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Auditors conflict of interest
Generally Accepted Auditing Standards
Objectives of auditing standard
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Recommended: Auditors conflict of interest
Kathleen Ng
ACCT 4501W
Research Article 1
Professional Skepticism
According to the generally accepted auditing standards, there are ten basic standards that has to be followed when conducting an audit. The ten basic standards are broken down into three main categories: general, fieldwork, and reporting. In the general category, one of the standards is professional care. Professional care, also referred to as professional skepticism, can be defined as that an auditor should perform an audit with objectivity and without bias, while still maintaining skepticism. Auditors have been criticized on their lack of professional skepticism when conducting an audit and the overreliance on management’s representation of evidence.
These criticisms were
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Some of these reasons were: the auditor’s confidence or trust in management enticed them to accept management’s assertions rather than test them; there were pressure in time that led to heavy workload. Besides these reasons, the report also showed that certain audit deficiencies occurred due to professional skepticism being a contributing factor. These audit deficiencies include insufficient testing of completeness and accuracy of source documents, premature sign-offs on audits, and acceptance of management’s explanation without obtaining evidence to confirm these explanations.
Another report released by the PCAOB in December of 2008 also criticized on the lack of professional skepticism of auditors. This report summarized the inspections on firms that audited 100 or fewer public companies during 2004 to 2007. This report showed that three of the Big Four U.S. auditing firms was not applying an appropriate level of professional skepticism in conducting their audits. These
reports and the ongoing concern of lack of professional skepticism led to meetings and conferences to address these concerns in 2013 and 2014. In 2014, during an annual auditing conference held at
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Such reasons include incentives, pressures from management, the development of confidence and trust in management, or due to workload demands. But besides reasons of incentives and pressures, a reason may be that people may be susceptible to trust others. There is evidence that supports this idea of people trusting others. In a 2013 study, it suggests that presumptive trust is in the mentality of auditors, and other studies also shows that people tend to have a mindset of presumptive trust.
To improve the application of professional skepticism and mindset, the PCAOB made several recommendations in SAPA 10, report notes, and speeches by board members. One recommendation provided by the PCAOB is to set the tone at the top; if appropriate amount of professional skepticism is done by top management of the audit firm, these acts can be carried down to the staff. Another recommendation is for auditors to be alert when performing the audit, there may be information found that would raise questions about the reliability of evidence and information that may indicate fraud risk. It may be a good idea, during the planning phase, to look at which specific types of evidence that should
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
These methods include the structure of the CPA firm and the procedures established by the firm. The CPA firm follows its specific quality control procedures to help the firm meet auditing standards consistently on every audit engagement. Quality control policies and procedures should be documented by each CPA firm, and the procedures should focus on the size of the firm, the number of offices, and the nature of the practice. The quality control procedures that firms use should address six elements such as leadership responsibilities for quality within the firm, relevant ethical requirements, acceptance and continuation of clients, human resources, engagement performance, and monitoring. CPA firms must also be enrolled in an AICPA approved practice-monitoring program or peer review in order for other CPA firms to determine and report if its quality control system is in effect and
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
As quite data, we tend to use to assist and result in the acceptable call within the business ought to be consistent and dependable. On contrary, the knowledge that isn't reliable will result in injury and ineffective use for the resources of the corporate, unhealthy and damage result to the business and influence its higher cognitive process. To avoid unreliable data and wrong higher cognitive process and to confirm the accuracy within the work in step with the foundations and rules, there should be what's referred to as proof or (Audit), which is handled by freelance and qualified individuals. From all of this, we will acknowledge the importance of auditing method for all businesses. Within the corporations, the auditoris required to state clear opinion, if or not the annual accounts offer the truthful sight concerning the state of the corporate and its money position. To precise the opinion, the auditors shouldmeasure the register of the business, examine its assets and transactions. Altogether cases, the auditor ought to perform his job with due skilled care and high skil...
More trust people experience the more willing they are to go beyond their own self-interest.
Investing and lending public: These individuals and entities rely on independent auditors to carry out their “public watchdog” function rigorously, including reporting honestly and candidly on their clients’ financial statements. The integrity and efficiency of our nation’s capital markets are undermined when auditors do not fulfill their professional responsibilities. This will cause these individuals lose faith on the auditing work and might not cooperate with auditors anymore.
The seven best practices in the roles and responsibilities of an internal audit function include:
Since the early 1970s, the auditing profession has been under increased pressure and scrutiny by government and users of audit reports. The phrase ‘ Audit Expectations Gap’ was first coined when the AICPA put the Cohen Commission together in 1974 to investigate whether the ‘expectations gap’ existed. However, the history of the expectation gap goes right back to the start of company auditing in the nineteenth century (Humphrey and Turley 1992). Since then, events ranging from the collapse of Arthur Anderson to the ongoing savings and loan problems seemed to have made the gap become more and more apparent.
Auditors’ independence has become a serious issue and an aggressive debate commenced after the big corporate collapses (Enron, WorldCom) in the United States in 2002 (Ahmad et
Trust is defined in Webster’s Dictionary as “firm belief in the reliability, truth, ability, or
One of the effective cause of trust to employees performance is that it reduces their job stress.Employees must learn how to shift their way of thinking from kick ass to compasion, from suspicion to trust , from being dumb to a learning environment.In short employees likes to work in an environment where they feel as an intergral and an imporatant part of the organization in further it’s mission and vission.A management who has trust and repsect to each employees opinions will naturally make the workplace less stressful.The research found out that when an employee is more flexible it can lead to job satisfaction and less stress and also a greater productivity.But this flexibility of worker requires trust to boost their workforce.Employees working in a organization with a customer focused purpose tended to trust their managers more , believe that they will be rewarded and recognized approprietly, have a higher morale, experience less stress and believe that their organization supported creativity.When employees feel that they are guided and trusted by each other this will boost there performance and they will feel less stress.If employees has no trust to each other they will sense fear that they must put their guard-up at other employees that they will back stab them, beacuse of this sensation that other employees feel it will cause stress and pressure.Laborers always compete to each other it may sound good but it’s not ,competing to each other will cause job stress and
As per ISA (NZ) 200-A17, this ethical requirement includes the auditors integrity, objectivity, professional competence and due care, confidentiality, & professional behaviour. Integrity is an ethical attitude which includes the auditor’s honesty, accuracy, and fair practice. Objectivity is a mental attitude while carrying out the audit wherein the auditor is fair and just with all his/her work. Professional competence is the knowledge and skill of the auditor, gained through education, training and experience, while due care is a degree of care of an auditor on certain situations wherein an he/she must act diligently. Confidentiality is the commitment of the auditor not to disclose any information regarding his/her client, unless required by law. Professional behaviour means the auditor must act in accordance to the law and set of standard as a manifestation of respect to the
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
The complete destruction of companies including Arthur Andersen, HealthSouth, and Enron, revealed a significant weakness in the United States audit system. The significant weakness is the failure to deliver true independence between the auditors and their clients. In each of these companies there was deviation from professional rules of conduct resulting from the pressures of clients placed upon their auditors (Goldman, and Barlev 857-859). Over the years, client and auditor relationships were intertwined tightly putting aside the unbiased function of auditors. Auditor careers depended on the success of their client (Kaplan 363-383). Auditors found themselves in situations that put their profession in a questionable time driving them to compromise their ethics, professionalism, objectivity, and their independence from the company. A vital trust relationship role for independent auditors has been woven in society and this role is essential for the effective functioning of the financial economic system (Guiral, Rogers, Ruiz, and Gonzalo 155-166). However, the financial world has lost confidence in the trustworthiness of auditor firms. There are three potential threats to auditor independence: executives hiring and firing auditors, auditors taking positions the client instead of the unbiased place, and auditors providing non audit services to clients (Moore, Tetlock, Tanlu, and Bazerman 10-29).