Question

Case 7. Mr. Javed is owner of Water Pipe Manufacturing SOAG, located in Seeb. His business is not earning good profit since 2 to 3 years. He wants some amount to improve his business condition and willing to make profit. Problem is that, investors are not confidant to invest in his business. Ms. Tahani was appointed as auditor to check books of account. According to Mr. Javed change the audit report and give a positive report which actually was not. On the basis of given scenario answer following question: 1. Which is those qualities Mr. Tahani fail to perform during his audit work? (2 Marks) 2.Also write the impact of unfair practices performed by Mr. Tahsin on investors? (3 Marks) - (Total 5 Marks)

write in word (text) plz

Answer 1

Solution

1.

in the given case the auditor Mr Tahani gives an unfair audit report which shows the positive financial situation of company, which actually is not true.

In this case the auditor compromises with the very basic qualities an auditor should have . which are integrity and independence.

Integrity:

An auditor must perform the work of Audit with integrity. He should always report the findings of his audit work with honesty , and keeping in the view the interests of the stakeholders, investors and users of financial statements .

Independence:

Auditor should perform the audit work and report on financial statements of an entity without any bias, prejudice and without any influence by any person of Management or any person holding any personal interests in the entity.

2.

Impact of unfair practices adopted by the auditor:

In this case the auditor issues a positive report about the financial condition of the business.

This unfair practice can impact investors adversely in many ways.

a. Investor can invest in the business hoping for good Returns, but as the actual situation is not that positive as shown in the report, the investor can get get lower returns than they have expected.

b. If business continues to sufferlosses like previous years , the investors can even get no profits or dividend or can even suffer losses.

C. If in any case , the business goes into liquidation because of overdues of liabilities and continous lossess in future, investers may loose their money if the company goes bankrupt.

Finish.

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