Capitalized Software Development Costs †MyAssignmenthelp.com

Question: Discuss about the Capitalized Software Development Costs. Answer: Identifying the audit audience: Auditors by using audit regulation standard are you able to reduce the negative impact on audit independence. Personal having controlling interest in the company being audited mainly hampers audit Independence. In this context, Ackermann and Marx (2016) stated auditors for providing an honest opinion about the organisations financial condition, auditors does not develop any relationship with the audited company. The scenario mainly states that auditing companies provide non-audit services to the audited company, which might help in attracting more investors. This type of intervention is not allowed to the auditor, where chances of advocacy could arise. Advocacy mainly arises when an auditor promotes an opinion of the company, which led to the belief of a compromise in the audit report. The situation mainly states that client is providing an auditing company non-monetary benefit, which is mainly an unethical act affecting the audit independence. Any acceptance of the offer could raise the threat to auditor independence, as is know that auditors provide positive review for companies providing monetary or nonmonetary benefits outside the compensation contract (Baldauf, Steller and Steckel 2015). The third situation mainly states that impact of family members on the audit independence. This mainly increases the chance of manipulation conducted by company, as the financial controller is father of the accountant, which nullifies any auditor Independence and negatively affect audit report. Auditor Independence will be lost if a family member is situated or linked with the audit procedures. The fourth situation states that auditors tend to become sympathetic if interactions are conducted with the staff and directors of the audited company. This situation mainly states that the auditor is not only providing the audit report but also helping with the tax calculations and entries accounting transactions period. This mainly hampers the overall audit independence, while affecting the audit, as self-audit services s band by your audit authorities (Chen et al. 2016). Identifying the measures safeguarding auditor independence: The following methodscould be used for reducing the negative impact in order to strengthen independent audit report. Development of an transparent audit committee Changing the audit partner Complying with independent auditor's needs Overseeing independent auditor The use of the above-mentioned methods could eventually help companies to improve the audit report and increase auditors independence. Frequent changing in the audit partner might help in reducing the emotional bondage, which might be able to affect audit report. Contessotto and Moroney (2014) stated that use of transparent committees and audit overseeing could eventually help company to monitor the data, which is been evaluated by the auditor. Lastly, complying with the auditor's need for secrecy of total control over the audit procedure is essential for increasing the auditor independence. On the other hand, Han et al. (2015) argued that companies use monetary as well as non monetary offers to influence the auditor's report and hamper audit independence. Thus, the use of above-mentioned methods could help in to reducing unethical measures that was being used by companies to influence their audit reports, Identifying the risk associated with purchasing of spare parts: There is certain risk, which could be associated with purchases of spare parts in companies. The following could be identified as a risk related to purchasing of paper. Companies face strategic risk revolving around the inventory management system, which needs to be controlled for improving efficiency of the capital deployed. However, maintenance of spare part is one of the essential aspects of company, which allows them to maintain the flow of production. Without adequate inventory management system, the company could over buy the product and block essential capital. Knechel and Salterio (2016) stated that reduction of strategic risk would eventually help companies to improve their profitability and continue the level of production activity. The operational risk related to spare parts purchasing needs adequate stocking at Standardised level. Operational risk could arise if adequate spare part is not being maintained in the inventory as it could slow down production and increase expenses. The reduction in operational risk could only be achieved by following an adequate inventory management system, which replenishes the stock adequately and without any delay. Krishnan and Wang (2013) argued that reduction in operational risk could eventually help companies to maintain an adequate level of production to support the rising customer demand. Identifying the account balance impacted by the audit risk: The overall risk mentioned above could also in influence audit risk and reduce the viability of the audit report. The strategic risk mainly has inheritance audit risk, which could arise from any kind of a calculation failure the financial report. The complexity all the transactions conducted by some companies could increase to an alarming rate where error or omissions are possible. These types of error and inherited risk are mainly supporting the overall material misstatement, which could hamper overall profitability of the company. Sonu, Ahn and Choi (2017) stated that use of adequate audit procedures and methods allow auditors to identify the inheritance risk and effectively prepare the audit report. Operational risk was the second risk identified, which might have an audit detection risk. The audit detection risk is mainly associated with material misstatement, which could increase expenses and depict wrong financial condition of the company. In this context, Strecker, Heise and Frank (2015) mentioned that material misstatement could be reduced by using audit procedures, which is stated by AASB and IFRS. However, the impact of book detection risk and inheritance risk could mainly influence balance of accounts. The accounts, which are more, threatened to risk are revenue account, sales account, inventory account, and purchase account. Zamboni and Litschig (2013) stated that use of effective audit rules could allow auditors to minimise the audit risk and portray an effective audit report, which could help in identifying the adequate financial condition of the company. On the other hand, Contessotto and Moroney (2014) argued that during 2008 financial crisis unethical measures were taken by auditors for portraying wrong financial report of companies, which came in light in various scandals. This mainly indicated that auditors need more precise monitoring for increasing viability and authenticity of the audit report. Reference: Ackermann, C. and Marx, B., 2016. Internal Audit Risk Management in Metropolitan Municipalities. Baldauf, J., Steller, M. and Steckel, R., 2015. The Influence of Audit Risk and Materiality Guidelines on Auditors Planning Materiality Assessment.Accounting and Finance Research,4(4), p.p97. Chen, L.H., Chung, H.S.H., Peters, G.F. and Wynn, J.P., 2016. Does incentive-based compensation for chief internal auditors impact objectivity? An external audit risk perspective.Auditing: A Journal of Practice and Theory. Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness and audit risk.Accounting Finance,54(2), pp.393-418. Han, S., Rezaee, Z., Xue, L. and Zhang, J.H., 2015. The association between information technology investments and audit risk.Journal of Information Systems,30(1), pp.93-116. Knechel, W.R. and Salterio, S.E., 2016.Auditing: assurance and risk. Routledge. Krishnan, G.V. and Wang, C., 2013. Are capitalized software development costs informative about audit risk?.Accounting Horizons,28(1), pp.39-57. Sonu, C.H., Ahn, H. and Choi, A., 2017. Audit fee pressure and audit risk: evidence from the financial crisis of 2008.Asia-Pacific Journal of Accounting Economics,24(1-2), pp.127-144. Strecker, S., Heise, D. and Frank, U., 2015. Prolegomena of a modelling method in support of audit risk assessment-Outline of a domain-specific modelling language for internal controls and internal control systems.Enterprise Modelling and Information Systems Architectures,6(3), pp.5-24. Zamboni, Y. and Litschig, S., 2013. Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil.Universitat Pompeu Fabra.