Auditing and Assurance Estimates Fair Value

Question: Describe about the Auditing and Assurance for Estimates Fair Value. Answer: Introduction This study is based on the case study of Bio-Sustainable Feeds Ltd, which operates as a bio-research firm in Australia. The firm is listed under the Australian Stock Exchange. Currently, the firm has concentrated on the research of sustainable aqua-culture feeds. However, in this particular study, the discussion includes the steps that the auditor needs to be followed before conducting the audit on the activities of BSF Ltd. At the same time, the study also focuses on the analysis of the activities that are done by the BSF Ltd. The study also provides the plan for the audit program and analysis of the patent value of BSF Ltd. At the end of the study, the conclusion is derived by summarizing the overall findings. Discussion regarding the steps, which need to be taken before audit As per the IFACs code of ethics for auditing an auditor must understand whether the acceptance of auditing proposal will create any problem regarding the maintenance of fundamental auditing principles or not (Backlund and Thollander 2015). This indicates that the auditing firm or the auditor must check whether the activities of BSF Ltd include any unacceptable risk or not. This step is known as the procedure of customer due diligence (Messier 2016). After checking the customer due diligence, the auditor needs to identify and analyze whether there is any objectivity threats or not. This indicates that the auditor needs to check whether the members of audit firm are holding the shares of BSF Ltd or not. If the objectivity risk is identified then BSF Ltd must turned down (Wang, Li and Li 2015). Apart from the above-mentioned two steps, the auditor must determine the competence of the firm to conduct the potential work. This indicates that the auditor needs to check whether the BSF Ltd includes any complex business structure or it belongs to any specialized industry or not. After checking all of these, if the auditor is satisfied then the auditor must comply with the requirements of ISA 210. As per ISO 210, the auditor must use the acceptable framework for financial reporting and complete an agreement with the management of BSF Ltd (Abernathy et al. 2015). This indicates that before conducting the auditing, the auditor needs to check whether the auditing or financial reporting framework is acceptable or not. At the same time, the auditor needs to understand the responsibilities of auditing. Analyzing whether the audit firm should accept the role of doing an audit o BSF Ltd Audit risk consists of three types of risk inherent risk, control risk and detection risk. An audit proposal can be accepted, if these three risks are low (Chaudhari and Bakal 2015). If the inherent risk of BSF Ltd is estimated as 90%, it can be said that the risk is too much high. This means, if the audit firm accepts the role of doing audit, then it needs to check and gather many data regarding the business and financial activities of BSF Ltd before accepting d doing the audit. High percentage of inherent risk indicates that there are possibilities that the client firm that is BSF Ltd has manipulated the information. In that case, the audit firm must check whether the inherent risk can be reduced to an acceptable level or not (Ren et al. 2015). Therefore, if the inherent risk is high, then the audit firm needs to engage much time to determine whether the audit proposal should be accepted or not. On the other side, if the control risk is 5% and the detection risk is 80% at BSF Ltd, then also it is very risky proposal for the auditing firm. Control risk refers to the probability or risk of misstatement that cannot be detected or corrected (Sharbatoghlie and Sepehri 2015). On the other side, detection risk is the risk of material error, which causes failure of the audit procedure. Therefore, if the control risk is 5%, then it can be said that the chances of misstatement is low. However, 80% detection risk denotes that the chances of audit failure are high. Therefore, by considering overall situation, it can be said that in case of BSF Ltd, though the control risk is low, the other two types of audit risks that are inherent risk and detection risk are much high. Hence, it will be more appropriate to reject the proposal for doing the audit of BSF Ltd. Audit program for BSF Ltd An audit program is actually an action plan that the auditor plans to execute to audit a firm and confirm that the activities of the firm have been done as per the rules and regulations. In the words of Carlon et al. (2015), an audit program includes the systematic procedure of auditing to identify the sufficient authentic evidence. The steps under the audit program are set after determining and understanding the accounting system at the client firm and the required auditing strategy. The main purpose of audit program is to assists in the planning and performing the audit (Macve 2015). There can be two types of audit programs standardized audit program and tailored audit program. However, in an audit program, the following things must be included: General coverage: Detailed information related to work: In an audit program, it is very important to have the detailed information like, sales book, purchase book and cash book. Availability of the detailed information helps to complete the audit within limited time span (Islam 2015). Required timeframe: The audit program must include the timeframe that will be required to complete the whole process of auditing. Fixed time span helps the auditor to complete the tasks systematically and sincerely. List of work of the assistant: In the audit program, the auditor also requires including the list of activities or works that need to be performed by the assistants of the auditor. This helps the assistant auditor to conduct the tasks of auditing in a proper way and the assistant auditor can easily identify what needs to be done. This helps to save the time and cost (Corbella et al. 2015). Required timeframe for the assistant: In the audit program, the auditor also needs to mention about the time span within which the assistant auditor needs to complete the list of works assigned by the auditor. In the above, the general requirements of an audit program have been stated. However, the requirements can include more items on the basis of the nature of the business. In case of BSF Ltd, the specific requirements of the audit program are as follows: Specific Coverage: Information regarding the sources of raw materials - As BSF Ltd is a research and development organization, it is very important to include all the detailed information regarding the sources of raw materials in the audit program. Proper information regarding the raw material helps the auditor to understand whether the organization is procuring the raw materials from the authentic source or not (Aziz 2015). It saves time and cost of auditing. Checking the information about the use of equipments - The audit program for BSF Ltd must include the activity of checking whether the equipments at BSF Ltd have been utilized properly and whether the company has charged the depreciation accurately or not (Macve 2015). Information regarding the use of grant The audit program must include the information that whether the organization that is BSF td has fully utilized the grant fund or it has any plan to utilize the same in the near future. Discussing the concerns of the auditor for the full set of journal entries It is the duty of an auditor to check whether the journal entries shown in the books of the client organization are right or wrong (Ren et al. 2015). In case of BSF Ltd, several transactions have taken place in between 2013 to 2016. The firm has also receipt a grant from CSIRO for the purpose of research and development. As per IAS 20, the accountant of the organization or firm (here, BSF Ltd) must do the journal entries for receiving the grant in the following manner: Cash / Bank a/c.Dr. $500 million To, Deferred income a/c Cr. $500 million (Being the grant received) Deferred income a/c..Dr. $500 million To, Income from CSIRO grant Cr. $500 million (Being grant recognized in the P/L account) Therefore, it is the concern of the auditor to check whether the accountant at BSF Ltd has done the journal entries for receiving the grant in the proper way stated under IAS 20 or not. It is the auditors concern because the overall accounting is based on the journal entries and if the auditor does not check it in the beginning then it becomes hectic to identify the mistake in the rest of the financial report (Backlund and Thollander 2015). On the other side, the organization has also used fund received as the grant in several ways. As per the rules in IAS, the organization must use or committed to use the amount of grant for the specific purpose (Sharbatoghlie and Sepehri 2015). In case of BSF Ltd, the fund received from CSIRO has been used by the company in the specific purpose of research, which is authentic as per ISO. Apart from that, the firm has also allocated the costs properly between expenses and patent capital. The firm has allocated the costs in the same proportion between the expenses and patent capital. The organization has allotted AUD$500 million and AUD$200 million in the expenses of research and development and AUD$700 million in the patent capital. Identifying and analyzing whether the research of BSF Ltd is socially responsible and environmental friendly or not The activities of BSF Ltd has been considered as the socially and environment friendly by the GPFS of the company. However, if the analysis is done from the social point of view, then it can be said that the research done by the organization will help the society to survive more because the feeds will increase the aqua life, which will ultimately help the human being in surviving better way (Aziz 2015). However, at the same time, it has also been noticed that the research of the organization helped only the rich people in the society not the poor people. On the other side, if the activities or the research of BSF Ltd is analyzed from the environmental point of view, then it can be seen that 1/3rd of the total fish has died during the research in converting the low value fish into high value fish. Then this cannot be considered as an environment friendly activity. Therefore, it can be said from the above discussion that though the research and development work done by BSF Ltd helped in increasing the volume of aqua life, it has decreased the quality of aqua life and it did not supported the life of poor people. Hence, the activities of BSF Ltd cannot be considered as socially and environment friendly. Analyzing whether the patent values of BSF Ltd has exclusive control over the bacteria-based feeds technology The statement provided by the management of BSF Ltd regarding the control over the bacteria-based technology is not completely true and fair. This is because previously, the organization failed to research successfully on the aqua life by using the bacteria-based feeds technology. A high volume of fish died because of improper use of technology. If the organization had proper control over the technology that it is using then the chances of failure would be less (Corbella et al. 2015). Apart from that, if the organization has exclusive control over the bacteria-based feed technology then it would not face several other issues like involving excessive time and cost. Conclusion In this study, it has been identified that there are several steps that an auditor needs to follow before and during the audit of BSF Ltd. The activities done by the company affected the quality of aqua life negatively. At the same time, the poor people in the society are not benefited from the research and development activities or work done by BSF Ltd. Apart from that the management of the company had no such exclusive control over the bacteria-based feed technology. Reference list: Abernathy, J., Hackenbrack, K.E., Joe, J.R., Pevzner, M. and Wu, Y.J., 2015. 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