inherent risks. Alternatively, he or should study the trends in the industry and the actions of the management team to come into conclusion whether the company is operational in the long run.

References

Al-Khaddash, H., Al Nawas, R. & Ramadan, A., 2013. Factors affecting the quality of Auditing: The Case of Jordanian Commercial Banks. International Journal of Business and Social Science, 4(11), pp. 206-222.

Carcillo, J. & Nagy, A., 2004. Client size, auditor specialization and fraudulent financial reporting. Managerial Auditing Journal, 5(3), pp. 651-668.

Chandler, R., 2016. Auditing and Assurance, London: University of London.

Davidson, R., Goodwin-Stewart, J. & Kent, P., 2005. Internal Governance Structures and Earnings Management. Accounting and Finance, 4(5), pp. 241-267.

Ferguson, A. & Francis, R., 2003. The effects of firm-wide and office-level industry expertise on audit pricing. Accounting Review, 7(8), p. 429–448.

Florea, R., Florea, R. & Bacovia, G., 2012. The Implications of Inherent Risks’ Assessment in Audit Risk Limitation. Economy Transdisciplinarity Cognition, 15(1), pp. 45-49.

Haron, H., Hartadi, B., Ansari, M. & small, I. I., 2009. Factors Influencing Auditors’ Going Concern Opinion. Asian Academy of Management Journal, 14(1), p. 1–19.

International Federation of Accountants, 2009. Audit Considerations In respeCt of GoinG ConCern In T he Current eConomiC environment, New York: International Federation of Accountants.

Johnstone, K. M., Gramling, A. A. & Rittenberg, L. E., 2014. An Risk-Based Approach To Conducting A Quality Audit. South-Western: Cengage Learning.

Kuenkaikaew, S. & Vasarhelyi, M. . A., 2013. The Predictive Audit Framework. The International Journal of Digital Accounting Research, 13(2), p. 37 – 71.

Ljubisavljević, S. & Jovanovic, D., 2010. Empirical research on the internal audit position of companies in Serbia. Economic Annals, 55(191), pp. 123-141.

Mohammed Al-Matar, E., Kaid Al-Saidi, A. & Fadzil, F. H., 2014. The Effect of the Internal Audit and Firm Performance: A Proposed Research Framework. International Review of Management and Marketing, 4(1), pp. 34-41.

O’Reilly, D. M., 2010. Do investors perceive the going-concern opinion as useful for pricing stocks? Managerial Auditing Journal, 12(1), pp. 291-299.

Social, A., 2010. Significant Doubt About The Going Concern Assumption In Audit. Annales Universitatis Apulensis Series Oeconomica, 12(1), pp. 291-299.

Tepalagul, N. & Lin, L., 2015. Auditor Independence and Audit Quality: A Literature Review. Journal of Accounting, Auditing & Finance, 30(1), p. 101–121.

Tysiac, K., 2015. 8 Accounting and Auditing Issues You Can’t Afford to Ignore. Journal of Accountancy, 4(3), pp. 39-43.