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The audit committee, which performs the audit, plays a very important role in preventing financial reports from being fraudulent. The auditors should be independent members with suitable accounting and financial expertise, to appraise the policies underlying the financial reports and to assess their validity. Auditors should ask pertinent questions to clearly understand every transaction, allegation or investigation that has happened. An audit aims to draw out the essence and truth from every answer and helps to examine the controls and processes, employed by the company, in any complex transaction that may be out of the normal process of controls.
The requirement of an annual audit prompts companies to establish an effective compliance programme, which will have anti-fraud controls, to detect fraud, and proper investigation conducted, if fraud is detected. An audit is like a tool that ensures that financial reports would be accurately created and updated, internal control system would be in place and proper reporting and investigation of improper actions would be made.
Most corporate fraud cases have originated at the highest managerial level. The multi-billion dollar cases of fraud involving WorldCom, Enron and Tyco International, were all results of the fraudulent activities of the respective chief executives of the companies. Tyco International’s CEO, Dennis Kozlowski, was charged with misappropriating 400 million USD of company money on an extravagant lifestyle and personal expenditure. Similarly, the cofounder and CEO of telecom giant WorldCom, Bernie Ebbers, got convicted for a fraud of 11 billion USD, in 2005. Kenneth Lay, CEO of Enron, was charged with a corporate fraud that ultimately resulted in the collapse of the company.
However, in spite of strict laws that have been instituted to prevent huge losses to shareholders, employees and investors, corporate fraud is
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Auditors are expected to ensure that an organization’s financial exactitude and accountability are maintained. Firms apply expert auditing as a tool to strengthen their operations through offering authenticated information that is important in making informed business choices to ensure competitiveness and profitability.
During this period, a relatively small number of accounting firms could perform audits for a relatively large number of entities. Professional accountants and auditors could render reports on the financial performance of different entities and could work for different investor groups.
The author states that public accountants, like other professionals, historically worked in professional partnerships or sole proprietorships. For many years professional accounting associations effectively controlled the form of Auditor organizations through explicit, formal restrictions.
Hayes, R., et al (2005) argued that a self-interest threat occurs when a member firm or member of the assurance team could benefit from a financial interest or other self-interest conflict with an assurance to client. Examples of circumstances that may create this threat include but are not limited to: a direct financial interest or material indirect financial interest in an assurance client; a loan or guarantee to or from an assurance client or any of its directors or officers; undue dependence on total fees from an assurance client; concern about the possibility of losing the engagement; having a close business relationship with an assurance client; potential employment with an assurance c
The factors include intimidation, self -interest and the like. The auditors opinion gives credence to the financial statements. The following paragraphs explain that independent auditors are the rule and not the exception (Snyder 2002).
In question 1 the different threats of independence as it is one of the most crucial characteristics of auditor. In question 2b, the ethical dilemma of the employee of a firm has been analysed with different point of view. In question 3 the liability of an auditor
From this definition the basic understanding of the purpose of audit is that auditors verify the financial information companies prepare and provide reasonable assurance to the shareholders and other stakeholders that this financial information is free from material
Scattergraph is used initially to investigate the possible relationship between two variables. Scattergraph shows if there exists a linear relationship or not between two variables. If the data points cluster around a
Although some experts have argued that auditing firms may still be able to legitimize their status by appealing to and incorporating professionalism in their practice, this is often difficult as they are often motivated to increase their profits and market niches just like other capitalist enterprises.
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