Auditing has become important more than ever in this highly competitive market environment. The face of auditing has also changed and it has evolved as one of the crucial tasks within the company becoming something more than just regular checking of the accounting books. The development of IT, globalisation, increase in the legal and statutory complications and the involvement of the different auditors in different organisations have drastically changed the face of auditing over the years. The auditors play a critical role in the management of the financial information that helps to instill faith within the investors in the Australia which makes them interested in investing money. In the recent past the corporate collapses and scandals in financial reporting have affected this profession to a large extent and led to revamp in the laws and regulations related to audit. There are several challenges which the auditors face nowadays in their jobs that hinder their performance. Under the Australian Auditing model there are certain issues which act as challenges to the free operation of the auditors or the auditing firms (Houghton & Campbell, 2013). The present report will taken into account these key challenges that hinder auditors’ activities and will discuss the regulatory attempts to improve audit quality in Australia.
As stated earlier auditors play an important role in the management of investment for an organisation not only in Australia but also in other countries. From the corporate perspective auditors play an important role in Australia. Auditors are expected to perform their duties freely with independence but in the contemporary auditing environment auditors have not been able to perform their duties due to certain challenges that the Australian auditing model poses significant challenges for the auditors and the auditing firms.
The very first challenge that is quite apparent in the present Australian market for the auditors is the rapid technological advancement. It cannot be denied that development in information technology is effective for industrial development but technology is likely to have huge impact on the roles of the auditors in the Australian market. The big four Auditing firms operating in Australia have already switched to new technologies which clearly shows that the importance of auditors will dip a bit because with the integration of big data and data analytics the gut instincts of Auditors will not be required since it will provide significant insights to the Australian investors (Hurtt et al., 2013). Hence what was called “Auditor’s nose” initially will be now transformed into digital system. The concepts like block chain system and robotic integration in companies like Deloitte and PwC have reduced the need for auditors since the robots are faster and could reiterate processes effectively which helps to make sure the audit is done properly. The roles of the auditors will definitely change given the consistent technological advancement taking place in the market. The extended power of the information technology will reduce the work of the auditors and the auditing firms will be compelled to invest money to cope up with the technological trend in order to survive in the Australian market (Houghton & Campbell, 2013).
A common challenge that the auditors in the capitalistic market of Australia have faced in the recent past is the compulsion that the organisation exerts on the auditors. It is undeniable that the auditing companies are dependent on their clients for revenue generation and hence it is important for the organisations to act as per the client which clearly hinders the performance of the auditors. Since there is a significant financial dependency of the auditing organisation on the client the auditing organisations have to work as per the clients taste and preference which is definitely unethical and audit employees have to alter their actions accordingly. Since the auditing firms have to listen to the clients they are working for it becomes tough to reveal the actual results which might result in the loss of clients and jobs for the organisations. Hence it is quite clear that auditing firms will have certain limitations which mean the auditors are not able to perform as expected under the Australian auditing model (Xu et al., 2013). In the recent past Auditor independence has been considered as one of the most important things which is important to perform the duties ethically and efficiently. Since the reporting of the financial statement becomes extremely important for the organisations it is important that the auditors get proper independence which would help them to come to the best possible conclusion regarding financial reporting which in turn will help the investors to a large extent. The code of ethics for professional accountants states that independence of minds and independence in appearance to get the best possible result from audit (Cannon & Bedard, 2016).
It is stated by the managers of the big four audit firms that the pressure from the upper level management is significantly high which influences the decision making of the lower level auditors. In the present Australian auditing model the main challenge of the auditors to make decisions under immense organisational pressure and since the auditing firms have become extremely focused on revenue generation and hence managing the ethical dilemma is a big challenge that could be seen in the contemporary Australian market. In the private sector auditing one company manages the other and this to a large extent limits the actions of the auditors and hence it is important to provide them with substantial powers to do their job properly (Zeff, 2012).
Audit quality is an important aspect which mainly means that the auditor is able to achieve the audit objectives effectively and for that it is important for the auditors to get more responsibility and leverage which would help to make sure quality is intact. There have been regulatory attempts to improve audit operations under Australian auditing model. The Corporations Legislation Amendment Act 2012 streamlined the auditor independence by removing the existing auditor independence function. The Audit Standards ASA 200 focuses on providing room to the auditors to do their work effectively without any barriers. The Accounting Professional and Ethical Standards Board have released set of standards which supports the auditors to do their work properly. The Corporations Act 2001 has set support for the auditors to help them work with integrity and with professional skepticism which is important in this trade. The change in Audit partner rotation has been established as mandatory which is effective for the auditors to operate independently and with integrity and professional skepticism. The auditor’s independence in Australia is managed by the 307C of the Corporations Act 2001. Overall it could be said that the present regulatory changes made are extremely effective and are helpful to provide independence to the auditors to work effectively (Carnegie & Napier, 2012).
Auditing is extremely important in the contemporary business setting and hence it is important that the organisations operating in the Australian market are able to provide the audit services as per the standards. The big four firms of the Auditing industry have so far been able to operate in the market but there have been significant challenges which has hindered the operations of the auditors. The key challenges involved the advancement in IT, excessive pressure from the upper management to act as per the preference of the clients and the revenue generation factor.
Cannon, N. H., & Bedard, J. C. (2016). Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92(4), 81-114.
Carnegie, G. D., & Napier, C. J. (2012). Accounting's past, present and future: the unifying power of history. Accounting, Auditing & Accountability Journal, 25(2), 328-369.
Houghton, K., & Campbell, T. (2013). Ethics and auditing (p. 354). ANU Press.
Houghton, K., Ng, J., Jubb, C., & Kend, M. (2013). The future of audit: keeping capital markets efficient (p. 700). ANU Press.
Hurtt, R. K., Brown-Liburd, H., Earley, C. E., & Krishnamoorthy, G. (2013). Research on auditor professional skepticism: Literature synthesis and opportunities for future research. Auditing: A Journal of Practice & Theory, 32(sp1), 45-97.
Xu, Y., Carson, E., Fargher, N., & Jiang, L. (2013). Responses by Australian auditors to the global financial crisis. Accounting & Finance, 53(1), 301-338.
Zeff, S. A. (2012). The Evolution of the IASC into the IASB, and the Challenges it Faces. The accounting review, 87(3), 807-837.