Task 4

Portfolio
Activity 1 Research and make a list of financial auditors role and
responsibility.
Role
The Auditor Generals role is to audit the finances and activities for Australian public
sector. In undertaking this task, the Auditor General will scrutinise the public sector
for potential instances of wastage, inefficiency or ineffectiveness, and report his
findings to Parliament.
Reporting directly to the Parliament, the Auditor General is an ally of the people
and Parliament. He must act independently in carrying out all his powers and
duties.
Independence is the cornerstone of public sector audit. The Auditor General must be
free from pressure, influence or interference from any source that may erode that
independence.
Responsibilities
The Auditor General is responsible for:

auditing the Annual Report on State Finances

conducting financial statement, KPI and control audits and issuing audit
opinions for over 200 public sector agencies

undertaking wide-ranging performance examinations to ensure there are

adequate controls within agencies, compliance with the relevant legislation; and most
importantly efficiency, effectiveness and economy of agency operations or programs

reporting the results of audits to Parliament in an objective, competent,

insightful and timely manner.

Activity 2 Discuss Ethical challenges for auditors

We also examined the effect of experience on internal auditors judgments. We

found that internal auditors as a group demonstrate a reasonably high sensitivity to
ethical issues but that they are not always convinced that their peers would behave
in an ethical manner. Other key corporate governance mechanisms appear to have

little impact upon internal auditors ability to act ethically when presented with a
workplace dilemma. Given five corporate governance support factors, internal
auditors only appear to regard the strength of the external audit function as having
a positive effect on ethical decision making. The existence of an effective audit
committee, a strong organizational code of conduct and high management integrity
do not appear to assist internal auditors to act more ethically when faced with a
dilemma. We also found a significant experience effect in three of the five
scenarios, with more experienced internal auditors adopting a more ethical stance
than less experienced auditors. The results of our study have implications for the
internal audit profession with respect to training and the
provision of support
mechanisms to strengthen the ability of the internal auditor to withstand pressure
when faced with ethical dilemmas. There are a number of limitations of our study.
First, our sample was a self-selected sample drawn from internal auditors attending
a conference. Given that those attending the conference are likely to be highly
motivated members of their profession, and that those responding to the survey are
likely to be those with an interest in ethical issues, the sample may not be
representative of internal auditors in general. Second, the sample comprises mainly
Australian males and thus we are unable to explore the possibility of both gender
and country differences in ethical decision making. Third, our failure to find
significant corporate governance effects may be due to a lack of variability in our
manipulations given the between-subjects design. For example, those in the weak
audit committee treatment group may still have perceived the audit committee to
offer some protection to the internal auditor. Similarly, the weaker code of conduct
treatment may have been perceived as offering some guidance to the internal
auditor.
There are many opportunities for further research in this area. Similar studies can
be undertaken using a broader sample of internal auditors.
The corporate
governance mechanisms examined in this study could be manipulated in a more
extreme manner and different ethical scenarios could be developed. The impact of
other mechanisms such as board independence, CEO/board chair duality, risk
management procedures and whistle-blowing policies could also be explored.
Finally, studies could incorporate other contextual and individual factors such as
national culture, organisational culture, and level of moral development,
organisational commitment and gender.

Activity 3: Sample of Auditors checklist to prepare for an Audit

Summary
Financial audits generally start by stating the agency or institution that requested
the audit, who carried out the audit and the name of the company audited. It also
provides a summary of the audit's finding. For instance, it will briefly mention if the
financial statements present financial data in a fair way and whether financial
reporting and internal control measures meet current laws and regulations.
Opinion

The opinion section of a financial audit provides a detailed description of the

auditors' findings. Although the results will depend on the purpose of the audit,
financial audits usually focus on the accuracy of statements, the reporting methods
and internal control methods of the company and the level of compliance with
industry standards and legal requirements.
Scope and Objectives
This section sets out the specific goals of the audit and the factors that determine
the scope of the audit. This will vary widely depending on who requests the audit.
For instance, a bank considering whether to provide a line of credit to a company
will have different objectives than a government agency looking into allegations of
fraudulent financial reporting tactics or inside trading.

Methodology
The methodology section of the audit describes the methods, procedures and tests
used to assess the financial data. For example, if the audit sets out to confirm the
company complies with financial reporting laws, the methodology will state which
laws the auditors used as a benchmark and how they tested compliance. Auditors
need to state carefully the methods and tools they use so a third party can assess
their results independently.
Budgets and Financial Statements
A judicious business has a set of budgets and financial statements that allows them
to monitor and measure the financial health of the company through year-end.
Budgets should be put together at the beginning of each year for targeted income
and expenses, then monitored monthly. Four primary financial statements, the
balance sheet, income statement, statement of owners' equity and statement of
cash flows, should be reviewed for accuracy, completeness and compliance with
generally accepted accounting principles.
Transaction Documentation
All financial transactions should be documented in the company's general ledger.
Whether documented in manual form or with an electronic system, each transaction
should be consistently recorded with enough information to identify who created it
and for what purpose. Each should be stamped with the transaction date.
Revenue and Sale Costs
Audit staff should conduct tests of the revenue and cost-of-sales entries in the
general ledger and subsequent financial statements. Sales entries should be
confirmed by proving shipment of products; delivery of services; or percentage-ofcompletion accounting calculations, which allow businesses to record periodic

revenue on long-term contracts. Costs-of-sales entries should be properly timed

with associated revenue entries and checked for accuracy.
Expense Approvals
All expenses, whether paid with by cash or check, should be governed by written
procedures and controlled with appropriate levels of approval before payment.
Checks and petty cash funds should be locked up with minimal access. A double
signature should be required and verified for release of cash or checks, including
payroll expenses.
Accrual Accounts
Accruals should be in place to establish balance-sheet reserves for pending
payments. This should include items such as monies due for earned employee
wages awaiting payroll processing, vacation or sick-day earnings and bonus or
commission agreements. Accruals should also be funded for state, local and federal
taxes due for property, sales or income, as required by law.
Trial Balance
A company's "trial balance" includes the values of all accounts as of a snapshot in
time. Audit procedures should confirm the balances with special attention paid to
the reconciliation of major ones. Documentation should be provided in support of
the balances for accounts receivable and accounts payable, in the form of detailed
aging reports. Inventory and fixed assets should be confirmed by item, quantity and
value, with verification of periodic cycle counts to confirm accuracy throughout the
year. Cash balances should be confirmed through reconciliation with bank
statements.
Separation of Duties
It is imperative to verify the separation of duties for all financial transactions, to
provide internal controls that help prevent mistakes or fraudulent activity. For
example, the person who writes a purchase order should be not be able to write a
check to pay a supplier. In small companies, this can be challenging. However,
finance staff can solicit personnel from other departments to support such checks
and balances.
Major Contracts
Because major contracts with suppliers or customers can greatly affect a company's
financial condition, all agreements should be reviewed to confirm the business is
meeting its contractual obligations. This includes a review of major leases, purchase
and sales agreements, insurance policies or any other written company obligation.
Bylaws and Meeting Minutes

Bylaws adopted by the board of directors for the benefit of the business and
stakeholders should be documented and reviewed to verify compliance with all
directives. The minutes from corporate meetings should also be reviewed to confirm
appropriate actions have been taken to address any issues discussed during these
meetings.
Confirm Regulatory Compliance
Audits should be performed to confirm compliance with all regulatory agencies that
govern the business. This should include the filing of local, state or federal taxes. It
should also include compliance with agencies that require periodic reporting of
statistics or other actions to reduce physical risks or maintain a financially sound
business environment.

Activity 4: Review a sample audit report: Discuss report style,

contents and finding in your group.
What a review includes
A review of your charitys financial report is conducted by a reviewer. The reviewer
states whether there is, or is not anything that has come to their attention that
causes them to believe the financial report does not meet the requirements of the
ACNC Act (in all material aspects).
A review also states whether your charity:

provided all information, explanation and assistance needed to conduct the

review

kept good financial records so a financial report could be prepared and

reviewed

kept other records as required under the ACNC Act.

Level of assurance
A review only provides limited assurance (comfort). The reviewer states that they do
not know of anything to suggest your charitys financial report is non-compliant. A
review is a lower level of assurance than an audit. An audit is a direct opinion as to
whether your charitys financial report meets the requirements of the ACNC Act.
Review process
A reviewer will look at your charitys financial statements and accounts but in less
detail than an audit. A reviewer will speak to your charitys staff, including those
responsible for finance and accounting.

Who can do a review

Reviews can be done by:

a registered company auditor

an audit firm

an authorised audit company

a current member of a relevant professional body (such as a member of the

CPA Australia CPAA, Institute of Chartered Accountants Australia ICAA or
Institute of Public Accountants IPA).

Reviewers report
state whether anything has come to their attention that causes them to

believe your charitys financial report does not meet the requirements of the
ACNC Act. If the reviewer believes the report does not meet the Act, they
must:
o

explain why

where possible, quantify the effect of this on your charitys

financial report or if it is not possible to quantify to explain why

describe any material defect or irregularity in the financial report

state any problems in the assistance they received from the charity
when conducting the review, or any issues with the records kept by the
charity as identified above, and

include any statements or disclosures required by the auditing

standards.

The reviewers report generally also includes the following:

a title stating that it is an independent review report, and who it is

addressed to, for example, the members of the charity

an introduction covering the basics of the engagement and what has been
reviewed

a section outlining the governing bodys responsibility for the financial

report

a section outlining the reviewers responsibilities

a conclusion of the review

if it applies, a section outlining reporting responsibilities to other

government agencies

the date of the report, and

the reviewers signature and address.

Reviewers independence declaration

You must get a signed written declaration from the reviewer of your charitys
financial report that states that to the best of the reviewers knowledge and belief
that:

there have been no contraventions of any applicable code of professional

conduct in respect of the review, or

the only contraventions of any applicable code of professional conduct in

respect of the review are those explained in the declaration.