Part A: Background You are currently studying a number of corporate failures happened in the World that caused a major creditability crisis in the accounting and auditing profession. The collapse of...

BARINGS BANK
REPORT ON AUDIT ASSESMENTS
Executive Summary
After the preparation of this project, we will have better understanding about many factors su
ounding the effective functioning of an audit including the attitude of the auditor, the independence of an auditor, and the procedures of an audit engagement. It will also help you to understand the term reasonable assurance used in auditing. In addition, it will also provide a better knowledge about the risks involved in an audit of financial information.
PART- A
1. Mike Killian was cynical that one person alone was making more money than all the rest of Bearings Bank staff. Questioning the reliability of information and being alert to conditions that may indicate possible fraud is an attitude expected from auditors.In your view, what is the name of the professional attitude for auditors and explain the concept of this professional attitude.
Mike Killian was cautious about one person making huge profits than rest of the staff and members of the Bearings Bank. This caution or questioning mind helped him to form a professional judgement and made him recheck all the available information regarding the transactions involving Nick Leeson. It is one of the basic quality or an attitude that must be developed by an auditor while inspecting the financial information of an entity.
The attitude expressed by Mike Killian is commonly known as professional scepticism. It is the attitude by which an auditor keeps a questioning mind towards all the matters coming forth and performing critical assessment on the data in which he or she is expecting any misstatement due to fraud or e
or. This attitude is important for the audit of financial information as it will help them to form a conclusion or the basis of their conclusion faster. In addition to that, professional scepticism will help the auditor to form a better understanding of the entity and help them to formulate a proper audit plan. There are mainly three elements in professional scepticism such as follows.
Attributes: It denotes the contribution of the auditor in the form of knowledge, skill and ability to form a professional attitude. That is, an auditor must have knowledge about the work they are going to perform in a provided environment.
Mindset: It is the process of fixing the mind on a high level of thought process. It includes the exercise of integrity and confidentiality while performing the task at hand. A proper mindset is mandatory to exercise a professional attitude because only it can help the auditor to avoid less reasonable evidence about the financial statement.
Action: It denotes the performance of audit procedures in a professional manner. It will help the auditor in risk assessment, planning supervision and also in the identification of critical matters su
ounding a financial statement.
As mentioned professional scepticism or the attitude exercised by Mike Killian is mandatory for the effective working of an audit engagement. This is because it will help the auditor to be more objective and will help them in the critical assessment of the entity and its environment.
2. Using your knowledge of APES 110 Code of Ethics for Professional Accountants to identify and explain the potential type(s) of threats to Nick Leeson’s independence. Suggest what safeguard(s) should be instituted to reduce the threats to independence.
APES 110 Code of Ethics for Professional Accountants is issued by the Accounting Professional and Ethical Standards Board. The objective of this code is to provide a framework for ordinary members, members in public practice and members in business in accessing relevant segments of an entity. 
Considering Code APES 110 and the relevant information available about the Barings Bank, the general manager of one of their division had free access to both the front end and back end operations equally. It also gave him an authority to manage his activities by ove
iding the internal controls.
Providing such high level of independence and authority to a single person can be a potential threat to any organization. Therefore, the entity must put for some procedures to manage these threats on independence. Initially, the entity must establish an effective internal control to evaluate the working of every individual. Secondly, the entity must reduce the power and authority residing in the hands of a single individual, that is, the authority must be delegated.
3. Before going insolvency in 1995, Barings Bank had received an unmodified audit report. In your view, what does this mean regarding the audit expectation gap? How does an unmodified audit report relate to the collapse of Barings
Barings Bank received an unmodified audit report before its liquidation in 1995. This can be because of two reasons; firstly, the auditor might have received forged evidences and documents supporting the items in financial statement instead of the real ones. Secondly, it might be due to fraudulent acts by the top level management.
The audit expectation gap can be defined as the difference between the public perspective of an audit engagement and the actual scope of an audit program as prescribed by the law. Most of the users of financial information believe that the duty of an auditor includes prevention and detection of all the frauds in the entity. On the other hand, the scope of an audit spans only towards inspecting the financial statement and all the underlying records to express a modified or an unmodified opinion.
An auditor will express an unmodified opinion on the financial information only if they find all the data required to be presented have been presented fairly. For this purpose, the auditor will inspect all the records and data regarding and supporting the items and transactions depicted in the financial records.
If an entity collapse after the issue of an unmodified audit report, it might be because of two reasons. Firstly, it might be because the report issued has clearly stated that the going concern of the entity is compromised. If an entity is providing information regarding its operations and liabilities of a period and if the information is assuring that the entity is not in a state to deal with or to pay off these obligations with its existing and future operations, it does not have any other option that to liquidate.
Secondly, it might be because of loss of investment due to fraud. That is, if an financial report or the audit report is clearly stating that a fraud has occu
ed in an organization, its credibility will be lost. It will restrict investors and shareholders to contribute more towards that entity for its functioning. It will also lead to withdrawal of capital from potential shareholders. All these will effect in the reduction in operating revenue of an organization and will result in insolvency.
Therefore, an unmodified opinion is not...