Benefits of Adoption of International Accounting and Auditing Standard

Discussion questions: Auditing
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Discuss why the adoption of international accounting and auditing standards might be beneficial to investors and auditors.
Adoption of international accounting and auditing standards is potentially beneficial to investors as it helps in preparation of more accurate and comprehensive financial statements in line with international accounting standards (Rich et al., 2013). Hence, there is no need for investors to rely on other sources of financial statements as financial statements prepared under international provide relevant information. There is an indirect benefit to investors as the international standards calls for increased transparency and the management is likely to uphold the interest of investors more seriously (Rich et al., 2013). In any case, since there are standardized results, there are lower costs associated with processing financial information. Adoption of international accounting and auditing standards would be beneficial to auditors as there would be uniformity in accounting and auditing on as global scale. This would improve confidence in the auditing profession, and auditors would draw upon well established standards to carry out their duties even in the U.S. Furthermore, there would be increased uniformity in auditing reports. Auditors can also carry out auditing cross border listed companies in conformity to international accounting standards and auditing.
Your client, Harper Company, has a contractual commitment as a part of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below that level on the balance sheet date, the entire bond becomes payable immediately. In the current year, the client's financial statements show that the ratio has dropped from 2.6 to 2.05 over the past year. How should this situation affect your audit plan?
The management needs to take immediate action, and, the auditor should seek clarification on possible cause of drop in the ratio after assessing the company’s ability to meet cash obligation. Hence, an auditor would require conducting further testing of current assets and liabilities, while also focusing on changes in the liquidity position (Rittenberg et al., 2012). The ratio has dropped near the threshold level, showing that Harper may suffer liquidity problems. Thus, there is a need to exercise caution, and establish whether the reported ratio is reflects a reasonable estimate, and whether there are attempts to hide information about the reported 2.05 ratio. Furthermore, the tests should establish if there has been understatement.
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