In this research essay, the main focus has been made on the Audit Quality and assurance in Australia, which is used to assess the financial performance of company. The financial information of any entity is necessary to be disclosed to the public to keep the busienss more transparent as per Australian accounting and reporting frameworks. The public involves all the elements of the stakeholders that are in need of that information. The financial information presented by the entity helps the public in making knowledgeable decisions. The value of the actions that stakeholders take is affected by the quality of those financial statements. The financials are prepared by the entity itself for its own financial performance. As the makers are the same on whom the financials are prepared, it gets difficult to place reliability on those financials. The users face difficulty in generating faith on the information that the company has presented.
To eliminate this distrust, the audit function comes into picture. Every entity, whether it is big or small is required to get its accounts audited. The audit function is to be carried by a professional who is independent and unbiased. This professional is majorly known as the accountant. Audit refers to the independent and non-prejudiced examination and assessment of entity’s financials and control environment. However, audited financial statements can also not be relied, until and unless they are audited with utmost quality and professionalism (Hilary, 2017).
Audit Quality and assurance in Australia (Audit quality’ and how ‘audit quality’ might be assessed).
The concept of Audit Quality and assurance in Australia comes into picture whenever a good audit is concerned. The audit quality is accompanied with the fact that it increases the transparency of the financial statements, true and fair view of the assets and liabilities and strengthens transparency of company. The overall outcomes for increased business performance of organization are based on the audit performance and quality of the audit assurance program. There is no set definition of what can be called as audit quality. However, the International Auditing and Assurance Standards Board put emphasis on the fact that the audit’s purpose is to foster the confidence level that the ultimate users perceive for the financial statements. So the auditors must perform the audit function in the most qualitative manner. This means that sufficient and appropriate audit evidence must be gathered by the auditor. This helps them to realistically form an opinion on the fair preparation of financial statements in accordance with the operational financial reporting framework materially. In other words, it can be perceived that audit quality is somehow concerned with performance of audit function in a manner that the audit risk is reduced and the chances of the auditors forming a wrong opinion is almost negligible. Hence, audit quality is concerned both with identifying the problems, frauds and misstatements in the client’s business and financials and reporting of them in the most appropriate manner (Louis, Robinson, and Sun, 2015).
Assessing Audit Quality
Audit Quality and assurance in Australia is not a single factor play. It is assessed by a number of factors. The first factor is concerned with the way audit is conducted. An audit is quality oriented when appropriate auditing standards are effectively applied in audit process. The audit team is selected as per their skills on the concerned business that is to be audited. The working papers prepared must be properly evidenced. Along with the procedures performed on the entity’s financials, assessment of the entity’s working and internal control environment is also done. Continuous monitoring is being followed with proper communication in the team. These all are the criteria that determine the quality of audit process. Moreover, the recent failures that the big corporations have faced, even after being audited and getting clean chit, it has become more prominent to ensure audit quality. This will not only increase the quality of the financial statements but also assists in creating sustainable business in long run.
The next factor is concerned with the audit professional. An audit quality and assurance in Australia is perceived to be of good quality when the firm or individual conducting audit is free from any kind of litigation. A clean image of the audit professional indicates the quality of audit. The experience of the audit partners also plays as an addition to the quality. The work of the team if is continually supervised by the audit partner, then the chances of audit providing high end results are more (Bowlin, Hobson, and Piercey, 2015). It reflects the fairness and impairment view of the assets and liabilities shown in the books of account (Ruhnke, and Schmidt, 2014).
And the other most important factor that assesses Audit Quality and assurance in Australia of report generated by the auditor. The report prepared must be in accordance with the relevant auditing standards. The expression of opinion is clear. The audit report emphasises on the key audit matters, if any and also a commentary is made on the going concern assumption follow up by entity. The auditor must believe in the opinion he has issued (Bell, Causholli, and Knechel, 2015).
Impact Of Auditor’S Independence On Audit Quality In Australia
Although it is beneficial for audit firms too to ensure audit quality, but the firms face a lot of pressure that makes them sacrifice audit quality at times. These include the limitation to complete the audit in a decisive time frame, restricted audit fees, the personal interests, competence constraints, unusual and new business transactions, etc. However, as far as auditor/s independence is concerned, it is something that cannot be separated from audit quality (Tepalagul, N. and Lin, L., 2015). The relationship that the auditor shares with the client does affect the quality of audit. Many researchers have proposed that the auditor’s independence and the audit quality are directly linked to each other. It is believed that when an auditor has no personal interest in favouring the client, he expresses an unbiased opinion. And when an unbiased opinion is expressed based on real observations that opinion tends to be real and true. That opinion is of trustworthy quality too. It is because of lack of independence on part of the auditor that he expresses an opinion which is highly prejudiced. This is concerned as a major reason of why the leading and big corporations with huge profits collapsed (Tepalagul, and Lin, 2015).
It is undoubtedly acceptable that unless the auditor is independent, he would not work in a manner that lets him find the problems existing the client’s business and financials. Obviously, the auditor needs competency to do that, but unless independence is there, no level of competency can help. Even on finding the misstatements, or frauds, or omissions, it’s the auditor’s independence only that lets him report these discrepancies to the shareholders. That is the reason it is proposed to change audit teams when the audit continues for more than a single year. Because when the team becomes familiar with the client, a personal relationship is somehow created between the auditor and the client. So there is a huge impact that auditor’s independence calls upon audit quality. The objectivity in an audit comes only when the auditor is performing independently (Abbott, et. al 2016). The independent audit views are the major quality aspect of the audit procedure implemented by the auditors while auditing the financial statement of company (Mala, & Chand, 2015).
Impact Of Audit Expetations Gap On Audit Quality
Audit expectations gap, as its name suggest is the variance or dissimilarity that exist between two most important parties to an audit. Auditors need to work in the best interest of the stakeholders so that they could use true and fair information to strengthen the overall investment decisions (Mock, Ragothaman, & Srivastava, 2018). These parties are the one that conducts an audit, i.e. the auditor and the other party is the one for whom audit is being conducted, i.e. the owners or the shareholders. These parties do have different expectations from an audit, be it in terms of the level of performance, the understanding of audit function, the end result, etc. (Baah, and Fogarty, 2016). The main gap arises when auditors have to comply with the applicable standards and compliance program and stakeholder’s expectation in determined approach. This gap could be mitigated if proper rules and accounting standards are followed by auditors and company both in determined approach (Pratt, & Peters, 2017).
Audit Quality and assurance in Australia is affected by the audit expectation gap. The Shareholders expect the audit to give them an absolute opinion. However, it is well versed that audit cannot be conducted on all the business transactions. It is an inherent limitation of audit that only a sample check can be done and the opinion can also be reasonable. As a result the auditors face a risk to miss some important or material transaction that can reveal a lot for audit purpose. Further, the level of performance exerted by the auditors is not in accordance with what the shareholders expect. This is due to certain factors like fees constraint, completion deadlines, lack of support from the client, or the intentional personal interest of the auditor (Ruhnke, and Schmidt, 2014).
So if the performance is not at par, then a huge drawback suffered is the poor Audit Quality and assurance in Australia. This happens when the auditors do not perform even in accordance with the standards that are set for the performance of the auditors. Further, knowing that the opinion is going to provide a reasonable assurance only, the auditors sometimes take audits leniently. They frame an opinion that is too early concerning the nature of the business client is in. this creates a discrepancy. It adds to the expectation gap obviously, and at the same time deteriorates the audit quality. The main fact to understand here is related to audit performance. Auditors are in the fiduciary position towards the stakeholders and works as trustee for the stakeholders and investors. It is analyzed that their investment decisions are highly dependent upon the audit report of company. If auditors gives un-qualified audit report after auditing the company, it divulges that company has complied with the all the rules and applicable accounting standards while preparing the financial statements. Auditors needs to analysis every single aspect of the audit compliance program and how well company has complied with the applicable accounting standards. It also assists company to establish harmonization in its domestic and international reporting frameworks if company faces issues in its reporting frameworks (Choudhary, Merkley, & Schipper, 2018).
On researching and understanding all the aspects studied above, it can be perceived very well that for any successful audit one main criteria is a robust Audit Quality and assurance in Australia. Unless the audit encompasses the characteristics of a high quality process, it is not reliable in the eyes of the users of the financial statements. Moreover, it is nowadays a debatable issue and the high authorities concerned to the audit function are also developing frameworks to ensure audit quality.
There are too many factors that help in assessing the quality of an audit. All these are related to the audit inputs that the auditor puts in for an audit, the way audit is processed and the end result provided by the audit. An unavoidable and inevitable relationship exists between the independence of auditor and the quality that the auditor delivers. Only an unbiased professional can deliver an appropriate opinion. Else there is no reliability even in this kind of independent examination (Christensen, et. al 2016). Now in the end, it could be inferred that quality of the financial statement is highly based on the quality of the audit procedure followed by auditors. It will help in increasing the transparency of the quality of the financial statements. It is considered that an audit is quality oriented when appropriate auditing standards are effectively applied in audit process. Audit Quality and assurance in Australia are the main reason of fairness and impairment view of the assets and liabilities shown in the books of account which will untimely assists stakeholders to take their investment decisions in effective way.
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