AWA Ltd v Daniels Case - Assignment Example

Name: Lecturer: Course name: Course code: Date Part one Question one Introduction There has been problem with auditor’s negligence and consequence of it not being fare to practitioners who commit the fraud, auditor’s independence as well is in deep query and therefore the shareholders are worried of their wealth. Audit committee is the present practice that has been put in place so as to reduce consequence of auditors conspiring with executives to commit fraud. An audit committee consequently acts as supervisory body of shareholders in guaranteeing that auditors execute their audit work in lawful and prearranged auditing standards. Auditor independence has been put into apprehension because evidence of collusion with directors is eminent in recent years such as the fall of HIH. The auditor didn’t put into practice the audit independence, honesty and adhere to the auditing standards in performing their audit work. The Case of AWA Ltd v Daniels (1992) 7 ACSR as far as to auditor’s negligence is concerned Rodgers J in AWA Ltd v Daniels (1992) 7 ACSR 759 stated that “that placing reliance on others is just difficult to deal with if the circumstances are so undemanding, noticeable as well as basic of approval that no single individual with whichever scale of suspicion would place reliance on the direction that has been given, now seems to be covered. It consequently conclude that an auditor’s carelessness will be liable personally due to the fact that he is mandated to appreciate capability as well as professional sceptism in order to keep away from auditor’s legal responsibility. Carelessness is unlawful; where an au practitioner is found responsible of the carelessness in his audit work he will be incarcerated. Consequently auditor should observe duty of care as far auditing is concern. Question two State of regulation of auditors and the understanding of auditor independence prior to HIH collapse The law forbid auditors from executing other audit service and require to be free of interest that is deem unable to get along with the purpose as well as the truthfulness of auditors. The insight of independence is indispensable to auditing, since the auditor’s aim is to advance, through the appearance of a sovereign conclusion, the dependability of the reported financial information of an entity’. Having regard to the significant allowable as well as consent to when there is a failure by an auditor to advocate his or her independence and the significance on disclosure, the Working Party is not legally responsible to the fact that any exact restraint ought to be placed on non-audit services prior to it being performed by the auditor (Reiner Quick, 2007). The Working Party is of the opinion that there are better underlying principle to require the existing disclosure requirements concerning to non-audit services to be extended to provide an extensive sections of the state of non audit services. Auditors independence encompass of audit fee, auditors safety as well as liberty so that they will not be under unwarranted pressure in making their own decision. Independence for an expert is a state of mind, No precise limits or provisions can realize independence. Conversely, some condition can contribute considerably towards the upholding of independence of mind, as well as the manifestation of independence. The law commands that an auditor will appoint during annual general meeting and he will hold the office for until the end of the financial year. In this case an audit is given freedom, security and independence of his audit work. PART TWO The role of auditors in the HIH crumple as well as other business collapses 1) Independence of Auditors In providing a dependable audit statement, an audit must to be self-determining and seen to be independent in his audit work because; gratuitous pressure will lead to deformation of audit statement in order to satisfy the shareholders of the corporation and put the materiality risk of the company at threat. It can be observed that the auditors of HIH were not independent in their audit work because, the recipient of ongoing benefits from Andersen, were made chairman and were selected to the audit board just 17 months subsequent to his confiscation. The engagement associate was made chief financial executive just the day after his acquiescence from the firm. The third was chosen to the board just five months following his seizure, having 'played a vital role in the assessment of HIH for 25 years. I therefore show how the auditor sovereignty was not effectual as well as result of auditor’s non-independence on HIH lead to collapse of the company. 2) Proficient sceptism A practitioner is mandated to execute their audit work with professional sceptism prior to giving a final verdict on the financial statement of the company. Professional sceptism guarantees that an auditor will execute audit work keenly in areas that is vulnerable to deception or of high materiality because, this might lead to bankruptcy of the corporation if appropriate audit is not undertaken. Consequently, the fall down of HIH was due to the auditors lack professional sceptism in establishing the, materiality of the books accounts and perceptive areas that requires in-depth audit so as to reduce audit risk. Regulatory/Legislative Independence of Australian company auditors Non-audit services provided to a company Auditors must to be evaluated yearly by the company’s audit committee, where there is non-existence of this board appraisal must be made by the full panel to convince itself that the non-audit services provided are not of the incident that would compromise the independence of the external auditor. An auditor might provide non audit services in this case an modification to this article states that, Providing that there is an continuing obligatory precondition to hold on to the sovereignty necessities of current standards rulings as well as auditing standards, the Law should not place any boundaries on an auditor who is executing non-auditing services for an audit customer (Prof. Dr. Christoph Watrin, 2007) The existing assessment of moral conditions by the accounting bodies, it is not compulsory that concentration be directed toward the provision of additional procedures for application in the more controversial areas of accounting services, internal audit as well as precise and distinct internal control appraisal to reinforce autonomy in these areas. The Working Party does not consider it as appropriate to do away with tendering as one of the possible method for deciding the auditor. On the other hand, the Working Party presumes that auditors of listed corporation should to be selected on the tender of an audit team. This postulation carries with it the expectancy that audit board will be directly concerned in the calling as well as evaluation of tenders where this method of variety is appreciated by corporations. The Working Party considers as well that the provisions of AUP 32 on audit tenders must to be embodied in the obligatory audit or ethical guiding principles of the accounting bodies. The proposal consequently conclude that, directives ought not to place any boundaries on the use of tendering as an method of concluding on a company’s auditors even if companies ought to be confident to reduce the amount of agreed tenders that is indispensable. Confiscation of an auditor from the office Any proposition to remove the auditor from office ought to be made under conversation of a steady disclosure notice to be filed with the ASX and/or the ASC, on the justification that it is imperative information this must point out good grounds for auditor’s removal from office. Equally any consent by an auditor ought to be the subject of a steady disclosure notice which involves a declaration of the auditor’s grounds for quitting. Correspondence involving the external auditors with the audit board There is an increase in debate on corporate governance topic particularly the development toward the proposal of audit committee as well as the strengthening of the accountability of non administrative executives (Malachowski, 2001). The Working Party is value the trends which it assumes that a significantly strengthening the accountability of the auditor. The Working Party as well supposes the provisions to intensify the level of communication among auditors and the board of directors Question three Auditor’s independence pronouncement If an auditor execute an audit of the financial statement for a financial year or a half-year; the individual auditor must supply the executives of the company registered system or disclosing body, a written report that, to the best of the auditor’s understanding as well as self-assurance, Any appropriate policy of qualified conduct in relation to the audit is those infringement particulars and is mentioned in the auditor’s statement, Documented statement that, to the best of the auditor understands and belief, the single infringement of: The auditor autonomy necessities of this Act in relation to the audit Any appropriate policy of qualified conduct in relation to the audit is those infringement particulars and is mentioned in the auditor’s statement. No infringement of the auditor independence, requirements of this Act in connection to the audit No contraventions of any appropriate policy of proficient behavior in relation to the audit. Endorsement of auditing aptitude standard ASIC must not approve an auditing propensity standard, of an auditing capability, if the auditor has not satisfy the standard, or the standard as intended to be dissimilar, provides that a individuals presentation against every element of the standard is to be correctly recognized by a person who is accepted by corporation auditor and has enough individual acquaintance of the person’s work to be capable to give that confirmation. ASIC might on compliance by any individual, approve an auditing ability standard the endorsement must to be in writing. If, on submission by an individual, ASIC endorse an auditing capability standard under subsection (1), ASIC possibly will, on submission by that individual, endorse a distinction of the standard. The endorsement ought to be in writing. Question four Review of the Regulatory/legislative response: The provisions that were ratified as further improvement to the Corporations Act and the rationale If an auditor is not an member of an accounting body that is a licensed accounting body request listing as a corporation auditor, he or she must put up with by the guiding principle of morals as well as other regulations of the certified accounting body to which they tender their submission on the similar basis as affiliate of that body (Leonard J. Brooks, 2009). Where a rightful accounting body has in place a potential standard in auditing that has been accepted by the ASC, candidate should guarantee the audit element of the expertise standard in so as to be listed. The ASC have to be satisfied about the appropriateness as well as workability of the audit constituent of a certified accounting entity’s skill standard. Prior to that standard, an auditor may be accepted for use by the justifiable accounting entity as a basis for deciding whether a candidate meets the levelheaded know-how thresholds for listing as a company auditor. The Law ought to be revised to provide that a proposed alteration to the auditor of a disclosing body is a constant disclosure matter as well as The Law ought to provide that any proposal for engagement of practitioner of a disclosing body should enclose information on the proposed audit remuneration. On the side of moral safeguards, the accounting bodies should dictate an adequate level of education of specialized as well as business ethical principles as a prerequisite to granting course certification to tertiary establishment for graduates entering the training plans of the accounting entity. Conclusion Where an auditor is to provide non audit service to his client, the auditor board will be authorized to appraise the non audit service yearly so as to guarantee reliability of audit and non audit service. Auditors are practitioners who are required to execute the audit work with professional sceptism and as well determining the material level of the company’s books of account. The crumple of HIH was contributed by the failure of auditors to observe the moral practice as far as auditing and accounting is concerned and consequently improvement in the auditing and accounting body was pertinent. The modification will lead to auditor harsh fine as well as the law will be comprehensible skill as well as qualification of an individual who want to be an auditor of a corporation, Issue of auditors' liability/negligence and auditor independence and the regulatory/legislative response Auditors are mandated to be autonomous in their audit work and their statement must be based on facts collected from the corporation books of accounts and not any modification (Emile Woolf, 2011). Where the auditors finds that their sovereignty is impede, the law commands him to incorporate this obstruction in his audit statement as a disclaimer of opinion because, the audit statement will be used by investor in placing reliance as whether to purchase or marshal a security based on a given state of financial statement provided by the audited report of accounts. In minimizing the outcome of auditor’s carelessness and their sovereignty, the regulatory standards provides that an audit committee shall be created so that it can supervise the work of the auditor and also establishing the relationship between the auditor and the directors so to reduce chances of auditor and director conspiring and to commit deception. The audit board consequently acts as a shareholder’s supervisory body. auditor’s carelessness is illegal and consequently a practitioner who is found to be inattentive or perform a deceitful entries in the company’s books of account will be incarcerated given that accounting and auditing standards states that an auditor ought to be autonomous and seen to be independent during his audit work and consequently the statement should be free from material misstatement or result of unwarranted pressure. Reference list Emile Woolf, ‎. H. (2011). Audit and Accountancy Pitfalls: A Casebook for Practising. Gupta. (2004). Contemporary Auditing. Leonard J. Brooks, ‎. D. (2009). Business & Professional Ethics for Directors, Executives . Malachowski, A. R. (2001). Business Ethics: Critical Perspectives on Business and . Prof. Dr. Christoph Watrin, ‎. S. (2007). United States and European Union Auditor Independence . Reiner Quick, ‎. T. (2007). Auditing, Trust and Governance: Developing Regulation in . Read More