Sample Audit Quality Essay on Australian Parliamentary Committee Assignment

Audit Quality Essay on Australian Parliamentary Committee Assignment Sample

Question

Task: Writing a research article on the most recent Australian Parliamentary Joint Committee on Corporations and Financial services is the assigned task.

This is an independent research project that broadly relates to audit quality, audit regulation, auditor independence, and user expectations. The interim report is supposed to serve as the foundation for your submission, but you'll also need to do some further reading and gather material online and via newspaper stories.

The assignment must be formatted in essay form (report style is not required), and Harvard referencing is also required. Subheadings are encouraged, 12 font caliber or times new roman styles are advised, and the assignment must be written in essay form (please seek assistance from the librarian if necessary).

Part A - Background, Impetus, Rationale, Momentum and support and/or resistance:

• What is the goal of auditing quality in large businesses, and how well has it worked in Australia?
• What does a parliamentary committee do, please?
What drove the investigation's goals?
• Did the Joint Parliamentary Committee encounter any opposition? In that case, who and why?
• How were the data gathered?

Part B - Interim findings, Revelations:

• What are the Committee's most important findings to date? Discuss any specific instances that have been proven to have violated moral and professional standards.
• What apparent conflicts of interest exist?
• What independence-related threats were discussed?
• What responsibilities do auditors have in connection to a GPFR?
• Has Australia seen any indication of systematic audit failure?

Part C: User Expectations, Scope of The Audit, Digital Financial Reports:

• Which parties are most likely to be affected by the parliamentary report?
• What functions do ASIC, AUASB, FRC, Treasury, and professional organizations perform?
• What do you think of the research so far?
• What repercussions and reforms the parliamentary committee is likely to bring about, including a debate of self-regulation, etc. Who will most likely be impacted by these measures, and will they be positive or negative?
• How has the audit's scope changed?
• What adjustments have been made in terms of the expectation gap?
• How is digital reporting doing right now?

Answer

Introduction

A crucial phase in the audit process that aids in tracking the risk associated with the organization is the notion of audit planning, which is discussed in the suggested audit quality essay. The auditing method and analytical framework, according to Geoffrey et al. (2016), aid in risk assessment. The report's objective is to undertake an impartial investigation into the auditing rules, audit quality, independence, and user expectations. The recent Australian Parliamentary Joint Committee on Corporations and Financial Services is discussed in the audit-quality essay.

The audit quality essay is divided into four components for this reason. The background and intermediate findings come after the introduction. The user expectation comes next, and last, global awareness, support it.

Part A

Background, Impetus, Rationale, Momentum and Support and/or Resistance:

Financial statements of an organization can reveal information about its condition and financial performance. Investors frequently examine an organization's financial accounts before making significant investment-related choices. According to Kim (2013), a sensible investor will always opt to buy stock in a business that has good financial standing as evidenced by its financial statements. Few businesses frequently decide to alter their financial statements in order to obtain investor capital, which compromises the accuracy and dependability of the financial statements. Companies must now get independent third-party verification to guarantee the transparency, dependability, fairness, and integrity of their financial statements in order to protect the interests of investors.

Purpose of Audit Quality for Big Business

An independent auditor is necessary to conduct this third-party examination of the financial statements, and both the auditor and the company must make sure that the audit quality is never jeopardised (Gay & Simnett 2018). For all types of firms, audit quality is extremely important. The goal of audit quality for large corporations is to guarantee that their financial statements accurately portray their financial performance. Additionally, thorough compliance with all regulatory obligations is ensured by audit quality and essay writing help. By ensuring financial stability, it fosters market confidence by proving the accuracy and legitimacy of an organization's financial reporting (Gay & Simnett 2018).

Success in Australia

Despite the fact that investors place a great deal of importance on audit quality, Australia has fallen short of expectations in this area. According to the ASIC findings taken into account in the essay on audit quality, Australia's audit quality is subpar, and the problems contributing to this failure must be found, addressed, and fixed. According to the conclusions of the audit inspection programme report for ASIC 2017–2018, the auditors were unable to obtain reasonable certainty for confirming that the financial reports of the companies were free of fraud and mistakes in 24 percent of the 347 audit areas. Despite these findings, Australian audit professionals assert that the country's audit quality is excellent and improving over time (Gay & Simnett 2018).

Purpose of a Parliamentary Committee

The Parliamentary Committee is in charge of overseeing and examining ASIC's operations. On February 15, 2019, a report from the Parliamentary Committee was released, noting that while the ASIC's report indicates a decline in audit quality, this cannot be substantiated from the latter's presented numbers and may even be the other way around. The Australian Parliamentary Joint Committee on Corporations and Financial Services is tasked with looking into specific issues relating to administration, performance, or performance of government policy. The goal of having a Parliamentary Committee, according to the audit quality essay, is to give people and organisations an equal opportunity to participate in policy-making and to express opinions that can be made public and even be seen as a key factor in the decision-making process (Parliament of Australia 2020).

Motivations for The Inquiry

The Senate requested that an investigation be made into audit quality in Australia by the Parliamentary Joint Committee on Corporations and Financial Services. The deadline for the Committee to compile and provide a report on the results of their investigation on the nation's audit quality was originally March 1, 2020, but it was later extended to September 1, 2020. This investigation was undertaken to assess the efficiency, level of competition, and relationship between consulting and auditing services, audit quality, performance, and level of appropriateness of standards, disciplinary, and regulatory bodies, appropriateness of regulation, legislation, and licencing, the role of audit in the identification and reporting of errors and frauds, ongoing changes in the scope and role of audit, and potential for conflict of interest (Parliament of Australia 2020).

Resistance to the Joint Parliamentary Committee

Bill Edge, the Chairman of the Financial Reporting Council of Australia, issued a warning to the Joint Parliamentary Committee, stating that if a firm is seen to be manipulating its audit function and paying the lowest audit fees, it will be given a worse audit ranking (Australian Government FRC 2019). The Parliamentary Joint Committee's report on audit quality in Australia and the possibility of an increase in conflicts of interest raised a number of issues.
Collection of the information

According to the essay's examination into audit quality, the data for this report was gathered by undertaking a thorough investigation within the Big Four accounting firms, with a particular focus on the upkeep of quality, regulation of corporate audits, and potential for conflict of interest. For the investigation, the effectiveness of the standards, disciplinary, standards, and other bodies was also examined.
Part B – Interim findings, revelations:

Key Findings of The Committee

According to the main conclusions of the Parliamentary Joint Committee that were noted in the current context of the essay on audit quality, the nation's audit quality has severely degraded. The Committee is also aware that the persistent problems with audit quality are not unique to Australia. The results indicate that implementing new and revised procedures is the only way to increase audit quality in Australia. According to the study released by the Parliamentary Joint Committee, the big-four accounting firms are the pioneers of large corporate audit, but they also generate more income from non-audit services. According to a study by Glen Unicomb, a former forensic investigator at ASIC, auditors employed by the major four audit firms run the risk of being under pressure from their superiors to accept financial statements in order to preserve advisory ties (Grayston 2019). Auditor professional and ethical standards have been proven to be broken in a number of instances. Due to a lack of documentation, non-compliance engagements, connected parties, etc., the majority of these breaches have occurred. This essay on audit quality notes that there have been multiple instances where the auditor's working paper does not contain any indication of his comprehension of and risk assessment of the clients' related party transactions (Grayston 2019). In some instances, it was also noted that there was not a single piece of evidence demonstrating that the auditor had made an effort to comprehend both his client and the organization's level of internal controls. It was also discovered that the majority of auditors have the authority to source representation letters after the audit report has been issued.

Conflicts of Interest

The texts utilised to produce this essay on audit quality show that the audit industry has a very intricate structure since only a small number of audit firms conduct the auditing of significant corporations and because the top four accounting firms' operations are diverse. Conflict of interest risks are inherent in this framework (Geoffrey et al 2016). The fact that a company's directors choose the auditors while the investors, who are the actual users of the audit report and who construct significant investment-related decisions based on it, have no input when it comes to hiring and selecting auditors, may be one factor contributing to an apparent conflict of interests (Geoffrey et al 2016). Another instance of a conflict of interest is when an auditing firm worries that it will stop working with the client if the client receives bad audit results. This anxiety may lead the audit firm to choose unethical strategies by releasing audit results that do not accurately and fairly portray the client's company's financial health.

Threats To Independence

The Parliamentary Joint Committee also called attention to a few details regarding dangers to auditors' independence. As stated in this portion of the audit quality article, an auditor may encounter four different challenges to their independence: the familiarity danger, the self-interest threat, the intimidation threat, and the self-review threat. In contrast to the threat posed by self-interest, the familiarity threat arises when the auditor and the client have a significant amount of work pending from the client's end or when the auditor has a direct financial stake through shares (Parliament of Australia 2020). Self-review danger occurs when the auditor only provides bookkeeping and audit services for the company, whereas intimidation threat to independence occurs when the auditor receives replacement pressure from the client if he portrays the latter's genuine state of affairs in his audit reports.

Auditors ‘Duties in Relation To a GPFR

The auditors must constantly uphold ethical standards in their practises and resist being swayed by threats that are directed at them. An auditor must make sure that he is assigning all of his responsibilities related to a GPFR ethically and that he is preparing an ethical audit report for the company based on its financial statements. He must also make sure that he is not afraid to form an adverse opinion when necessary, making inquiries on his own when necessary, adhering to all auditing standards and requirements, and identifying and reporting financial statement frauds and errors (Geoffrey et al 2016).
Evidence of systemic audit failure in Australia

Despite statements from the audit sector that audit functions are carried out in Australia with ethics, professionalism, and sincerity, there is mounting evidence of systematic audit failure in the nation. The pervasive audit failure in Australia has been confirmed by ASIC inspection reports (ASIC 2020). It was discovered in this essay on audit quality that there was no evidence in the audit reports that the auditors had carried out the necessary steps to obtain a reasonable assurance that the client's financial statements were free of any kind of material misstatements brought on by fraud and errors. Additionally, breaches in compliance were found with regard to audit engagements such SMSF compliance audits, trust account audits, etc.

Part C – User expectations, scope of the audit, digital financial reports:

Stakeholders for the Parliamentary Report

According to research done on the audit quality case study essay, the Australian Securities and Investment Commission (ASIC), Auditing and Assurance Standards Board (AUASB), Financial Reporting Council (FRC), Treasury, and CADB are the stakeholders for the Parliamentary report (Companies Auditors Disciplinary Board). The total audit role in Australia is governed by regulatory frameworks such as treasuries, standards, legislation, and professional organisations. Developing the appropriate standards for adhering to the reporting obligations is the duty of statutory agencies including ASIC, AUASB, FRC, Treasury, and professional bodies (Parliament of Australia 2020).

Roles of ASIC, AUASB, FRC, Treasury, Professional bodies

ASIC's job is to determine how well independent legislative requirements are being followed and to take appropriate action when necessary (ASIC 2020). While the function of FRC is to monitor and attest to the effectiveness of the nation's financial reporting structure, ASIC is also charged with the duty of monitoring and even cancelling the registration of auditors. It is also accountable for providing strategic guidance to the government and ASIC on issues relating to the nation's audit quality. Furthermore, in accordance with Sections 334 and 336 of the Corporations Act, the AUASB is in charge of creating, issuing, and maintaining Australian Accounting Standards. For the auditors that the Australian Securities and Investments Commission has licenced under the Corporations Act, CADB serves as an independent, disciplinary, and administrative body. The CADB's responsibility is to penalise auditors who don't make sure the Corporations Act's obligations are being followed.

Findings

The results of the comprehensive study conducted for the audit quality essay show that, despite ongoing oversight from professional and statutory agencies, audit quality in Australia falls short of expectations. Questions about the nation's audio quality have been raised not only about the companies' financial accounts but also about the ethics of the auditing profession. The bad findings for all audit companies, including the main four audit firms, are consistently on the rise, but the key audit areas are also declining significantly. The audit quality in Australia is clearly diminishing every 18 months, according to the figures taken into account in the essay on audit quality. Despite all the shortcomings in Australia's audit function, the Parliamentary Committee advises taking into account changes like self-regulation (KMPG 2020).

Impacts and Reforms

Although it is likely that international reforms will be successful, it should be underlined that Australia may not benefit from them because its legislative framework for the auditing culture does not appear to be uniform with that of other countries (KMPG 2020). Even though there will always be those who support and those who oppose certain policy options, this does not always imply that foreign reforms will be the most effective in raising the standard of auditing in Australia.

Scope of The Audit Changed

It is proposed that these changes to the audit laws in Australia only be made when there is sufficient data to support their effectiveness because these worldwide reforms have the potential to be either positive or detrimental. Failure to gather sufficient evidence while continuing to apply foreign reforms may further compromise the quality of Australian audits (Cernusca and Balaciu 2015).

Changes Have Occurred in Relation To The Expectation Gap

The Parliamentary report is divided into five chapters, numbered 1, 2, 3, 4, and 5. The scope of the audit and how it has changed over time are discussed in Chapter 5 of the report, which was used to create this article on audit quality. The early audit was only available to large businesses, but today every other company looks to periodically have its financial accounts audited. The revisions in the audit's scope have also greatly assisted in addressing and bridging the stakeholders' expectations gaps (Matthew 2015). The ability to successfully identify frauds and errors in an organization's financials has been made possible by the ongoing development of numerous professional standards, which has changed the game in terms of bridging the expectations gap.

The current state of digital reporting in Australia appears to be rather difficult because different sorts of users, such as regulators, professional organisations, and standard-setters, have a tough time accessing information. Although DFR has not yet been fully implemented in Australia, certain Australian businesses are nevertheless forced to utilise it in other settings. Australian corporations who have their securities listed on US stock exchanges are now required to file digital financial reporting with the US SEC. The Australian Securities and Investment Commission (ASIC) has allowed corporations to file DVRs there since 2010, but stakeholders have noted that no DFRs have been filed as of yet. The analysts may not have modified their systems to use DFRs as there are no entities that produce the DFRs, which is the most likely explanation for why DFRs have not been filed with ASIC.

It is now abundantly obvious from this article's exploration of the essay's portions on audit quality that Australia confronts significant difficulties with regard to audit quality. This is most likely caused by the absence of a code of ethics and professionalism in the Australian auditing sector. However, similar issues with audit quality are currently existent not just in Australia but also around the world. The main distinction is that different countries have different standards of ethics and professionalism. The regulators in Europe and the United States have been looking into various measures to improve audit quality since since the 2007–2009 financial crisis. Global regulators are making every effort to raise the standard of audits. It was also noted in some instances, as mentioned in this essay on audit quality, that the U.S. affiliate of the major auditors failed to meet the responsibilities of the audit function carried out by him in his audit. In the case of the Indian company "Satyam," another instance of audit quality mismatch was discovered. In order to confirm the cash reported by the company, the Satyam auditors neglected to carry out a fundamental audit function. In reality, Satyam's cash and bank accounts were less than $100 million, while reporting a total of $1.1 billion (Manoharan 2011).

The Committee has brought up a number of concerns regarding Australian audit quality. These problems with audit quality that the Committee has identified are widespread. The majority of audit-related problems that the Committee has identified are the result of assumptions or inaccurate information. This is also the reason the Committee is perceived as emphasising the importance of distinguishing between problems that affect audit quality and those that are caused by perceptions. It was discovered that at least 24 percent of the 347 major audit areas showed that the auditors had either purposefully or accidentally failed to obtain sufficient assurance to certify the accuracy and credibility of the companies' financial statements (National Audit Group 2020). There are four different forms of risks to audit quality in the world: dangers stemming from self-interest, familiarity, self-review, and intimidation (Narayanaswamy 2019). The risks discussed in this section of the audit quality essay have a strong propensity to affect an organization's audit function, and as a result, investors throughout the world must deal with the consequences of these threats. Threats like these force auditors to engage in unethical and improper behaviour and ignore the companies' financial reporting.

The research looked at in this essay on audit quality shows that there are major problems with audit quality in Australia, and they must be fixed right away. Australia must develop suitable controls and methods that can aid in raising the level of audit quality in the nation. The level of audit quality in Australia can be significantly raised in a number of ways. Numerous stakeholders have recommended that ASIC enhance its approach to audit inspection (Parker 2019). They recommended that ASIC implement a mechanism that would allow it to categorise the severity of its audit inspection findings. Standards such as the adoption of balanced financial reporting and the release of the business' inspection reports can also greatly enhance the nation's auditing standards. The audit function must be assigned in the nation in an ethical and competent manner, according to ASIC. Additionally, ASIC must periodically undertake checks to ensure that experts are not compromising the quality of the audit function in response to client threats (Parker 2019). The big-four audit firms have also advocated for and recommended the adoption of DFRs. Since January 2020, all businesses that are listed on European exchanges are required by EU to utilise DFRs. Australian companies that are listed on the US stock exchange are now compelled to utilise DFRs, according to the research paper on audit quality. There are a few more approaches to improve the quality of audit in Australia, including restricting the duration of the audit function by mandated partner/firm rotation, fixing the audit fees, appointing regulators, and limiting the provisions pertaining to non-audit services (National Audit Group 2020).

Conclusion

This essay of audit-above quality's debate comes to the conclusion that investors rely significant investment choices on data drawn from a company's financial statements. The auditors can vouch for the veracity and accuracy of an organization's financial statements. The functions and responsibilities of auditors are vitally important for an organization's survival and well-being as well as for enabling investors to make educated decisions. Despite the importance of the audit function, it is clear that audit quality is consistently declining on a global scale. This is not because auditors are under threat, but rather because they lack the ethics and professionalism that should be expected of them. As a result, the countries must carefully assess the audit quality and adopt the necessary steps to successfully improve it in the near future.

References

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Grayston, C. 2019, Audit quality: Is a new strategy needed? quality essay audit A fresh strategy is needed after an audit, according to the resource at https://www.intheblack.com/articles/2019/02/01/audit-quality [Retrieved on April 11, 2020]

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T.N. Manoharan (2011) Corporate governance and fraud in financial statements. The University of George Washington.

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2019; Narayanaswamy, R. Evidence from India on the Impact of Mandatory Audit Firm Rotation on Audit Quality, Audit Fees, and Audit Market Concentration WP%20No.%20582.pdf is accessible from: https://www.iimb.ac.in/sites/default/files/2019-03 quality essay audit [Retrieved on April 11, 2020]

Latest News On Audit Inquiry - 8 Key Recommendations, National Audit Group 2020, Parker, D. "Latest News on Audit Enquiry: Eight Key
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Audit quality essay, Parliament of Australia 2020, Parliamentary Joint Committee on Corporations and Financial Services Information accessible at: https://www.aph.gov.au/Parliamentary Business/Committees/Joint/Corporations and Financial Services [Retrieved on April 11, 2020]