Post-implementation Challenges of the Model Audit Rule - Research Paper Example

? “Post-implementation challenges of the model audit rule”. “Post-implementation challenges of the model audit rule”. Auditing theory and practice is areas of study that specialized in making people comprehend the critical elements that lead to successful auditing. It fully analyzes and examines into details the structures and requirements of the auditing process. It is a detailed examination since it covers the purpose and nature of audit, auditing ethics, and standards. It also includes planning, assessing risks and materiality, evaluation of the internal control system and the accounting system, and test of controls. Audit theory and practice also covers other areas that include the basis of audit opinion, legal liability of the auditors, and examination of frauds, audit evidence, and audit programs. For an audit to be successful, the above factors have to be analyzed critically so that the auditors achieve clarity (Reed, Shedd, Morehead, and Pagnattaro, 2009, p. 39). The auditors have to ensure that they carry out the work professionally in accordance with the laid down policies and procedures. They have to ensure that they follow the guidelines which include the auditing standards that guide them during the process of the audit. The client entrusts the auditors with the responsibility of carrying out a substantive test meant to evaluate the subject matter to provide an assurance to the intended user concerning the subject matter. The auditor faces many challenges before the audit process, during the auditing process, or after the process (Moeller, 2004, p. 39). Auditing relies on sampling and estimation of values which makes the credibility of the process doubtful. Lack of sufficient information is one of the challenges that auditors face during the process hence making the process difficult to accomplish within the given time. International Auditing Standards requires that auditors obtain a lucid understanding of the company being audited and its environment. This understanding of the internal control system will help them identify misstatements that are material in the statements that may arise due to fraud or error. To avoid post audit problems that may arise, the auditors have to analyze the process that the company adopts critically to identify business risks. Post audit challenges are the challenges that auditors face after completion of the audit process. These challenges make the process an excellent training for the executives. The Model Audit Rule is a collection of accounting standards that govern the audit process. It ensures that auditors ensure financial stability and proper governance to the various companies who consult them for their services. An internal control financial report is a basic requirement in the Module Audit Rule to ensure that professionals formulate controls. It also ensures that controls are operating as intended (Vasarhelyi, 2005, p. 77). The main role of this rule is to enhance oversight of financial stability of various insurance companies. It has the responsibility of setting the guidelines that govern auditor’s independence and create rules for the audit committee. Influence of legal, regulatory, and social environments on audit theory and practice Legal, regulatory, and social environments have absolute impact on audit theory and practice. The legal environment entails criminal liabilities for auditors, auditor’s liability to clients and third parties, and their responsibility to detect frauds and errors. This is a tremendously vital part during the audit process since it governs the conduct of the auditor during performance of the audit. The legal environment is particularly vital in reduction of post implementation challenges that will arise after the Model Audit Rule is introduces (Cheeseman, 1997, p. 79). A detailed analysis of the legal environment concerning the Model Audit Rule is necessary to ensure that companies and auditors understand the requirements of the rule. This will cut the cost of the companies and reduce disruptions after implementation of the rule. The auditor has a liability to both clients and third parties. The various bodies that describe the liability include common law, statutory law, or professional organizations. The auditor has a responsibility to demonstrate that there is reasonable investigation before they give the conclusion on the financial statement. The insurance companies should ensure that they understand and are aware of their liability to the society (Ciampi, 2009, p. 102). This will play a pivotal role in ensuring that auditors reduce the challenges that may arise after implementation of the rule. The regulatory environment is also a key factor that affects the challenges that an insurance company will encounter after implementation of the audit rule. The Model Audit Rule documents the rules on regulation that govern the operation of insurance companies. The companies should ensure that they comply with these laws that govern their operation. A post implementation challenge that may arise due to non compliance includes closure of operation license. The insurers should formulate formal audit committees to meet with external auditors periodically to discuss the insurer’s control environment (Moeller, 2004, p. 63). This meeting should take place in the absence of the management. Every audit committee is responsible of appointing, paying, and overseeing the external auditor. Post implementation challenges that will arise due to the absence of appropriate market study may affect the companies negatively and positively. Implementation of the Rule is expensive to the companies due to the various changes that have to be implemented. Social environment is the field that encompasses environmental effects of the actions of an organization. It refers to the approach of reporting the activities of a firm which identifies socially responsible behavior. It also identifies the people to whom the companies are socially responsible to, and develop appropriate reporting techniques. The conduct of audit should be in a manner that is socially responsible to the companies. The auditors should carry out the process in a manner that displays professionalism, and in accordance with the stipulated regulations that govern the conduct of the activity. The auditors should meet the expectations of the society by conducting themselves in a socially responsible manner when carrying out the audit. They should relate responsibly with the client for proper coordination to exist between the two parties. The final decision on the financial statements depends on the information that the clients gives concerning the company. Material misstatements in the financial statements may arise if a client does not provide relevant information that is necessary for the audit. Professional bodies expect the auditor to behave responsibly so that they relate well with the client, and obtain the necessary information regarding the financial statements. Ethical dimensions of audit theory and practice Ethics is a branch of philosophy that deals with systematizing and recommending concepts that are wrong or right of behavior. It includes the study of meta-ethics that analyze the meaning of moral propositions and determination of truth values, normative ethics that determine the course of action to be taken, and applied ethics which determines how people achieve moral outcomes in various situations. Ethics defines the character of a moral agent which acts as a driving force for behavior that is ethical. Ethic is extremely beneficial in one’s life since it determines the most appropriate course of action that man should adopt under various circumstances. It governs the behavior of people in their daily activities as it identifies right or wrong human endeavors. It is particularly essential in audit theory and practice since it governs the conduct of the process (Cheeseman, 1997, p. 62). The auditors should have a responsibility to identify the right and wrong behavior so that they act in a professional manner. Ethics is a key factor that auditors uphold since it determines the level of evidence and information that clients will deliver during the audit process. This will determine the level of assurance that the auditor will give to the client concerning the financial statements. For the auditor to come up with sufficient information to prove that financial statements are true and fair view, they have to posses’ sufficient information regarding the financial statements, the internal control system, and the company itself. The auditor only makes the final decision concerning the paper after relevant materials concerning the financial statements are available. Ethics is a requirement for human life since without it; ones actions will be aimless or random. Ethics provides a basis of the conduct of the audit process. It helps the audit companies to organize the various goals to be achieved, and the various actions that have to be done to accomplish fundamental values (Vasarhelyi, 2005, p. 87). The International Auditing Standards has come up with the ethical codes that they expect auditors to follow. It highly calls for etiquette during performance of the audit. Auditing standards require the auditor to relate professionally with other members of the staff. This will lead to harmonious interactions and performance of the audit. The Auditing standards call for ethical behavior since it is audit is an exchange process that demands interactions of both parties. The auditor has a responsibility to advise the client where weaknesses in the internal control system exist. They should provide the correct action that the company should take to avoid experiencing same problems in the future. The client also has the responsibility of providing all the necessary information that is vital for the audit process. This information is tremendously crucial since it will enhance identification of the factors that will lead to misstatements in the financial statements. Ethics is an immensely powerful practice during the audit process. Audit process expects people to act in an ethical manner to one another in the work environment to assist one another come up with solutions for various problems. In cases where an auditor faces a dilemma, ethics assists them identify the appropriate course of action that they should take. It enables one to put priority the things that are right. There are various standards that should guide ethics in a person's life. For us to have a proper foundation of ethics, we need a standard of value to compare all actions or goals. This standard is happiness and one’s own life which make them livable. This is the standard of value that ethical man should aim. Man can achieve this by examination of the nature of man, and recognizing various, peculiar needs (Vasarhelyi, 2005, p. 59). A good system of ethics should consist of the choices that we make constantly on a daily basis. It guides on selecting the best course of action that a person takes on various occasions. It enhances ones relationship with others and recognizes the importance of other people for ones physical survival and happiness. People need one another in order to exist together in this life. We must be ready to help one another in every occasion where other people demand ones help. Ethics calls people to practice integrity, honesty, justice, and rationality. Integrity is extremely vital since it enhances the level of assurance that the auditor gives on the financial statements. The auditor relies on the information available to prove that financial statements are true and fair view. The client in expected to disclose all the relevant information which the auditor needs for audit. They should submit the information in a manner that indicates a high level of integrity. Pride is also a fundamental aspect that should be discouraged in the process of audit (Moeller, 2004, p. 89). The clients should deliver relevant information to the auditor, and avoid any chances of pride that may arise during performance of the audit. Implementation of the audit rule requires firms to adopt high levels of ethics. This is because ethics is the only way that will guide the companies to comply with the new rules and regulations. The auditing standards and organizations stipulate these rules in the Model Audit Rule by auditing standards and organizations. This role requires the professionals in the insurance and auditing companies to acts in a precise, professional manner. Failure to comply with this requirement leads to challenges that will result after implementation of the rule. The challenges include problems like loss of financial stability that leads to poor performance. The companies will not be able to compete effectively with other firms in the industry leading to closure. This rule should oversee the financial stability of insurance companies (Hargie and Tourish, 2009, p. 98). This is a process that demands ethics to be observed in setting guidelines that should govern the auditor and the audit committee. Ethics is a tremendously valuable practice during performance of audit and implementation of the Model Audit Rule. It is an area of substantial concern that all companies should put into consideration before undertaking any actions. It will guide the company to act responsibly to avoid experiencing challenges that will affect its operation. Emerging trends, technological influences, or social influences, and their implications in the theory and practice of audit There have been changes in the field of auditing in every year. Auditors realize these changes through the advancement in technology that has impacted performance of various practices positively. We have a role to ensure that we get updates on the latest emerging trends in the Information Technology Security and Audit community (Rad and Ingley, 2010, p. 105). The advancement in technology had made the conduct of the audit process easy and beneficial to the clients. Auditing in a computer is accurate since we maintain all the information on the system. Clients minimize cases of omission of information that is relevant for the practice and this impact the financial statements being true and fair view. It is a process that is fast as compared to auditing manually since confirmation and verification of information is easy through the computer. Vouching of the properties of the company is also easy since the computer will determine variables such as depreciation for the auditor (Ciampi, 2009, p. 66). This makes the auditing practice to be remarkably easy and convenient. Information technology auditing developed due to the rise in technology in accounting systems and the ability of the computer to perform various attestation services. Introduction of computer technology has led to changes in the way we store, control, or retrieve data. Auditing around the computer started long ago when people used mainframe computers. During this time, only few people had knowledge of computer software and programs. When inventors introduced small computers on the market, their use in business made auditors familiarize with Electronic Data Process (EDP) concepts in business. The advancement in computers came with the rise of different accounting systems. The industry realized the importance of computers in the field of auditing and came up with the Auditing Software. Auditors have come up with the Electronic Data Processing Auditors Association to produce the guidelines, procedures, and standards to govern performance of EDP audits (Reed, Shedd, Morehead, and Pagnattaro, 2009, p. 39). There are main emerging issues that have highly impacted the auditing process and include microcomputers, networking, and the internet. These have made the process particularly easy to carry out (Hargie and Tourish, 2009, p. 42). Microcomputers are extraordinarily small in size and hence mobile to carry around. This has impacted positively on performance of the audit since the auditors can carry it anywhere and conduct their procedures. They have also enhanced the recording of the financial statements of various companies since the clients can update information wherever they are without struggle. The internet has made an outstanding contribution in the performance of audit. It provides all the relevant information that the auditors and clients need during the process. Where there are problems with determination of the prevailing market rates, the internet serves as a valuable source of this information. The internet has also enhanced communication between the auditors and the clients during performance of the audit. The auditor does not have to visit the client so that they can communicate face to face. The use of video conferencing has played a vital role in ensuring that it enhances communication. The use of technology in auditing has led to reduction of many costs that an auditing company incurs during the auditing process. Technology reduces the cost of transport where the subsidiaries of the company under audit are far (Vasarhelyi, 2005, p. 39). Computerized auditing reduces other costs of visiting the client every day during the audit since people can communicate and verify all the materials online. The rise in technology of E-commerce and the internet is the main factor that has facilitated to the growth in IT audit. The internet has led to increased businesses, crime, and entertainment. IT auditing helps individuals and organizations on the internet to acquire security while assisting communication and commerce to flourish. Computers have enabled the auditor to undertake various methods that aid in the performance of the audit. These processes include parallel simulation, which processes the, client’s data through the auditor’s software to determine the possibility of errors. This process verifies actual transactions and thus giving the customer the actual results. The process saves time for the auditor to concentrate on various key controls by testing portions of the system. Advanced technology in auditing facilitates the auditor to adopt various software that lead to completion of the process. These include embedded audit modules, system control review files, and transaction tagging. These software aids in determining the audit trail of the transactions of the client. The auditor is also able to test the data of the client by using either controlled or simulated data. The auditor achieves this by applying various techniques for instance test data, integrated test facility, controlled reprocessing and parallel simulation. The growth in information technology auditing has led to many advantages that both the Auditors and the clients enjoy. This positive impact has made the process of auditing to be extremely easy and practiced by many people. Many companies in the world have adopted the concept of auditing their financial statements to determine their financial stability. This acts as an indication to the future of the organization’s performance. Many people have adopted it since it is not tedious like before, but auditors can carry out an easy process on the system. The clients are able to enjoy other non audit services from the auditor like preparation of financial statements. Auditing is a tremendously valuable practice to an organization. For instance, when a company applies for a loan from a financial institution, they must provide audited financial statements for their request to be considered (Hargie and Tourish, 2009, p. 78). Advancement in technology enables the auditors conduct the audit process within an unusually short time since they waste less time when vouching and verifying properties. The auditor can easily vouch all the documents since they are available in the system. IT audit is exceedingly easy to carry out since the computer carries out all the computations. Software for manipulating data is easily accessible, and this makes the process easy. The auditors carry out post audit operations in a computerized system. Post audit operations include verification of credit reserves for nefarious debts that the Tax Law of Corporations stipulates. The auditor verifies the reserves for credit reserves that the accountants have allocated for critical debts. This is decidedly vital in the computation of the tax returns that should be submitted to the taxation offices. The auditor produces charts and lists that clearly demonstrate the amount of coarse debts and size of capital. This assists the management in assigning the correct amounts for fraudulent debts and forwarding the correct amount as tax. IT has enabled financial auditing since the auditor applies business rules and carries out complex calculations on an unusually large volume of transactions (Ciampi, 2009, p. 52). It enhances timeliness, accuracy, and availability of information during the audit process. The auditor monitors the performance of the policies and activities of the entity. IT enhances the effectiveness in segregation of duties through implementing controls in databases, applications, and operating systems. The audit process should be carried out in a professional manner to avoid chances of challenges that may arise after completion of the audit. Computerized auditing should be adopted since it is more efficient as compared to the normal auditing. It has many advantages that lead to credibility of the results that the auditors achieve. The Model Audit Rule is a collection of rules that govern performance of the audit process. Introduction of these rules has both negative and positive effects to the companies under audit. The auditors should carry out the audit process keenly to avoid chances of adverse effects of implementation of this rule. A proper analysis of the market should be carried out to ensure that organizations are aware of the possible changes that will occur. This will help the company to formulate various changes that will lead to successful adoption of the changes. Changes will always take place and lead to a better environment of operation of an organization, and thus people should always take them positively. References Cheeseman, R. H. (1997). The legal and regulatory environment: contemporary perspectives in business: Prentice Hall Ciampi, F. (2009). Emerging Issues and Challenges in Business & Economics: Selected Contributions from the 8th Global Conference: Firenze University Press Hargie, O., Tourish, D. (2009). Auditing organizational communication: a handbook of research, theory and practice: Taylor & Francis Moeller, R. R. (2004). Sarbanes-Oxley and the new internal auditing rules: John Wiley and Sons Rad, T. A., Ingley, C. (2010). Handbook on Emerging Issues in Corporate Governance: World Scientific Reed, L. O., Shedd, J. P., Morehead, W. J., Pagnattaro, A. M. (2009). The Legal and Regulatory Environment of Business: McGraw-Hill/Irwin Vasarhelyi, A. M. (2005). Artificial Intelligence in Accounting & Auditing: International Perspectives: Markus Wiener Publishers Read More