Discuss the Issue of Auditor Independence in the Context of Corporations Act
1. Introduction
Audits can enhance the reliability of fiscal statements and give stockholders more confidence. Auditors can operate and monitor the fiscal statement. During the process of auditing, it is very important for the auditors to independently implement the responsibility. In the case of HIH collapse, it shows an audit failure. In order to find the reasons of HIH collapse, this paper will discuss the auditor independence under the Corporation Act. In this paper, firstly, it will describe the auditor negligence. Secondly, it will state the regulations of auditors and auditors’ independence. Thirdly, it will analyze the role of auditors in the HIH collapse. Fourthly, it will discuss the regulatory response. Fifthly, it will review the regulatory response. Finally, it will make a conclusion and reflections.
2. Auditor Negligence
Based on the Company Acts, auditors should implement their responsibility on auditing company accounts. The responsibilities of auditors appointed under the Companies Acts will be regulated by the Acts. That is to say, the auditors are responsible to make a company’s true fiscal status. However, the responsibility of auditors just is to work carefully without any suspicious. Where cheat happens, the auditors will not be held to have been careless for losing to observe it. On the case of AWA Ltd v Daniels (1992) 7 ACSR 759, it show the auditor’s negligence.
AWA engaged in importing and exporting electronic devices. AWA determined to hedge against currency volatility via buying foreign currency against the agreement for imported products. Koval was hired to operate the foreign exchange. Koval’s trading led to AWA to ...
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...ate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004
4. Corporations Legislation Amendment (Audit Enhancement) Act 2012
5. Daniels v Anderson (1995) 37 NSWLR 438
6. Geoffrey, Flint. (1997). Non-executive directors’ general law duty of care and delegation of duty: but do we need a common law duty of care? Bond Law Review, 9 (2), 199-201.
7. John L, Carey. (1970). The rise of the accounting profession: To responsibility an authority. Panel on Audit Effectiveness, 3 (5), 1937-1960.
8. Review of Requirements for the Registration and Regulation of Company Auditors.(1997).
9. Review of Current Australian Requirements and Proposals for Reform. (2001)
10. The Companies Act 1985, Sections 151, 155 and 156
11. The Treasury, Australian Auditor Independence Requirements - A Comparative Review (2006)
12. The Trade practices Act 1974 (Cth)
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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.
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
Throughout the years, the news covered stories of corporate scandals involving accounting unethical practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process.
T.A., L. 1996. Richard Brown, Chartered accountant and Christian gentleman. In: Lee, T. eds. 1996. Shaping the Accountancy Profession: The Story of Three Scottish Pioneers. New York, Garland: pp. 153-221.
In recent years, general public start to raise questions about the level of audit independence and the quality of audit information, especially after corporate collapses such as HIH, Enron and One.Tel where independent audit reports showed that the companies were making a profit, when in fact they were heavily in debt. This essay is to provide a brief overview of the current regulation of corporate governance in Australia in the role of auditors, and illustrate some gaps in the regulation with examples. In addition, a few recommendations are given accordingly for changes.
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...
As an accounting and finance student, with an ambition to qualify as a chartered accountant in the future, I feel it is appropriate for me to analyse the ethical issues faced by the Accounting Profession. The Accounting Profession is one which has come under a lot of scrutiny in recent years, as scandals such as Enron and Anglo emerged. A series of unethical decisions led to the closure of one of the ‘big five’ accounting firms when the Enron scandal came to light. In Ireland today Ernst and Young are facing a court appearance in relation to their involvement as auditors of Anglo Irish Bank, needless to say they also made some unethical decisions while working with the bank. In this literature review I endeavour to assess the code of ethics held by accountants and provide examples of when accountants have not adhered to this code of ethics.
The field of financial reporting tends to bore many people, until it makes the front page in a typically catastrophic fashion due to one scandal or another. While we are happy ignoring the important accounting function of reporting and auditing while that function works properly, as soon as it fails, we turn on corporations and the accountants that keep them running to call for justice and perhaps reform. Today, the accounting practices of publically-traded companies are governed by numerous regulations and requirements, among them the Sarbanes-Oxley Act of 2002 (SOX), a piece of legislation introduced following a number of headline accounting scandals at companies like Enron and WorldCom (HBS Working Knowledge, 2014). It is vital that users
...e appetite for money lays in the unconscious. Also the need for social relationships that could turn friendly is one of the Maslow’s hierarchy of needs. Even the most honest, goodhearted auditors will be seduced in the opportunity to “cook” the books for a friend and hide the company’s true financial statements in gain for privileges. Indeed in the matter of non-audit services and “extended assurance” the appetite for large amount of fees is the motive for breaking values and ethos. Concluding in my opinion the Ethical standards are fine, however revisions should be made when cases rise up in the future. The problem is not the audit profession either its standards, rather those who practise it.
Sometimes fraud may be created and concealed in a way that is so well-organized that it might be overlooked if auditors fail to perform reasonable care and skills. This always happens in entities that have knowledgeable people in accounting, finance and so on. Therefore, every auditor must maintain a questioning mind throughout the audit and set in his mind that material misstatement due to fraud may exist even though his past experience with the clients shows that the clients are indeed
Kent has a misconception that auditors have no specific duties regarding fraud. Furthermore, Kent also mentions that auditor provides no assurances about fraud because that is management’s job. In fact, auditors do not have duty to detect fraud. However, it is an auditor responsibility to detect material misstatements in the financial statement. Auditors are required to identify and assess the risk of material misstatement due to fraud and design procedures to detect such misstatement.
As internal auditors are integral parts of corporate governance, therefore their contribution is to ensuring the reliability and integrity for the financial statements of the company. Internal audit are also contribute in such as way where they are evaluating the operational performance of a company, ensuring the effectiveness of internal control system. Besides, internal auditors also review the financial reports to ensure its integrity and transparency so that useful and reliable information are available for the decision making. Moreover, this is to ensure a responsible governance is carried out and prevent fraud from happening. If so happen fraud occurs, internal auditors are there to carry their job to detect the fraud and correct the fraud especially in the financial statements which may threaten the reliability and quality of reports (Mihaela Ungureanu,
Auditors have a role to report an independent opinion regarding the truth and fairness of financial information presented to them by management which enhances the financial reporting system. The need for independence arises because, generally, users of financial statements do not have all the information necessary to judge the objectivity of the auditor. Auditors must not
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.
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.