ACCY962 Auditing and Risk Assurance Assignment Sample
Length: 2,000 words ± 10% (excluding references and appendices)
The individual assignment aims to give you an understanding of real life auditing issues and an appreciation of the link between theory and practice. It further aims to foster your research, critical analysis and communication skills.
Your Essay Should Cover The Following:
The Wirecard collapse in Germany raised several issues with regard to accounting and auditing. Discuss three audit issues that arose during the Wirecard collapse. Refer to APES 110 in your answer.
Students must reference at least 5 academic journals for assignment help (and 5 or more newspaper or professional accounting magazine articles), and any applicable audit or ethical codes or standard(s). Students should also identify any other standards or references to the Code of Ethics for Professional Accountants, which should have enabled the auditor(s) to identify and address the problems in the Wirecard Audit. Less than 10 references will be considered insufficient.
Style and Format
• This assignment requires the student to complete an academic style essay (not report). Students can find the difference between essay/report here: link https://www.uow.edu.au/student/support-services/learning-development/resources/#d.en.5810
• This assessment task must be word processed, in size 12 Times New Roman font
using double-line spacing with a left margin of 2cm.
• The Faculty of Business uses the Harvard method of referencing. The library website
also provides useful information on how to correctly use referencing and citing:
This assessment task has been set up to be checked by Turnitin, a tool for checking if it has unreferenced content. You can submit your assessment task to Turnitin prior to the due date and Turnitin will give you an originality report. You can then make any changes that may be required and re-submit your final version by the due date.
APES 110 Code of Ethics for Professional Accountants is a set of rules and regulations a professional auditor must comply with while auditing its client is based on the International Code of Ethics for Professional Accountants (including International Independence Standards) and the Final Pronouncement: Revisions to the Code Pertaining to the Offering and Accepting of Inducements of the International Ethics Standards Board for Accountants (IESBA), published by the International Federation of Accountants (IFAC) in April 2018 and July 2018 respectively, and is used with permission of IFAC (Apesb.org.au, 2022). In relation to APES and the violation of the code of ethics, a case of multi-billion fraud by Wirecard is addressed.
According to an article published by ABC News, the CEO of a prominent payments company Wirecard and two other ex-managers of the company was charged with fraud and false accounting, and it is believed that they had a significant role in the collapse of the company in 2021 (abcnews.go.com, 2022). The allegations raised by Germany's prosecutors stated that most of the company assets and its revenue were made up and presented in the company's financial statements. As mentioned in the article published by the Financial Times, 1.9billion euros were missing from Wirecard's accounts (ft.com, 2022). The article published by ABC News also stated that ex-CEO of Wirecard, Markus Braun, knowingly signed off on the false financial reports (abcnews.go.com, 2022). The prosecutors mentioned that Wirecard recorded false revenues attributed to several partnerships with international companies; the company used fake documents to show that the company had funds. Wirecard's former head of accounting and the managing director of a subsidiary company based in Dubai were also charged with fraud and false accounting. The banks were severely affected as the fraud cost them nearly 3.1 billion euros. The banks which provided funds for the company have to write off the loans (abcnews.go.com, 2022).
The first issue discussed is the Breach of Integrity. According to the Code of Ethics for Professional Accountants (including Independence Standards), section 100.1 A1 states that the accountancy profession is responsible for acting in the public interest (Apesb.org.au, 2022). The accounting professionals are not exclusively responsible for satisfying the requirements of the client or the organisation employing them. However, in the case of Wirecard, the organisation's members did not comply with the ethical code of APES 110 (Apesb.org.au, 2022). The members acted in the interest of the legal entity hence violating the code of ethics.
Under Subsection 111 - Integrity, R111.1 states that a member should comply with the principle of integrity (Apesb.org.au, 2022). This subsection necessitates the members to be direct, straightforward and honest in all sorts of business and professional relationships. However, this code was also violated by the CEO of Wirecard, Markus Braun and EY (Ernest &Young), the independent auditing firm (Ft.com, 2022). The independent auditor of Wirecard, Ernest &Young, has long speculated foul play by the company (Reuter.com, 2022). The auditing company decided to closely monitor Wirecard's payment settlements by partners in Asia. Upon scrutiny, it was discovered that the online merchants supposedly identified as Asian clients of Wirecard did not exist (Bloomberg.com, 2022). The executives of Wirecard carefully orchestrated the records to make the auditing firm believe that the payments were genuine and the partners in the Asian region were real. This is a direct violation of the APES 110 code of ethics. R111.2 under subsection 111 - Integrity states that a member should not be associated with having knowledge of returns, communications, reports or other information where they believe the information under clause (a) contains false or misleading financial statements, (b) contains information or statements presented carelessly (c) omission or obscuring necessary information which may mislead (Apesb.org.au, 2022). In this regard, Azim and Sharif (2021) stated that the member of Wirecard violated clause (a) of APES 110 code of ethics, as the CEO of the company knowingly signed off the financial statement, hence associating himself with the falsified financial statements.
Under subsection 111 - Integrity, 111.2 A1 states that presenting a reconciled financial report concerning a breach under R111.2 effectively disassociates the organisation's member from such breach of code. According to Apesb.org.au (2022), this violation could have been avoided if the CEO of Wirecard had provided a reconciled report with respect to the breach under R111.2. As Engelen (2021) mentioned, the CEO of Wirecard did not take such action and continued to present falsified statements and reports to the auditing firm and mislead them for nearly a decade. According to Krahnen and Langenbucher (2020), the APES 110 code of ethics has also laid down a provision under subsection 111 - Integrity; R111.3 allows the member of the organisation to take necessary steps to dissociate themselves when he or she becomes aware of a breach under R111.2 and is being associated with the event. As stated by Stadtmann and Croonenbroeck (2019), there were no such steps taken by the CEO and the executives of Wirecard; it implies that the CEO and the executives of the company were aware of the fraud, and this took place in their supervision and knowledge.
The second issue identified is the threat to compliance. A parliamentary investigation listed several incidents where Ernst & Young failed to take necessary steps to unearth the multi-billion euro fraud by Wirecard. According to the article published by Bloomberg, the documents and reports presented to Ernst & Young by Wirecard executives were either verbally or written statements. The documents were not substantiated by neutral third parties such as foreign banks. The auditing firm came under severe criticism for auditing Wirecard, and a criminal lawsuit was filed against the auditing firm. The article published by Bloomberg also stated that Ernst & Young was the sole auditor of Wirecard until the company's collapse; the auditing company defended itself by stating that they were a victim of an elaborate fraud.
APES 110, Section 120, subsection 120.1 states that certain circumstances in which a member functions might threaten compliance with the stated fundamental principles of ethics (Apesb.org.au, 2022). Under section 120, subsection 120.2, the conceptual framework has mentioned the approach for a member under clause (a) that to identify threats to compliance with the fundamental principles, clause (b) states the evaluation of threats identified, and clause (c) focuses on addressing the threat by mitigating or decreasing it to an Acceptable Level. Apesb.org.au (2022) has also stated that section 120 has set out the requirements and application material along with incorporating the conceptual framework to aid members in compliance with the fundamental principles and adhering to their responsibilities to act in the interest of the public. These requirements and application materials consist of an elaborate set of facts and situations along with several Professional Activities, relationships and interests. These may create scenarios where the threat may arise to comply with the fundamental principles. They also prevent Members from deciding that a scenario is permissible just because the code does not explicitly prohibit it.
In light of the conceptual framework of APES 110, Section 120 and the case of Wirecard, it can be said that Ernst & Young did not adhere to the fundamental principle. There could be several reasons for the auditing firm not adhering to the laid out fundamental principle of APES 110. As mentioned by Stadtmann and Croonenbroeck (2019), one fine example is when Ernst & Young conducted an Anti-Fraud investigation called Project Ring in 2016. The investigation conducted by the auditing firm discovered several accounting issues in the books of Wirecard. According to Fortune (2022), the auditing firm came across nearly 20 issues in their books. However, according to Azimand and Sharif (2021), Ernst & Young still signed off the financial report based on late replies from Wirecard's board, and Ernst & Young certified the 2016 financial statements without following up to get written verification. As stated by Voss (2020), to a certain extent, this action of Ernst & Young implies that the auditing firm might have been in some kind of threat which prevented the firm from complying with the fundamental principles of the audit and accounting code.
Subsection R120.9 re-evaluates and addresses threats that have been removed or lowered to an acceptable level if new information or modifications in facts and circumstances are discovered. Therefore, Ernst & Young, at the time of discovering the threat, could have taken the necessary steps to lower it to an Acceptable Level (Apesb.org.au, 2022).
The third issue which was discovered was the non-compliance with law and regulations. As per section 360(1), auditors of Wirecard are required to comply with fundamental auditing and accounting principles. It is the auditor's responsibility to apply the framework conceptually, which is identified in section 120. This framework helps auditors to identify and evaluate threats. Section 360(2) defines that Ernst & Young is unaware of the non-compliance of law and regulation of auditing standards (Apesb.org.au, 2022). Because awareness of non-compliance creates integrity and professional behaviour, which helps to protect the public interest from threats. Ernst & Young does not maintain suspected non-compliance-related laws and regulations during auditing in Wirecard. Section 360(3) defines awareness of non-compliance to help the auditor assess the matter's implication (Apesb.org.au, 2022). It also helps to assess possible courses of action where auditors should make an activity-related chart for their auditing team.
During auditing in Wirecard, every member of the team should follow the chart to complete the audit. As per section 360 sub-section 3 clauses (a), law and regulation help disclose Wirecard's financial statement items and help determine material amounts. Clause (b) defines other laws and regulations not directly related to the Wirecard financial statement to determine material amount and disclosure (Apesb.org.au, 2022).
Other laws and regulations affect the operating aspect of a business. Other laws and regulations affect business and avoid Wirecard incurred material penalties related to expenditure. In the given case, auditors do not respond to suspected non-compliance and non-compliance. Due to this, the public interest is affected (Jo et al. 2021).
Auditors should maintain integrity and professional behaviour; auditors are required to communicate those matters that affect the financial statement of Wirecard. In the given case, auditors are required to communicate cash transactions if auditors find any deficiency between the cash book and bank statement (Nyreröd et al. 2021). The auditor does not communicate this material transaction to the appropriate authority or those charged with governance of Wirecard, or it also happens that the auditor communicates material transactions, but the appropriate authority refuses to rectify the transaction. It is also the auditor's responsibility to give an adverse opinion or disclaimer of opinion in their auditor's report (Jo et al. 2021).
The auditor omitted this section in their opinion. Management and those charged with governance of Wirecard are also responsible for seeing whether client business is conducted in accordance with law and regulation. Management is also responsible for assessing and identifying NOCLAR for any individual who is working under the client's direction, a member of management, any individual who is charged with Wirecard governance and any member of management (Nyreröd et al. 2021). Wirecard fines and other consequences depend upon NOCLAR. It also affects the financial statement of Wirecard. NOCLAR also harms potential investors such as creditors, investors, the general public and employees. Due to non-compliance with law and regulation in the case of NOCLAR, Wirecard collapsed and was bankrupted. And it harms creditors, investors, the general public and employees (Jo et al. 2021).
According to Ft.com (2022), priority is given to the investigation of Wirecard's ex-executive by Munich prosecutors. No one has been charged as a result of either inquiry. Former CEO Braun, who is in judicial custody, denies any involvement or awareness of involvement in the payments business he formerly ran. Although Ernst & Young had some unexpected help from inside the company, it was still a difficult situation for the company. Some employees at the organisation were ecstatic when they learned that Wirecard was a scam in June 2020. People acquainted with the scene said that a senior Ernst and Young partner ecstatically exclaimed, "We nailed them." It is still unclear why Ernst & Young was unable to "nail" the Wirecard scam sooner.
Jo, H., Hsu, A., Llanos-Popolizio, R. and Vergara-Vega, J., 2021. Corporate governance and financial fraud of Wirecard. European Journal of Business and Management Research, 6(2), pp.96-106. Nyreröd, T. and Spagnolo, G., (2021). Surprised by Wirecard? Enablers of Corporate Wrongdoing in Europe. Enablers of Corporate Wrongdoing in Europe (April 9, 2021). https://www.econstor.eu/bitstream/10419/249249/1/hasite0054-1.pdf
Apesb.org.au, (2022). [online] Available at: <https://apesb.org.au/uploads/home/02112018000152_APES_110_Restructured_Code_Nov_2018.pdf> [Accessed 6 July 2022].
Ft.com, (2022). EY and Wirecard: anatomy of a flawed audit. [online] Available at: <https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e9b7> [Accessed 6 July 2022].
Abcnews.go.com, (2022). German prosecutors charge 3 with fraud in Wirecard collapse. [online] ABC News. Available at: <https://abcnews.go.com/International/wireStory/german-prosecutors-charge-fraud-wirecard-collapse-83432812#:~:text=Wirecard%20grew%20rapidly%20and%20wound,a%20trial%20can%20be%20held> [Accessed 6 July 2022].
Reuter.com, (2022). [online] Available at: <https://www.reuters.com/article/us-wirecard-accounting-stock-report-idINKBN1WU14K> [Accessed 6 July 2022].
Bloomberg.com, (2022). Bloomberg - Are you a robot?. [online] Available at: <https://www.bloomberg.com/news/articles/2021-04-17/ey-s-wirecard-audits-faulted-by-german-parliament-investigator#xj4y7vzkg> [Accessed 6 July 2022].
Wsj.com, (2022). [online] Available at: <https://www.wsj.com/articles/wirecard-scandal-puts-spotlight-on-auditor-ernst-young-11593286933> [Accessed 6 July 2022].
Fortune, (2022). If Wirecard's auditors had done this one thing, they might have uncovered a $2 billion fraud years sooner. [online] Available at: <https://fortune.com/2020/06/30/ey-wirecard-fraud-2-billion-euros-auditing-auditors/> [Accessed 6 July 2022].
Stadtmann, G. and Croonenbroeck, C., (2019). The ups and downs of Wirecard AG: An application of the reversed news model (No. 414). Discussion Paper. https://www.econstor.eu/handle/10419/204840
Krahnen, J.P. and Langenbucher, K., (2020). The Wirecard lessons: A reform proposal for the supervision of securities markets in Europe (No. 88). SAFE Policy Letter. https://www.econstor.eu/handle/10419/222230
Engelen, K.C., (2021). Germany's Wirecard Scandal. The International Economy, 35(1), pp.9-12. http://www.international-economy.com/TIE_W21_EngelenLetter.pdf
Voss, D., (2020). What the Wirecard scandal reveals about the state of German financial supervision. LSE European Politics and Policy (EUROPP) blog. http://eprints.lse.ac.uk/107683/
Azim, M. and Sharif, M.J., (2021). IMPACTS OF EARNINGS MANAGEMENT ON CORPORATE FAILURE: A CASE STUDY OF WIRECARD. International Journal of Accounting & Finance Review, 8(1), pp.37-49. http://cribfb.com/journal/index.php/ijafr/article/view/1411
Audit Quality Essay on Australian Parliamentary Committee Assignment Sample
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?
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.
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.
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).
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.
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External Auditing Process and Its Stages Assignment Sample
Money has always been the primary means of ensuring the continuation of society and the relationships between various manufacturers, and there is no use in disputing this. As the standard by which the worth of a particular good may be assessed, it assisted people in determining their pricing structure, which was crucial for the profitable trade of goods. Furthermore, it is clear that this built system evolved alongside society, gaining new characteristics and growing more complex. The establishment of banks and the growth of this industry both made significant contributions. In light of this, it is feasible to assert that the contemporary financial system appears to be both highly efficient and complex. Due to its dependence on the primary contributors, a number of financial institutions, it had to develop a particular mechanism that would shield it from numerous speculative risks (Millichamp & Taylor 2012). Because of this, a cure known as an audit was developed and introduced. The given remedy's primary objective is to keep an eye on the financial health of every business that operates in relation to a nation's financial system (Millichamp & Taylor 2012). Additionally, it ought to guard against several failure causes for this specific business. Based on these data, it is possible to acknowledge that this treatment has grown to be one of the most significant problems in the modern world.
Importance of the Issue
It is impossible to discuss the audit without bringing up how it affects how various organizations operate and how crucial it is. First of all, it is feasible to assert that frequent audits of various entities are a guarantee of the financial system of any state operating steadily (Planning the external audit n.d). Numerous possible infractions or errors that could be discovered throughout the audit process could have a major negative impact on a company's and state's revenue (Meaning And Objectives Of Periodical Audit Or Final Audit Or Complete Audit n.d.). This truth has the potential to harm all agents. Large entities should provide financial statements so that they can be examined and verified with this in mind. These remarks are typically found in a select few organizations. Owners, vendors, employees, and other parties are what are referred to as stakeholders (Millichamp & Taylor 2012). Therefore, numerous audit agents could demonstrate the veracity of these specific financial accounts. This check's primary objectives are to ensure that stakeholders receive reliable information and that the financial plan has not changed (What is the difference between internal audit and external audit? n.d.). It should be noted that one of these solutions, the external audit procedure, is employed to conduct an audit for significant organizations.
Considering these details under the auditing assignment, it is clear that external audit is crucial in the current environment. First and foremost, it should be clarified that the word "external audit" refers to a periodic or specific audit carried out by an external (external) accountant (Handling an external audit n.d). It implies that a person who is unbiased and independent of the company analyses the financial aspects of its operation. Finding out if the financial accounts are true and reflect the actual situation is the major objective of this exact method. It is evident that it is a lengthy, intricate process that calls for specific processes (Assessing the effectiveness of the external audit process 2013). Keeping this in mind, the process is always broken down into two steps. The first one, referred to as an interim audit, examines plans and financial data. The second stage, sometimes known as the final audit, focuses on the financial accounts and is typically carried out following the end of the accounting period. These two phases, which are both crucial for a thorough review of a company's operations, aid in understanding the key components of the external audit process, which calls for more research.
It should be noted that the study of a company's goals is the first step in the typical interim audit procedure (Meaning and Objectives of Interim Audit n.d.). The primary objectives of a corporation should be taken into consideration by a skilled and independent agency to see if they are being met or not. Additionally, one should keep in mind that interim audits are typically conducted at the conclusion of the fiscal year. Because of this, an impartial auditor also checks a company's financial records to confirm them (Biery 2013). This procedure's primary goal is to ensure that a corporation abides by the key rules that govern transactions and financial processes and are recognized in a nation. The necessity of this process is clear because it ensures that every business or organization is operating legally and clearly. Taxes receive a lot of attention as well, and they should be recorded in a company's financial records. Unfortunately, tax dodging is a common technique that unethical businesses utilize to get additional benefits. To make a business obey the law and pay taxes, an interim audit method should identify these attempts and impose certain fines. With this in mind, the relevance of the intermediate audit procedure can be emphasized strongly.
However, the final audit should come next, concluding the examination of a company's operations and determining whether or not it complies with the fundamental laws. With this in mind, it is possible to declare that an independent auditor examines a company's financial statements to determine whether or not they are set up in a way that is consistent with the company's primary objectives and financial policies.
Additionally, an auditor should draw a specific conclusion about how a company is operating at this point. In other words, it is feasible to say that all the data obtained throughout the process of examining financial reports and doing an analysis of some other crucial elements of a company's operation is compiled and summarised. At this point, an auditor should determine if a business operates in line with the primary laws and whether its financial records are transparent. This judgment affects how a business will operate in the future and determines whether or not sanctions should be imposed (Audit Finalization 2015).
With this in mind, it is possible to draw a certain conclusion after analyzing the key components of a subject, like an external audit. It should be noted that it comprises two parts, the interim audit, and the final audit, both of which are crucial for the process as a whole. In order to determine if a company's financial sector complies with the law, an auditor reviews the company's financial records and statements (Step 8: Final Audit Report Distribution n.d). As a result, it is reasonable to draw the conclusion that the external audit process is crucial since it helps shield the financial industry from fraud and speculative activity.
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