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Discuss the opportunities and challenges for the auditing profession under the Australian auditing model.  You also need to address the recent regulatory attempts to improve the audit quality in Australia.

You need to support your discussion with suitable examples and relevant cases – both recent and past.

The role of auditors in Australia

In the 21st century, to perform the roles of the auditing in order to evaluate a better system of financing it is really necessary for the accounting industry to look for new measures and techniques that can be of great utility for the firm. The auditing team and the senior management of the corporation are the two important departments who help in the making of quality audit reports. It is also required for the auditors to be well versed in the organization and its work culture for the preparation of audit reports. As the operating costs are increasing it has become difficult for the organizations to cut down its cost and consider audit processes at the same time. This is why the auditing processes are required to undergo proper checks so as to facilitate the users with the proper information so that they can take legitimate decisions for investing in the organization.  It needs to be noted that the pillars of a profession dwell upon the ethical values. With the enhancement of the business complexity, the role of accountants, as well as auditors is laced with an immense challenge. Auditors can be defined as the gatekeeper of the company and play a vital role in the process of informing the investors regarding the correct position of the business (Manoharan, 2011).  In Australia, it can be defined as the main support for the investor’s accountability.

It has been noticed that with the changes and time the business has been seen to undergo many of the changes in relation to the influence made by the auditors. The auditors are said to play one of the most important functions of the company as to ensure that the company is not fooling the customers by the use of a confirmation that it may provide to them. The role of the audit process and auditors encircled with a lot of challenges as necessary changes are needed to be made if any type of problems is being encountered by the organization (Manoharan, 2011). Therefore if any type of problem is encountered with the auditing system of the company then a proper change should be made in the functioning of the audit processes so that the role of the auditors and the audit quality provided by them increases.

The auditing model needs to be enhanced because basic auditing model will not be able to tackle the changes in the field. As per the scenario in Australia and outside world it has been noted that there are various challenged that can be confronted when there is a proper auditing model. In relation to the Australian models of auditing, it has been seen that the auditors are assigned with the major role of reporting the frauds (Niemi & Sundgren, 2012). It has been seen that the auditing processes of other countries have very different from the auditing process of Australia as other countries want its auditor to become a Watchdog whereas in Australia the companies want their auditors to look and then take some actions when the auditor's find a problem in any kind of reports. In some of the countries reporting of fraud is considered to be the secondary function where is in the Australian policy it is considered to be the primary function of auditors. In accordance to the guidelines clearly mentioned by the Australian auditing guidelines and English quotes it have been clearly mentioned that if an employee is discovered cheating the company then it is responsibility of the auditor and he needs to act on that kind of activity so that the management can be made aware of this directly and this can also make rules and obligations which may help to remove this kind of scams from their system (Merchant, 2012).

Challenges faced by auditors in Australia

The improvement of Technology has become one of the main concerns in relation to the auditing firms. Moreover, the complexity of the task also wants new and highly educated auditors so that they can work as a team and provides more intangible services while preparation of the reports. Also, it is required that the entire auditors should possess ample knowledge and skill in the areas of analytics, thinking, investigation and Communication Technology so that he can fulfill the needs of his client (Sikka, 2009). It was in 2014 that the requirement of the auditors was made significant because of the better and clear picture which can be drawn by them in front of the customers. It was difficult for the companies in order to act with the auditors because of the less pay and growing issues but the companies rather than going to the audit firms right to improve their growth, remuneration, and work opportunities by approaching the Tech companies. With the increment and implementation of new opportunities in the auditing field in relation to the Technologies a considerable growth and appraisal pattern have been seen in the auditing firms which will help them to remain in long-term relationships with the companies.

The customers tend to make decisions regarding the responsibility of auditor to be far different from what it actually is. This can be understood as audit expectation gap. There are two major areas which may result in the growth of such type of gaps. The customers are not able to understand the clear roles and responsibilities of the auditor's even after the continuous analysis which has been made by them in relation to the company's record. In order to fill this gaps a proper requirement of acknowledging the fact that the task is a shared responsibility in relation to the auditors. It is the auditor's you have blamed if there is a failure in any type of financial reports which may lead the company to crash also the auditor's need to fulfill the roles and responsibilities of looking after the corporate governance structure of the form so that the quality of the financial reporting can be kept up. The auditors are also made to conduct research about raising awareness in the investor community.

It was in 2012 that there were changes required to be made in ASIC’s auditor regulation powers in relation to the corporation's legislation Amendment Act 2012. But some of the treasury reports clearly stated that the regulatory framework of the auditing structure of Australia is very stable and doesn't require any type of alternations because it has been made in the best interest with the International standards. Still, there were significant alternations in the ASIC audit regulation powers which are:

Regulatory attempts to improve audit quality in Australia

It was very important for the companies in order to conduct audit processes so that an annual transparent report can be made available to the customers on the basis of which they can make the decisions in relation to the investment policies which may indulge with the company in future. So 10 enlisted an authorized deposit-taking Institutions such as insurance company and other listed registers themes for choosing to take this into account.

There have been several changes made in the Independence function from the FRC and in return, there have been many new formulated acts which make the auditor work in a much-restricted manner. It has been observed that the strategic bodies and in relation to the auditing function have implemented many types of systems and techniques that are needed to be ensured while the preparation of audit reports by Australian auditors so as to maintain compliance with the legal requirements.

The deficiency reports and the actual reports which were issued by the audit firms were set to fail in their functioning. The ASIC has always been given the power in which it can give the auditor certain terms and conditions in relation to the audit deficiency notifications and reports. This control is exercised by the assessed when a prominent weakness in the auditor's quality control system or a poor conductor of the audit report have been judged over a long period of time does making it important for the regulatory body to act and make things better (Merchant, 2012).

The meaning of audit quality can be understood as the efficiency that is being taken into factor while conduction of audit reports by an auditor. This time also fulfills the main objective of the auditing process which is the proportion of the errors and frauds which name is lead the company and then fabrication of the information of companies financial statements is being done. Also, it helps to determine that the auditor is completely faithful towards his work or not in relation to the conduction of auditing process with the company he has been assigned the task with. The auditing practice is subjected to constant changes. It undergoes non-stop developments and is prone to regular changes and alterations. It is required for the auditors to keep themselves updated and well-versed with the current affairs. The organizations are found giving more emphasis to their production and data analysis rather than their auditing framework. If the organizations put more focus on their auditing department by means of grouping the professionalism, skills of the auditing staff and technology installed, it is more likely to perform better (Livne, 2012). The process of decision-making will get simplified and will be less time-consuming. Also, there will be a value creation for legitimate parties. A lot of inputs and efforts are required for formulating such emphasis on auditing framework as the data will rise more than the budgeted amount. For storing such data the companies will also require to install massive storage bounds keeping in mind the different formats of data that can be in the form of texts, sounds, images, videos and etc. It is noticed that the audit firms are now lacking efficiency. The incapability to meet the expectations of the clients has become a major concern and challenge for auditing departments to overcome. This is because of the auditing terms, policies and legal boundaries that are ever changing and making auditing practice more complicated at the same time (Kaplan, 2011).  The auditing firms are prone to their contracts cancellation accounting to their ineffectiveness and failure in meeting the client’s expectations.

Technology and the auditing profession

It is important for the auditing firms to initially invest time, skills and their knowledge in evaluating the expectations of clients considering the type of business and the area of operations in order to eliminate risks and contingencies (Kaplan, 2011). This is one of the auditing techniques that is majorly followed in the present scenario. It is important to examine and understand the internal environment along with having a legitimate and substantial knowledge. In order to ensure that the system is functioning well, it is required to put more focus on the structure of internal controls with regular or periodic checks (Matthew, 2015). This will ease in detecting fabricated materials and will also eradicate the risks in less time. The analytical processes remain untouched as substantive techniques are given focus on. On account of the regular checks on the closing balances, it is seen that there are no mistakes in the transactions undertaken.

The auditor of a company cannot be the legal advisor of the same company according to that what is written in the rule books. As mentioned in the regulator's book the real job of the auditor is to safeguard the practices and thinking of the company and his duty is towards the shareholders of the company and not towards the company (Geoffrey et. al, 2016). The audited financial statements are the basis on which the users decide upon making investments in the company. Therefore, the audited financial statements should represent the true and fair view of the financial position of the company. The policies of the company should not be of concern to the auditor. The auditors can also resort to their independence issues with the company’s management. In this scenario, it is essential that the auditor should not develop a familiarity with the organization as it leads to the difference in the independent view (Matthew, 2015). The auditors are required to deliver in the best way and remain unbiased.

The auditors are required to examine the company records and financial statements like balance sheets, profits and loss accounts, etc according to their best knowledge and as per the provisions and legal framework. The audited financial statements should be free from biases. Fabricated information and statements are required to be questioned and excluded from the statements. The statements should reflect the true and fair picture of the company’s financial performance (Elder et. al, 2010). After entering into the contract as a company’s auditor it is required for the auditors to initially analyze and examine balance sheets, profits and loss accounts and conduct inquiries and report the ascertained data from these inquiries to their auditing firm.  National Advisory Committee on Accounting Standards is the only board which regulates and exercises all the processing as in many nations it is noticed that no special code or rules are formulated and implemented (Elder et. al, 2010). Until and unless separate law codes are made to deal the auditing challenges there will always remain loopholes in such auditing practices.

The audit expectation gap

The quality of the audit can be improved if the judgments of the auditors are on the basis of entire professional advantages. The individuals and organizations are enormously affected by the broader reach of Professional Scepticism as it is implemented in multiple ways. Unless the required data is not properly examined the auditor should not point fingers on the sincerity of the management (Cappelleto, 2010). Professional Scepticism is all about having a questioning nature and alertness in evaluating out and reviewing errors and frauds which are made due to the fabricated statements and therefore assess audit evidence. As per ISAs standards, the auditors are required to execute the audit process in terms of Professional Scepticism for the audit report might be fabricated. Therefore, it is required to carefully review the financial report. The audited reports are of great help to the corporation because this ensures that the financial details reported are true and can be concluded to determine its financial position. It becomes easy to identify reasons behind the misrepresentation and misconstrued statements by evaluating the alternatives that assist the organization in finding solutions so as to fix the issues. Professional Scepticism has proved to be of great utility in concluding the appropriate information and facts. Therefore, going by the prevailing condition it can be commented that there are tremendously challenged when it comes to the field of auditing and its practice. However, it cannot be ignored that there are ample opportunities for the auditors to explore in this arena. The auditors can take the advantage of various tools and mechanism deriving from the technology and can use it in their field to gain the utmost advantage.

References

Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ, Melbourne

Elder, J. R., Beasley S. M., and Arens A. A. (2010). Auditing and Assurance Services. Person Education, New Jersey: USA

Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In- House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons, 30(1), 143-156.  DOI: https://doi.org/10.2308/acch-51309

Kaplan, R.S. (2011). Accounting scholarship that advances professional knowledge and practice. The Accounting Review, 86(2), 367–383. https://doi.org/10.2308/accr.00000031

Lapsley, I. (2012). Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management, 9(3), 291-292. DOI: https://doi.org/10.1111/1468-0408.00081

Manoharan, T.N. (2011). Financial Statement Fraud and Corporate Governance. The George Washington University.

Livne, G. (2015, May 12). Threats to Auditor Independence and Possible Remedies. Retrieved from: https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full

Matthew, S. E. (2015). Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review. [online]. 90(2), 495-527. Retrieved from https://doi.org/10.2308/accr-50871

Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting  Review. [online]. 24(3), 1-34. Retrieved from

https://doi.org/10.1108/01140581211283904 [Accessed 21 May 2018]

Niemi, L., and Sundgren, S. (2012). Are modified audit opinions related to the availability of credit? Evidence from Finnish SMEs. European Accounting Review, 21(4), 767-796. https://doi.org/10.1080/09638180.2012.671465

Sikka, P. (2009). Financial Crisis and the Silence of Auditors. Accounting Organizations and Society. [online]. 34(7), 868-873. DOI: 10.1016/j.aos.2009.01.004 

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