Dilemma in Globalizing Small Businesses †Free Samples to Students

Question: Discuss about the Dilemma in Globalizing Small Businesses. Answer: Introduction: In order to identify threat to independence of auditor and possible safeguard against it, it is important to know what independence is. Auditor independence is the state in which auditor is free from biasness and performers its duties and responsibilities with honesty and by maintaining integrity. Therefore in each and every audit, to be free from biasness, auditor independence shall be maintained by auditors. Following are some case where independence is at threat and possible safeguards have been suggested. In these independent situations, Luxury Holiday ltd is the client and Clark Johnson (CJ) is the auditor firm. Geoff is the auditing partner in Clark Johnson (CJ), Michael is the first auditor who is getting the audit work of Luxury Holiday ltd and Annette is the tax advisor in auditors firm i.e. Clark Johnson (CJ). Following are independent situations: Sr. Threats to independence Safeguard 1 In this case, Geoff, audit partner in Clark Johnson, has been required by the board of directors of LTH to give speech in the travel agency seminar so as to promote the business of LTH (client). This is not in the scope of auditors responsibility and auditors are not allowed to promote business of its clients by any means. In this case, if Geoff accepts this intention of LTH then there will be breach of code of conduct. On the other hand, Geoff is willing to take audit for next year also therefore this is the threat to the independence of auditor. In this case, there is advocacy threat i.e. situation when auditor is required to represent client or promote their product or services (Zhang, Hay and Holm, 2016). Safeguard against this situation for Geoff (auditor) is not to take offer of giving speech at travel agency seminar (Dewing and Russell, 2012). According to code of conduct for auditors promoting business of client will lead to threatening auditors independence. Therefore, auditor shall refuse to promote business of client. 2 In this independent situation, client (LTH) has offered auditor (Geoff) personal nature service or gift. Al though there is no intention of client to put undue influence on the auditor and their responsibilities. In this case, LTH has offered 14- days holiday package to Geoff and his family. Therefore in this case, auditor independence will get hampered (Woolfe, 2006). In this situation threat of familiarity and complacency has been imposed on the auditor. Under this type of auditor independence threat, family relations will be made by client and then undue influence will be put over duties and integrity of auditors (Carmona, Momparler and Lassala, 2015). Safeguard in this situation can be, not to accept the personal nature gifts or services from the client. Therefore this shall be maintained by Geoff by not accepting 14 days holiday trip for family. In case of familiarity thereat, safeguard is to release from the audit work. 3 Another important point that shall be taken into consideration is related to association or familiarity threat that auditor has to manage while discharging duties as auditor. Association threat to independence of auditor exists when auditor has someone familiarly or closes relation in the clients business organisation. In this case, auditor has or member of audit team i.e. Michael has advocacy threat as his father is financial controller at LTH i.e. at clients business organisation. Therefore Michael will not be able to discharge his duties with integrity and honesty. In order to overcome this threat, possible safeguard is to discharge or remove Michael from the audit team or as auditor of the LTH. Analysis of position of Michaels father i.e. financial controller at Luxury Holiday Limited shall be undertaken (Victoria, Chapple and Gandhi, 2013). In this case, audit planning will play important role, Michael shall not delegate audit work related to financial matters of LTH. 4 In this situation, Annette was allocated audit work of LTH and it has been notated that Annette was associated with LHT in calculating, preparing and presenting tax treatments and transactions of LTH. On the other hand, Annette is familiar with employee of LTH and he knows employee of LTH very well. Therefore in this case, there is will be two types of threats to independence of auditor. One is self review threat, under which auditor is required to review its own work. Second threat to independence in this case is of social bonding threat (Roy and Saha, 2016). Since Annette is socially connected with employees of LTH, therefore he will not be able to discharge his duties with integrity. Safeguard in this situation can be of two types; first safeguard is to remove Annette or Annette himself shall be removed from the audit work of LTH. Second safeguard in this is not to give Annette audit work related to taxation matters of LTH. Risk of Compliance: It is a risk which occurs when any business entity working in the market does not follow the laws and regulations in an appropriate manner and performs the business operations (Aerts, 2017). MSG is indulged in the activities of importing the equipments of mining from the countries like Europe, China and US on the basis of the orders placed by the customers. There are various set of compliances attached with the process of import and export which are required to be followed by each and every organization indulged in such type of practices. It is required that all set of compliance practices should be properly reviewed at the time when the audit is being performed (Riley and Rezaee, 2013). Financial Risk: Financial risk is another set of risk which should be taken into consideration because it is the aspect which helps in delivering relevant set of information in the audit procedure. Financial risk is the aspect which is directly attached with the financial management of the business organizations (Prajogo et al., 2016). This is the case in which the situation of financial risk arises when any fluctuations occurs in the foreign exchange rates which results in the decline in the value of the Australian dollars in comparison with the other currencies. In the process of audit there are various foreign currencies which should be taken into consideration these foreign currencies are pound, Euro, and Renminbi. It is required that when the audit should be performed the activities which should be undertaken should include analysis of the risk through the compliance and the substantive procedures. Trent analysis will help in proper analysis of the Australian pound, dollar, Euro and Renminbi. In the audit procedure of MSL it should be ensured that foreign mitigation strategies should be undertaken (Nganga, 2014). Business risk Audit risk Account Balance Risk of Compliance This is the case in which control risk should be undertaken on the higher side because in this case it could be possible that internal control system of the MSL is not effective which could help in managing all the internal processes in a proper manner. There are various aspects which should be taken into consideration for the internal control system these aspects are checking the documentations, reviewing the compliance processes, matching them with all set of laws and regulations and ensuring that all set of regulatory authorities should work appropriately. Another type of the risk which is being evaluated in this situation which is direction risk. It is the risk which will cause a compliance issues and will affect the regulators as well as the auditors indulged in the auditing practices of the case. In this situation auditors will face issues in finding the fraudulent activities and errors in the financial statements of the company which will affect the authenticity of the audit report (Duska, Duska and Ragatz, 2011). There are two aspects which will get directly impacted in this case these two aspects are contingent liabilities and taxation (Hay, 2014). Financial Risk This is the case in which there are two risk factors which could be detected these two risks are control risk and the detection risk. Control risk is the risk which is the result of the weak internal control system. When the organisations do not have proper set of internal control system then the situation of control risk occurs due to which organisational processes gets affected and the internal system starts to get weaker. Internal control system is related with the foreign exchange management and there are various steps required to be taken so as to mitigate the risks and manage the fluctuations in the foreign exchange (Bradshaw et al., 2014). On the other hand detection risk is another type of risk which will be at the higher end. It is the situation of risk which occurs due to the inherent limitations of the procedures which are inherent which are being adopted by the auditing committees to audit the financial risks and its impact on MSLs Financial statements. It is required that the financial audit should be done on a proper manner because it helps in availing appropriate set of information related with the actual position of the company (Aerts, 2017). There are two accounts which will directly get affected by the risk factors or the inappropriate audit these two accounts are fluctuation accounts and the foreign exchange fluctuations reserves available in the financial statements of the company. 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