AUDIT Essay Example | Topics and Well Written Essays - 1500 words

AUDIT - Essay Example . . . . . . . . . . . . . . . 3 The Advantages and Disadvantages of an External Audit . . . . . . . . . . . . . . . . . . . . 3 Description of Risk-Based Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Identified Business Risks at Lordbury Playhouse . . . . . . . . . . . . . . . . . . . . . . 5 The Role of the External Auditor in the Detection of Fraud at Lordbury Playhouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Bibliography 1. Introduction This refers to your letter dated May 3, 2011 regarding the completed year-end audit of the Spectrum Theater Group Ltd. I have endeavored to give an explanation of the reasons for the huge amount charged for said audit. 2. Legal Requirements to have or not to have an External Audit There are legal mandates in UK for the con duct of external audit in an organization such as the Spectrum Theater Group Ltd. Under the Companies Act of 1985 , auditors are required to audit the annual financial statements of the organization and to submit a corresponding report to management if said report meets the requirements of said Act. The auditors shall also include in their report their findings regarding the accounting records of the organization if properly maintained. ... in accordance with the Combined Code on Corporate Governance effective November 1, 2003, we are also required to review compliance of the organization with the Listing Rules of the said code and to report findings accordingly. 3. The Advantages and Disadvantages of an External Audit An external audit aims to review the company’s financial statements and internal controls for the auditor to give an opinion as to whether the said financial statements are fairly presented. The auditor can also comment on the weaknesses of financial controls and records he finds in the audit. While recognizing the valid purpose of an audit, it has some advantages and disadvantages. Advantages Findings of the auditor regarding financial controls and operational weaknesses or inadequacies can be immediately corrected/improved/enhanced by management; Assurance for management and board of directors that accounting controls and processes used are in place and effective. Accurate financial statement is basis for proper tax filings of the organization , thus penalties and interests can be prevented ; The company’s image or status is improved/enhanced resulting to greater opportunities for projects by in-coming investors and trust by regulatory agencies and the public. Disadvantages The expenses incurred to pay the auditor and the cost of documentation shall involve a huge amount. The agency can rely on their internal auditors to conduct the investigation. External auditor gains access to confidential records. Duplication of efforts of internal auditors and external auditors conducting the audit procedures at the same time, same period for the same purpose. 4. Description of Risk-based Auditing Risk-based audit focuses on risks assessment and prioritization of risks rather than giving