The PCAOB should expand the requirements for auditors regarding going concern as-sumption and define them, so the auditors can improve their performance and gain back the trust of public. The focus of the paper is to show that current requirements prove to be insufficient for auditors for making correct assumptions. Unable to detect bankruptcies on time, lack of training to predict future and overconfidence of auditors hinders them in making accurate assumption about going concern reporting. The paper provides evidence for each hindrance followed by sug-gestions for improvement. It concludes with an alternative approach addressing the issues if management makes going concern assumptions as well as mentions conditions worsening due to regulations being eliminated.
AUDITOR’S CURRENT RESPONSIBILITIES
The auditing standards explain that during the course of an audit, auditors perform a lot of different tests to uncover misstatements. The auditors look for any information in the reporting process that could possibly affect the company’s operations within the next year (AU 341.01). With the help of tests, the auditors can assess whether the company will continue to operate. Auditors are not responsible for performing tests specifically for the purpose of finding evidence regarding going concern; however, they are responsible for disclosing any evidence or information they come across during the audit. Auditors communicate all evaluations to the management and the Audit Committee at the end of the audit.
INSUFFICIENT CURRENT REQUIREMENTS
Considering the above mentioned auditor’s responsibilities, they seem vague. Current requirements are not sufficient to gain back the trust of public. The bankruptcies prove that the auditor...
... middle of paper ...
...rn Judgments and on the Audit Opinion Decision. Journal of Business & Economic Research. Vol 9, Issue 9. Sept 2011.
Crystal, Mel. 2005. Food for Thought. The CPA Journal (NYSSCPA). January 2005 Online Issue.
Edgar Search. SEC filing. Retrieved from: www.sec.gov
Mayew, William J., Mani Sethuraman and Mohan Venkatachalam. 2012. MD&A Disclosure and the Firm’s Ability to Continue as a Going Concern. Business Complete Source Database. Nov 2012.
Radin, Arther J. and Miriam E. Katowitz. 2013. Should Auditors Opine on Going Concern? The CPA Journal. Oct 2013 Issue. Pages 6-9.
Sikka, Prem. 2009. Financial Crisis and the Silence of Auditors. Accounting, Organization and Society. Elsevier. Issue 39.
Venuti, Elizabeth K. 2004. The Going-Concern Assumption Revisitied: Assessing a Company’s Future Viability. The CPA Journal. Vol 74, Issue 5. Pages 40-43. May 2004.
Going concern issues in financial reporting, as discussed in Australian Auditing Standard ASA 570 , applies to all audits performed on a set of financial report in accordance with the Corporations Act 2001. A
Integrity in the accounting profession involves adhering to the rules and principles of the profession. This includes remaining free of conflicts of interest and maintaining client relationships in which the accountant can remain objective in discharging his or her responsibilities. This requires independence in fact and in appearance as mandated under section 1.200.001.01, Independence Rule the AICPA Code. In other words, no one should be able to view the accountant as being biased with respect to a client’s financial reporting due to an improper client relationship. Lack of integrity in accounting practices has been, and continues to be, a key element in the downfall of many institutions which has hurt the public trust in the accounting
...ions and to provide a thorough analysis of the reports and statements prepared by the internal auditors before certifying their validity. Auditing in order to be an efficient form of corporate governance needs to be pro-active and watchful. Satyam’s case provides us with very useful practical lessons that can be applied to ensure efficient corporate governance. Useful practices to reduce the risk of poor auditing performance may include (a) periodic rotation of audit firms and audit firm partners, in order to avoid collusion between the to entities and reduce dependency; (b) regular peer review, to expose possible fraudulent activities or negligence; (c) evaluation of reports of audits, transparent corrective actions and clarity in reports, which can enhance and ensure trustworthiness in the auditing system as an efficient and effective form of corporate governance.
This chapter relates background regarding the insight of the organization under review and the problem. Subsequent sections state the statement of the problem, main topic, sub research questions, research objectives and significance of the research. The chapter also examines delimitation and limitations of the study. Definition of technical terms are given at the end of the chapter. 1.1Background of the study Marx ,B etail(2004) asserts that the audit quality is the basis of the credibility of the financial statements.
Most of the regulators believe that the reason why the audit quality is reduced is that the auditors will get extremely familiar to and comfortable with their clients’ management, human resources and specific situation. According to Barbara et al. (2006), the auditors have a high probability to have a willingness to please the companies which makes the auditors loss attention to the real substantial problems behind the financial statements. Therefore, regulators give the suggestion to carry out mandatory audit firm rotation to enhance the audit quality, of course with auditor independence, and stimulate auditing professional scepticism (Barnier, 2011).
Audit is an examination or evaluation of a process of financial statements which are checked and defined for reliability and accuracy these documents. The audit provides the important accounts date about a conduct of the company not only for first-party audit’s benefit but also for outside agent (for customers, creditors, shareholders or another organization). Audit searches the issues of records, income statement, balance sheet and cash flow in order to determine the risks of business and moreover, helps to remove any slopes. As it was mentioned, there are different types of audit: internal and external (first-, second- and third-party audits).
Keywords: Professional Skepticism; Skeptical Judgment; Skeptical Action; Professional Judgment; Financial Reporting Quality; Going Concern Opinion; Discretionary Accruals.
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
Professional judgement is a necessary skill for preparers, auditors and regulators of financial statements to have. A professional accountant with good judgement will be able to serve the needs of businesses, the public and investors in the best way possible. Principle-based accounting will help preparers and auditors make and document significant accounting judgement. Guidance is also provided for regulators involved in assessing key judgements, and recommendations are made for standard setters in maintaining and producing principle-based standards which provide the scope for professional judgement. The framework is intended for different sized companies. The audit committees have a key role in challenging initial judgements. They speak to the auditors and make recommendations to approve key judgements. As business transactions become more complex, the validity and usefulness of financial reporting relies on good judgement to be made. We believe that a professional judgement reinforces the quality and integrity of the judgements made and also trust in the operation of principle-based financial
One of the responsibilities of Audit Committee in corporate governance is to ensure the quality of the company’s financial reporting. By doing so, Audit Committee should review significant financial reporting issues and judgment so as to ensure the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance. Besides, they have to review the financial statements and disclosures of notes in the financial statement, and annual and provisional remunerations news announcements before they are publicly disclosed. Additionally, the Audit Committee should review arrangements by which staff if the company may, in confidence, raise concerns about possible irregularity in matters of financial reporting or other matters to detect fraud. The Audit Committee objective is to ensure that arrangements are in place for the independent investigation of such matters for appropriate follow up action. Badolato et al. (2014) (BDE) examine the effectiveness of Audit Committee financial
...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.
Moreover, the domination of the Big Four firms can standardize the business process in order to help to improve personnel efficiency and performance and protect the confidentiality in the field of auditing. Confidentiality is a significant issue in auditing for a professional auditor. Thus, as a professional auditor should secrecy the information of the business and should not be disclose a...
The auditors are responsible for the quality of individual audits, and should seek to ensure that the quality audits are conducted consistently. A quality audit is likely to be reached in the auditor's opinion on the financial statements are reliable, and which is based on sufficient appropriate audit evidence obtained by a team those exhibit appropriate values, ethics and attitudes.
4) . One of the largest bankruptcies in history was enabled by accountants hiding debt and destroying the evidence to avoid implication (Buckstein, part 2 pgs. 1, 2, and 3). These unfortunate events led to the need for increased scrutiny and regulations, including the Sarbanes-Oxley Act (Buckstein, part 3 pg 1). This legislation inspired the creation of the Canadian Public Accountability Board (CPAB) (Buckstein, part 3 pg 1). These changes have led to an increased awareness of the need for auditor independence as well as higher standards for accounting and business in general (Buckstein, part 3 pg 1). While these measures have helped to reassure the public, there is still the question of why Accountancy is not a protected
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.