Auditing is used to enhance the degree of confidence that users of financial statements have in those statements. This is achieved through gathering sufficient evidence to come to a conclusion on whether the financial statements are prepared “in all material respects, in accordance with the applicable financial reporting framework”. (IFAC, 2013). This usually refers to how true and fair the statements are when looking at the financial position of the company at the end of the period.
The word audit is derived from the Latin word “audire”, which means “to hear”. Matthews states that the term derives from medieval book-keeping practices where auditors would hear the accounts read out for them. In the modern day, it is a process which involves the obtainment and evaluation of evidence regarding assertions about economic actions and events. (Silvoso, 1972).
Any subject matter may be audited, the most common application being related to a legal person. Other areas where auditing can be applied include: quality management, project management, energy conservation and internal controls. Auditing standards provide an important foundation supporting audit quality. Particularly in International Standards on Auditing (ISAs) issued by the IAASB, where the auditor’s objectives are described and the minimum requirements are established. The majority of the requirements in ISAs require judgement for them to be properly applied, however. (IFAC, 2013).
Audit quality is hard to define since it is relies on perceptions, and those perceptions depend on whose views are being considered. Research has found that auditors are susceptible to making the some mistakes and incorrect observations that are present in ge...
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...or to comply with relevant ethical requirements, and conduct audits in accordance with ISAs will ideally grant a high audit quality. The assessment of audit quality can gather various professional perspectives however when considering the effects of the CMA’s order of compulsory competitive tendering on the companies encompassing the FTSE 350. On the one hand, longer tenures are considered non-beneficial since they associate with a fear of familiarity, while shorter tenures are also considered non-beneficial due to the fact that auditor-management relationships aren’t as strong in the short-term. Conclusively, this reason along with the issue that the Big four companies and in particular the largest of the big four has the most experienced members and partners means that there isn’t a strong argument that the guidelines set by CMA will provide a higher audit quality.
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