Auditing Essay Example | Topics and Well Written Essays - 1500 words - 8

Auditing - Essay Example Auditing is the process that involves the assessment of the financial statement of a company to verify whether the contents of such statements comply with the required framework. Auditors are charged with the task of ensuring that the financial statement of the company contains all the information considered as material. In a nutshell, the auditors check whether the content of the financial statement is free of fraud, errors or omission of material information. On that note, an audit risk is the possibility that the auditor will not detect any error, fraud or misstatement of material information when reviewing the financial statement (Thompson & Ward 1993, pp. 2-9). Based on the auditor’s opinions, it is fair to conclude that the financial statements of Mobile Streams PLC present a true and fair financial position. That is; they are free from errors, fraud or material misstatements. However, the auditors should pay more attention to the following three areas of heightened audit risks: foreign currency translation, share-based compensation, and financial income. Based on the financial statement, the company’s foreign currency loss is  £ 1,347. The Foreign currency loss is encountered if the previous spot rate when selling the local currency is higher than the current spot rate when buying the local currency (Annual report: Mobile Streams PLC 2014, pp. 8 & 15). Close to 99% of the company’s revenues are generated outside the United Kingdom. Therefore, a larger part of the company’s operation is exposed to foreign currency risk. Fortunately, there are strategies used to lessen the exposure. However, Mobile Streams PLC does not use any to reduce the risk. The company relies on the prevailing spot rate for transaction purposes. The exchange rates constantly fluctuate. The company could manipulate the exchange rate to reduce the amount of taxable income. Assume that the loss on foreign currency was  £ 690