Abstract
In light of a number of high-profile corporate failures during the first half of 2001, a number of studies have been performed to address the impact of mandatory rotation of audit firms to ensure the appropriate level of ‘independence’ of auditors. Majority of studies conclude that the detrimental effects of firm rotation on the quality of the audit work by far outweigh its positive effects as a safeguard against various independence and quality threats.
Frequent changes of audit firms, whether resulting from mandatory rotation or otherwise, introduce threats to independence and operational difficulties that make audit failure more likely. Many studies have involved practitioners’ opinions on this issue, which have been based on their experiences and is therefore necessarily more subjective than from impartial, third party studies. There are differing opinions, as some audit firms wish to preserve the client bases, while others welcome more market volatility. Mandatory firm rotation has been concluded as an unnecessary step at present, whose main impact will be the auditing profession and its ability to attract talent for the future. At a time when the restoration of public trust in financial reporting is a key priority, such changes should be avoided.
Background
Following the failure of HIH Insurance and other listed Australian companies during the first half of 2001, concerns were raised about the adequacy of Australian rules governing audit independence. Auditor independence is fundamental to the credibility and reliability of auditors’ reports. Independence is defined to require “… a freedom from bias, personal interest, prior commitment to an interest, or susceptibility to undue influence of pressure, any of which could lead to a belief that the audit opinion was determined other than by reference to the facts of the audit alone.”
With the increasing globalistion of capital markets and the fact that that section 324 of the Corporations Act in relation to the independence of auditors had not changed in any substantiative form for at least 40 years, it was recognised that this area required attention and revision. The existing regulation prior 2004 of the auditing profession was predominantly the responsibility of the professional accounting bodies. Whereby the legislative requirements were “minimal” and “piecemeal.”
International developm...
... middle of paper ...
...port on the relationship between companies, financial markets and the safeguard of savings’, Assirevi, February 2004
Johnstone, E., ‘CLERP 9’, Law Institute Journal, December 2003
Joint Committee of Public Accounts and Audit, ‘Review of Independent auditing by registered company auditors’, Canberra, 2002.
‘Mandatory Rotation of Company Auditors: A Critical Examination’, Benito Arrunada, Universitat Pompeu Fabra, Barcelona, Spain, 1997
‘Mandatory Rotation of Audit firms – Review of current requirements, research and publications, the Institute of Chartered Accountants in England and Wales’, ICAEW, July 2002.
Professor Ian Ramsay, ‘Independence of Australian Company Auditors, Review of the Current Australian Requirements and Proposals for Reform – Report to the Minister for Financial Services and Regulation’, Canberra, October 2001.
‘Public accounting firms – required study on the potential effects of mandatory audit firm rotation; report to the Senate Committee Banking, Housing and Urban Affairs and the House Committee on Financial Services’, US General Accounting Office, Washington, 2003.
‘The Failure of HIH Insurance’, The HIH Royal Commission, Vol 1, Canberra, April 2003
“It is my absolute belief that Indians have unlimited talent. I have no doubt about our capabilities.” --Narendra Modi. Native Americans love life and nature, they often celebrate it. In the stories “The Coyote”, “The Buffalo and the Corn”, and “The First False Face” each of these stories has many similarities, all include nature, and have many differences.
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Sarbanes-Oxley contains eleven titles and covers a wide range of topics from the implementation of new compliance requirements to the criminal penalties of any violations of the rulings. One very important aspect touched upon in Sarbanes-Oxley is auditor independence. Auditor independence and the part an auditor plays in corporate financial reporting in the wake of all the corporate scandals have become extremely important. It has become increasingly important in the training and professional ethics of an auditor. The objective of auditor independence is to have the auditor “be unbiased and impartial with respect to the financial statements and other information they audit”0. There are three aspects of practical auditor independence, programming independence, investigative independence and reporting independence.
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
Although the government have programs, it might not be working because the programs do not fully connect with the child. Sending them to jail for minor crimes are unnecessary, if they attend the right program. The Judicial branch has to deals with a lot of different problems because it is a powerful branch. Also the Judicial branch deals with the youth.They always say that the youth is the future,but how can the younger generation be the future if they are all in a Juvenile Detention Center. A change must happen. About 20,000 men are in jail on a false conviction. Being proven not guilty can still, however hurt chances of finding decent jobs once released from such punishment.Having that on your record can put you on the back burner for a lot of
What is mythology? Mythology can be defined in different ways. To some, it can be understood as the entire body of a nation or society’s beliefs of their gods, god, or a scientific examination and explanation of such beliefs. This definition of mythology closely resembles the
There is often a thin line between a utopia and a dystopia. A dystopia is, after all, the result of a failed utopia. The ability for a utopian story to infect the human brain is not related to the story’s validity, it does not have to be a rational dream to gain a following (and it does not have to be the work of the good). The road to hell is paved with good intentions. People will do unspeakable things if they are told it will be worth it in the
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.
In the years 1918, one of the greatest successful leader was born in South Africa. He grew up in a royal family, which bestow him a prosperous quality of African sovereignty and legacy. Throughout his system education, Nelson Mandela acquired knowledge which inspired him to fight against apartheid, a racial segregation. This battle took the major time of his life and he was determinate to end up the racial determination in South Africa. A country where the black people were considered inferior and did not have no privileges. Nelson Mandela had a courage to challenge the apartheid through his education, his involvement in political life and his associative life.
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).
Nelson Mandela enacted change in his persistent and Courageous ways, he formed armed resistances, spent time in prison, and led protests. According to Biography.com Editors “In 1961, Nelson Mandela co-founded and became the first leader of Umkhonto we Sizwe (“Spear of the Nation”)” (Nelson Mandela). By Nelson forming this resistance against the government it showed the lengths he was willing to go for his cause and showed the
One of the responsibilities of Audit Committee in corporate governance is to ensure the quality of the company’s financial reporting. By doing so, Audit Committee should review significant financial reporting issues and judgment so as to ensure the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance. Besides, they have to review the financial statements and disclosures of notes in the financial statement, and annual and provisional remunerations news announcements before they are publicly disclosed. Additionally, the Audit Committee should review arrangements by which staff if the company may, in confidence, raise concerns about possible irregularity in matters of financial reporting or other matters to detect fraud. The Audit Committee objective is to ensure that arrangements are in place for the independent investigation of such matters for appropriate follow up action. Badolato et al. (2014) (BDE) examine the effectiveness of Audit Committee financial
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
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
...pendence, whether pro forma or substantially, the quality of professional assurance service of professional accountants will be doubted by public and that will probably lead to serious results. The factors affecting independence of external auditors are multiple. Market competition among external auditors and the imperfection of laws regulated the external auditing industry are tow of most important factors. In order to maintain and guarantee the independence of external auditors and try to avoid the scandals like Arthur Andersen, some research on how to improve and maintain the independence of external auditors are necessary. It is possible for researchers to put emphasis on how to control the market competition among auditing organizations and enhance the ability of accounting regulators to supervise and manage the professional accounting industry in the future.