INTRODUCTION
In recent years, general public start to raise questions about the level of audit independence and the quality of audit information, especially after corporate collapses such as HIH, Enron and One.Tel where independent audit reports showed that the companies were making a profit, when in fact they were heavily in debt. This essay is to provide a brief overview of the current regulation of corporate governance in Australia in the role of auditors, and illustrate some gaps in the regulation with examples. In addition, a few recommendations are given accordingly for changes.
1. Legal Regulation of Corporate Governance in the Role of Auditors
1.1 CLERP 9 reforms
CLERP 9 reforms largely employed the law reform recommendations in the Ramsay report to address the audit independence controversy. CLERP 9 has significantly changed the way that audit work is carried out in Australia. The most significant changes were:
Improving the standards of auditor regulation through changes to the powers of the Financial Reporting Council and the reconstitution of the Auditing and Assurance Standards board;
Imposing statutory requirements for auditor independence and audit partner rotation; and
Providing proportionate liability in respect of claims made against auditors.
1.2 Performing the audit
There is a distinction between the lead auditor and the review auditor. The lead auditor is primarily responsible for conducting the audit, while the role of review auditor is to review the overall conduct of the audit. It is auditor’s statutory right to access the books of the entity. Company officers must provide information and explanations that the auditors required to assist with the audit and to help auditors form more accurate a...
... middle of paper ...
...04) ‘Auditing Handbook’, Prentice Hall, Sydney.
"Audit Independence - Independence of Australian Company Auditors." Insert Name of Site in Italics. N.p., n.d. Web. 23 Apr. 2014 .
[29] section B of the Joint Code of Professional Conduct
[30] Buffini, F. (2003) ‘Andersen’s independence tested’, Australian Financial Review, 14th January, pp. 11, 12.
[31] (HIH Report, Vol III, pp 89-90)
[32] (HIH Report Vol III, pp91-92).
[33] (O’Malley 2000, p.91)
"CHAPTER 3 – EARNINGS MANAGEMENT AND FRAUD." Insert Name of Site in Italics. N.p., n.d. Web. 23 Apr. 2014 .
[34] O’Malley 2000, p.94
[35] CHAPTER 3 – EARNINGS MANAGEMENT AND FRAUD, http://www.slideshare.net/MRicky/chapter-3-earnings-management-and-fraud (accessed April 24, 2014).
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
Consult PCAOB Ethics and Independence Rule 3520. What is the auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?
On the September 25, 2002 issue of BusinessWeekOnline.com, the Accounting Wars Powerful auditor-consultants are the target of Arthur Levitt’s crusade articles defined “Independence to mean, CPAs cannot audit their own or their partners' work….…..clear and honest information is dependent on the CPAs independence……an auditor must not have any financial stake in the health, or even survival, of a client company.”
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
Since the early 1970s, the auditing profession has been under increased pressure and scrutiny by government and users of audit reports. The phrase ‘ Audit Expectations Gap’ was first coined when the AICPA put the Cohen Commission together in 1974 to investigate whether the ‘expectations gap’ existed. However, the history of the expectation gap goes right back to the start of company auditing in the nineteenth century (Humphrey and Turley 1992). Since then, events ranging from the collapse of Arthur Anderson to the ongoing savings and loan problems seemed to have made the gap become more and more apparent.
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
The Corporations Act 2001 (Cth) (the Act) places great emphasis on good corporate governance. Along with the rights and powers conferred by the Act, directors are also subject to a wide range of duties that are owed to the company, including members and shareholders. The duties mentioned in the Act occur concurrently with the general law duties. In order to ensure compliance with the legislation, the Act has implemented the use of civil penalty provisions to target the perceived shortfall of the previous methods of corporate law administration. Actions for contravention can only be brought forth by the Australian Securities and Investments Commission (ASIC) in its role as watchdogs of corporate law.
Corporate governance changed drastically after the case of Andersen Auditors, Enron’s auditing service showed that they contributed to the scandal. Andersen was originally founded in 1913, and by taking tough stands against clients, quickly gained a national reputation as a reliable keeper of the people’s trust (Beasley, 2003). Andersen provided auditing statements with a ‘clean’ approval stamp from 1997 to 2001, but was found guilty of obstructing justice by shredding evidence relating to the Enron scandal on the 15th June 2002. It agrees to cease auditing public companies by 31 August (BBC News, 2002).
Threats to Auditor Independence: The Impact of Relationship and Economic Bonds. By: Ping Ye; Carson, Elizabeth; Simnett, Roger. Auditing, Feb2011, Vol. 30 Issue 1, p121-148, 28p, 1 Diagram, 6 Charts; DOI: 10.2308/aud.2011.30.1.121
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
As per ISA (NZ) 200-A17, this ethical requirement includes the auditors integrity, objectivity, professional competence and due care, confidentiality, & professional behaviour. Integrity is an ethical attitude which includes the auditor’s honesty, accuracy, and fair practice. Objectivity is a mental attitude while carrying out the audit wherein the auditor is fair and just with all his/her work. Professional competence is the knowledge and skill of the auditor, gained through education, training and experience, while due care is a degree of care of an auditor on certain situations wherein an he/she must act diligently. Confidentiality is the commitment of the auditor not to disclose any information regarding his/her client, unless required by law. Professional behaviour means the auditor must act in accordance to the law and set of standard as a manifestation of respect to the
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.