How Audit Profession Has Arrived at the Position Where It Is Constantly Criticised - Assignment Example

AUDIT FRAMEWORK Contents Introduction 3 Discussion 3 How audit profession has arrived at the position where it is constantly criticised? 3 2.Benefit of audit to its stakeholders in a company 4 3.Critique of the audit report in its current form 6 4.improvements in process of auditing contained in the audit report 7 Information contained in the audit report 8 Conclusion 9 References 10 Introduction The audit profession has been criticized and it mainly faced the criticism during the period of global financial crisis prevailing in the economy. The profession faced criticism highlighting the loop holes related to the fundamental purpose for conducting external audit and analyzing whether the information included in the financial report reveals the financial position of the company. Discussion 1. How audit profession has arrived at the position where it is constantly criticised? The need and the requirement of conducting the consolidated and the annual accounts of the companies that is mainly audited by the qualified audit professional which is introduced and Formulated for the whole community by the accounting directives and the audit report is designed and prepared with the intention and aim of protecting and safeguarding the interest of the public. The assurance that is provided by the auditor through the preparation of their report is to develop and enhance the confidence of all the interested parties of the respective companies. The rise and the increase in the transparency developed from harmonizing the financial information that is mainly published and released by the respective companies together with the rise in reliability of the information due to the audit that is conducted by the qualified and the independent professional who are regarded and considered as the important and the main contributor (Gupta, 2004). The aim and objective of the auditor is mainly dynamic rather than a static in nature. Tesco was compelled to write off its profit of around 263 million pound which is followed by an internal investigation. That have initially miss stated and manipulated its profit of the half year by around 250 million pound. PWC has provided a clear bill highlighting the recent annual report of the commercial income where it was observed that PWC has overstated the profit of Tesco. PWC has warned and revised in the previous year from the annual report of the annual report of the company that is subjected to the risk of manipulation.PWC has played the role of the auditor of Tesco and has always remained in the spotlight by the admission of the retailer that the profits were overstated. But PWC could not be blamed directly or held responsible for the trading statement of Tesco when it has overstated the profit of the company because the statement was being signed off by the board of Tesco without taking into consideration the requirement of the auditor’s approval as stated by the shareholders of the company (Dauber, 2009). The Enron scandal is being considered as one of the most severe and biggest failure. The company encountered the scandal as it included many defects that were found and observed while applying the GAAP standard of accounting principle and the auditors of Enron had to encounter severe problems for the loop holes that were found in implementing the accounting practice. The auditor of Enron that is Arthur Andersen had failed in advising the appropriate accounting treatment and also other related documents. The Madoff Ponzi encountered fraud and its impact and influence on the global financial market. Madoff was encountered for committing fraud and deceiving many professionals, countless investors as well as the main and important regulators that is the Financial Industry Regulatory Authority and the Securities and Exchange Commission. 2. Benefit of audit to its stakeholders in a company Audit is considered and regarded as the activity that is carried out for the interest of the public. The audit report is prepared and developed with confidence and focus in the financial statements and also providing credibility to the respective companies and also providing benefit and comfort to the stakeholders of the companies. The companies can gain or receive benefit from the depth and the understanding that the auditors generally have relating to the business process and the wide and broad market environment. Audit provides a deep understanding and overview of the opportunity for the auditors in order to focus their knowledge of the market sector in front of the public and captivating the audit value for fulfilling the public interest, the observation of the auditors and the shared knowledge and the understanding are combined together in the environment that safeguards and protects the confidentiality of the clients in order to prepare and publish the report. The benefit of audit to its stakeholders is it increases the level of understanding and awareness among the stakeholders regarding the important aspects or elements related to the audit quality. The audit assist and encourages the national as well as international audit firms and also the professional accountancy organization to reveal and develop the quality of audit and communicating the information in a better and proper way about the quality of audit (Sharma, 2011).The audit enables the stakeholders to identify and recognize the various elements and factors that requires serious attention and priority in order to develop and enhance the quality of audit. For example the standard or the framework that has been prepared or developed by the auditor is transferring the information that is supported with the governance about the quality of audit and encouraging or supporting it for taking into consideration the roles required for its enhancement. The stakeholders are required to fulfil the relevant standard of auditing and also maintaining the quality of audit for controlling the audit firms and the ethics and also other important regulatory requirements. The framework that is developed and formulated by the auditors with the aim and the objective of raising the awareness of the stakeholders for various important and essential elements regarding the quality of audit that is explained and described in the framework that differs and varies according to the importance that affects and influences the quality of audit in various way (Griffiths, 2012). The auditor of the Madoff and the chief financial officer have been found guilty for the conspiracy of committing fraud in securities and also other fraud that is associated with it. The scandal that was faced by Tesco is through the early recognition and payment of cash from the suppliers in order to conduct the bid for boosting up the profit and the sales figure. 3. Critique of the audit report in its current form The audit committee is required to play an important and crucial role in adopting and monitoring the new rules and regulations. The auditors generally performs crucial and critical role in the system of financial reporting by monitoring the management, overseeing and the participation of the auditors in the process of financial reporting of the company. It can be observed that there are significant changes in the technological development of the market and increasing or raising the pressure of the companies in order to fulfil the earning expectations that makes the audit report more important for the process of financial reporting in order to remain credible and responsible (Tritschler, 2013). The audit committee of the company and its relation and interconnection with the auditors of the company and the management has been developed in order to promote the confidence of the investors in order to develop the scenario of integrity in the process of financial reporting. The scope of audit includes or comprises of the listing of items or elements that are considered as a part of the audit which includes the management discussion and analysis, financial statements and the internal control. These items are considered and regarded as an important part of the audit that can be ascertained or determined by determining what the national legislators wants to prescribe and the demand of the audit committees, the findings of audit deals with the auditor’s conclusion or the end of each of the materials or items that are considered and included in the preparation of the audit report. The auditor discussion and analysis includes the findings and observation of the auditor relating to each of the items that are considered as an important part of the audit. The discussion of the audit includes the items that will facilitate in understanding the conclusion provided by the auditor as the auditor is concerned with transferring the responsibility or the duty of the auditor to the users of the audit report. The information about the auditor explains the references that is required by the audit firm in order to maintain the transparency in the report that is being prepared by the auditor and the report that is prepared in order to provide the deep understanding and overview which allows the users of the audit report to develop and generate an opinion about the quality of report by the auditor (Roy and Edwards, 2014). The objectives of audit has undergone change and modifications in the last few years due to the presence of auditing in order to suit the varying needs, demand and expectations of the society. It has been found that the modification in the needs and requirements and the various expectations of the society is influenced and dependent on the factors such as the political, economical, social and environmental. Therefore it is found that the development and the historical overview of auditing has enabled to interpret, analyze and understand the development of auditing and the changes or modification in relation to the expectation of the society. 4. improvements in process of auditing contained in the audit report The auditor’s report is too prepared in such a way that: The audit report is highlighted with significant and remarkable financial reporting and the judgments that is made by the management of the company in preparing the entity of the financial statements that in the judgment of the auditors the users are required to consider the understanding of the financial statements which includes the disclosures of the relevant assessment of management as a going concern. It is the responsible for the auditor in reading all related information included in the annual report and considering whether the auditor is aware of the inconsistencies and the unresolved material with the audited financial statements. The auditor is required to explain the respective role and responsibilities of the auditors, those who are assigned and charged with governance and management and at the same in order to make it convenient for finding the audit and the information that is entity specific by restructuring the audit report. The auditor reporting is required to provide greater understanding that is based on the audit but the auditor is not required to consider the factual data or the information about the particular organization or entity (Armstrong, and Stephens, 2005). The changes or the modifications that are required to be maintained by the auditors in order to increase the effectiveness and efficiency of the relationship and the interaction of the auditors and those who are accountable for maintaining the governance and the process involved in the financial reporting. The auditor’s report reflects the form of communication and also supports the changes and the modifications that are designed to communicate properly the information that is relevant important and useful to the users of the report (Sherer and Turley, 1997). It is required to include in the auditor’s report the respective roles and responsibilities of the management and those that is responsible for governance of the auditor. Information contained in the audit report The audit report is required to improve and maintain the quality of the audit enhances and develops the value of the audit to the users of the audit report and increasing the reliability of the information that is disclosed in the public report. The audit committee is required to participate properly in order to perform the function effectively and efficiently. Therefore the auditors are required and expected to fulfil the standard of auditing and the quality control of the audit firms. The audit report is required to provide reliable and timely information in order to meet the requirements of the users of the audit report. The duty and the responsibility of the auditor are to maintain the compliance with the disclosure of all information which is considered as an important and compulsory activity of the auditor. Conclusion The auditors are presently adopting the new rules and amendments for improving and developing the disclosures that is mainly related to the conduct of functioning of the corporate audit committee and to increase and enhance the reliability and the credibility of the financial statements of the public companies. References Armstrong, M. and Stephens, T., 2005. A handbook of employee reward management and practice. London: Kogan Page Publishers. Dauber, N.A., 2009. The complete guide to auditing standards, and other professional standards for accountants. Canada: John Wiley & Sons. Griffiths, P., 2012. Risk-based auditing. Burlington: Gower Publishing, Ltd. Gupta, 2004. Contemporary auditing. New Delhi: Tata McGraw-Hill Education. Roy A.C. and Edwards, J.R., 2014. Recurring issues in auditing: Professional debate. London: Routledge. Sharma, A., 2011. Auditing. New Delhi: FK Publications. Sherer, M. and Turley, S., 1997. Current issues in auditing. London: SAGE. Tritschler, J., 2013. Audit quality: Association between published reporting errors and audit firm characteristics. New York: Springer Science & Business Media. Read More