Introduction
An audit enhances the credibility of a company’s financial reports prepared by its directors (LAWBOOK CO). The function of auditors is to audit or review the accuracy of company’s financial report. According to Corporation Act section 310(a) and 310(b), auditors have right to access to company’s information. After AWA v Daniel’s case, the importance of auditing was coming out. In the case of HIH collapse, regulators and corporations come to realise auditors should work independently.
The regulations amendment is coming through years and improving with the conflict occurred. In this report, it would focus on by studying and summarizing the AWA Ltd v Daniels case and HIH collapse case, to understand and see into the amendments of the regulations, in order to summarizing amendment of Corporations Act and the rationale and the future trend.
AWA v Daniels (1992) case
In the case of AWA Ltd v Daniels, the company operation failures had relation with lacking of internal controls and failure by auditors to inform company of internal deficiencies. The case, which states the auditing failure contributed mostly to the company financial crisis and collapse.
The plaintiff was AWA Ltd manufactured imported and exported electronic and electrical products. The defendant was the auditors who carried out the two audits during the period of Koval’s activities.
AWA directors were the mind of the company and represented the controlling the company internal management. They dedicated power to their employee Koval as its foreign exchange manager and permitted to manage to operate without effective control and supervision. Koval was taking his management power engage in highly risk foreign currency investment and disclosed loss making...
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...‘Supplementary Explanatory Memorandum’ 2002-2003-2004, it focuses on audit reform and corporate disclosure, as well as implements a number of recommendations of the HIH and Cole Royal commissions (2003). The government amendments were dealing with matters including: 1) FRC excises the gathering power to overseeing auditor independent for requirements to allow the FRC chairman to issue notice; 2) company auditors and audit companies registered and authorized reform; 3) refinements to auditor appointment; 4) introduced international accounting standard; 5) protected disclosure; 6) a due diligence defence for contravention of the continuous disclosure and 7) introduced of a requirement for a register of information about relevant interests in listed entities (2013).
Review of the Regulatory/legislative response—The Future Amendment
Conclusion
Reflection
Reference
However, circumstances changed “in cases in which an auditor fails to establish that applicable auditing standards were followed” (Zack 2011). Since WoolEx Mills’ auditors failed to properly identify the fraud risks that caused the material misstatements, they would be in breach of professional duty to shareholders. Litigation would mostly be pursued by WoolEx Mills’ shareholders, WoolEx Mills, third parties impacted by the auditors services, creditors, and other parties who rely on WoolEx Mills financial statements. Each plaintiff would have the right to sue the auditors for their negligence in performing the audit with due diligence. To prove a breach of contract, WoolEx Mills would need to provide the engagement letter as proof that the auditors did not peform the duties agreed upon. Additionally, WoolEx Mills’ auditors would be charged with either gross or ordinary negligence based on their deviation from proper auditing standards. Since the auditors failed to test the company’s internal controls, they would be found guilty of gross negligence. The auditors would be guilty of ordinary negligence if they forgot to complete a section of the vertical analysis of the Income Statement (Zack 2011) (Krishnan & Shah
According to PCAOB Ethics and Independence Rule 3520 a registered public accounting firm and its associated persons must be independent of the firm's audit client throughout the audit and professional engagement period. Independence is required for all audit engagements. The auditor must be independent of an entity when performing an engagement according to General Accepted Auditing Standards (GAAS). Independence is very significant to the audit profession, because the primary purpose of an audit is to provide financial statement users with reasonable assurance an on whether the financial statements are presented fairly. The auditor’s report gives credibility to an entity financial statement and without an auditor’s report the financial statement would be consider worthless. Reliance on management for the fair presentation of a financial statement would often result with a bias and impressive financial statements that doesn’t reflect a true picture of the entity’s financial position. An auditor’s independence should not in anyway be influenced by any relationship between their client and
According to the article authored by Mark Rupert, what are the seven best practices in the roles and responsibilities of an internal audit function?
led to the demise of the company. There will be an analysis of the auditor’s role in
Analyze the above statement by explaining the facts of the case and by discussing the three significant legal principles which were upheld in this case.
Due to such lack of monitoring, management continued to be unaware of such transactions that continued to impact the company negatively. This provided the Rigas family many opportunities to override controls since the lack of corporate governance enabled the decisions to be made by Rigas family without oversight. For example, the article “Adelphia Officials are Arrested, Charged with ‘Massive’ Fraud” discuses how Timothy Rigas had to limit himself to $1 million a month of compensation that was withdrawn from the company for personal use. All decisions were continuously made by such members of the family, in which case for Adelphia, was the team of management. With the lack of controls creating opportunity, they were free to do what they wished- which is something they took incredible advantage
Corporate governance changed drastically after the case of Andersen Auditors, Enron’s auditing service showed that they contributed to the scandal. Andersen was originally founded in 1913, and by taking tough stands against clients, quickly gained a national reputation as a reliable keeper of the people’s trust (Beasley, 2003). Andersen provided auditing statements with a ‘clean’ approval stamp from 1997 to 2001, but was found guilty of obstructing justice by shredding evidence relating to the Enron scandal on the 15th June 2002. It agrees to cease auditing public companies by 31 August (BBC News, 2002).
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
17. That the defendant, M/s Sukan Rice Industries, 20/1 & 21, Nedunkulam Main Road, Chinthamani, Madurai – 625009, Tamil Nadu, is engaged in the same trade and business as that of the plaintiff, namely, manufacturing, marketing and processing of rice (hereinafter referred to as “the impugned goods and business). The Plaintiff is however not aware of the exact constitution of the defendant firm as also the name of its individual proprietor, partner or principle officer etc., as the case may be and they are called upon to disclose the same.
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.
The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
Overall, the company is having ineffective controls regarding different departments and in the whole organization. An effective internal audit department should be established within the organization which should test the effectiveness of these controls on regular basis and make it sure that all controls are working effectively and efficiently with the different departments of the organization. Also the Internal auditor should implement the most effective processes and measures to prevent and detect the fraud, corruption and non compliance with the laws and regulations in the organization. Establishment of internal audit committee would be helpful in this regard which comprises of executive and non executive directors.
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.