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Regulation of Auditors - Essay Example

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The use 'f a five-year-average effective interest rate has advantages and disadvantages. Specifically, while the measure is less exposed to single-year interest fluctuations and anomalies such as inverted short-term and long-term interest rates, it is a composite that, through the averaging process itself, makes detection 'f differences among firms more difficult…
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Regulation of Auditors
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Regulation of Auditors

Download file to see previous pages... Since the international companies are tracked in the database due to investors' interests, one could argue that already listed companies would not be expected to have as perceptible a signalling effect 'f auditor choice, as would be the case in an initial public offering. However, the point 'f the key research question is not event-related, but is, rather, intended to consider the cross-sectional equilibrium effective interest cost savings observable among companies in various countries associated with self-selection 'f a Big 5 auditor, when both the profitability 'f the company and the country in which the company is located are controlled within a multivariate context. Techniques that increase the power 'f tests by both controlling the mix 'f debt and equity, and focusing on the point in time 'f an auditor change are strengths in the research design. The longitudinal results permit the measurement 'f cost savings with greater precision than that which is possible in the broader cross-sectional approach. Since auditing is an annual process, it often involves long-term retention 'f a single auditor, and companies frequently do not go to the market on an annual basis. It is useful to extract the average observed differential in borrowing costs experienced by companies that self-select Big 5 auditors both cross-sectionally and longitudinally. The persistence 'f this differential in countries that reportedly have had little to no litigation (particularly for the five-year periods under study) suggests that the information and reputation effects, apart from "deep pocket" effects are valued. However, the diversity 'f such aspects 'f a country's business setting as litigation exposure would certainly affect the expectations regarding the insurance hypothesis and may create a lack 'f comparability across countries.
The nature 'f the work that uses a database estimate 'f effective interest is distinct from an in-depth examination 'f contracts and the joint selection process that exists in auditing, whereby the auditor accepts the client and the client chooses the auditor. It is difficult to attribute cause and effect, directionally, without more in-depth control for the manner 'f auditor selection. Intricacies within specific industries, particular debt and equity markets, and varying ownership structures, may need control to measure the magnitude 'f not only interest costs savings, but also the more complex cost 'f capital savings (integrating market model-based cost 'f capital derivations) that might be generated from auditor selections by individual companies.
As the effects 'f hedging, derivatives, debt-equity swaps, floating swaps, and the plans for a common market currency have evolved in the 1990s, means 'f relating effective interest, reported financial statement numbers, and market-based measures have increased in complexity. Indeed, one might argue that the lower interest rates observed with Big 5 auditing affiliations relate to more sophisticated ...Download file to see next pagesRead More
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Former Auditors

The author states sthat the Specific legislative requirements which apply to former audit firm partners are found in Sub Section 324 CK. According to the requirements laid down, a former audit firm partner, who holds a position in a company of which he was previously the auditor and also had a position in that company.

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Does the rotation of auditors improve the quality of auditing
Whitehouse suggested that this is only achievable through quality audit (par. 3). However, according to the U.K. Competition Commission, most audit firms and public companies in the country are too interdependent, thus compromising the objectivity and skepticism that is intended to safeguard interests of shareholders.
7 Pages(1750 words)Essay
Rotation of Auditors Improving Quality of Audits
The rotation of auditors is one of the criteria that propose towards the quality of audit in most of the cases.The integrity of the financial statements is contingent upon the audit. Audit of the financial statements elaborates the dependability of the users of the financial statements upon the reliability of the information provided in the financial statement.
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Does the rotation of auditors improve the quality of auditing
In general, auditing is fundamentally described as the systematic evaluation and the authentication of financial along with accounting records of a specific business organisation (Rathore, 2008; University of Mumbai, n.d.). It can thus be affirmed from a broader perspective that the auditing ensures the financial reports and the business finances of a specific organisation are appropriately reported and most vitally, effectively utilised (BMQR.org, 2011; Kumara & Sharma, 2011).
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Does the rotation of auditors improve the quality of auditing
It has also challenged numerous businesses, in the event of economic crisis by translating into high systemic risks and financial instabilities. Over the past, numerous corporations collapsed because they worked on wrong assumptions that failed to fully reflect the condition of their finances.
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Does the rotation of auditors improve the quality of auditing
This provision principally attempts towards ensuring that auditors are provided with better independence in their auditing operations as well as towards assuring that investors are offered with better confidence on the financial reports published following the auditing process.
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However the fact of this auditor to be independent is clearly the most important factor here, and independence is defined as being the "ability to withstand pressure from management influence when conducting an audit or providing audit-related services, so that one's professional integrity is not compromised." (Gay & Simnett, 2003, p.745).
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Effective corporate governance is seen to greatly enhance the outcome of a business. On neglecting this aspect, companies have faced even bankruptcy. There are several examples of corporate governance failure. The two major examples in this case are that of Enron
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The deficiencies exposed by the crisis showed for instance how the holdings of the financial institutions were inadequate with respect to capital of high quality, shortcomings relating to the
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