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Issues In Auditing And Professional Practice

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Question:

Discuss about the Issues in Auditing and Professional Practice.
 
 

Answer:

Description of three specific reasons for the high importance of auditor independence in Australia 

The financial statements use to give value-relevant information on the firms' equity, debt along with another market. The financial reports are usually the reflection of the financial performances of the business organization. Furthermore, this report represents the management of the business organization (Berk, & DeMarzo, 2017). Auditing of the financial statements put additional values to the reports by giving a competent as well as independent verification of the validity of this representation. The word "independence" can be explained as the professional integrity of the person. In dependence needs avoidance of the situations that would intend to impede the objectivity or allow personal bias to influence the delicate decision.  This lowers the risk of invalid information or in short information risk. Hence, the audit firms usually operate in an excessively competitive environment. There is important evidence that the audit firm is active competitor regarding audit practice as well as a competency for the undertaking audits. There is small or no noticeable evidence that the audit firms contest regarding independence. The threat relates to the audit independence are complicated (Besley, 2016). The auditor independence is thus one of the most important aspects of the organization that helps in improving the reliability of the organization. Several important reasons measure the importance of the auditors' independence. However, the three most imperative reasons that state that auditors’ independence is highly important for the organization in Australia.  The auditors' independence is highly important; thus the auditors must be free from the customers' firm so that the opinion of the auditing firm will not be effected by any link between the client firm and the auditing firm (Brealey, Allen, & Myers, 2006). The audit firms are anticipated to provide an unbiased as well as honest, professional judgment on the financial report to the shareholders of the clients' company.

 


There are doubts, which are often stated in respect of the independence of the external auditors. It is important that the auditors are free from any obligation so that they can deliver an unbiased audit report, which can be entrusted by the shareholders and investors. The audit independence is important because, it support in providing unbiased financial reports of the company to the important stakeholders of the company such as the company's shareholders and investors, who need most the information of the financial statements to make their important financial decision (Britton, & Waterston, 2013).   

The auditors’ independence supports the investors and the shareholders in getting unbiased critical information from the financial statement of the company, which help them in making important financial decisions.

The importance of the independence is increasing because it supports in improving the reliability of the financial information provided by the company. The reliability of the financial information is the main factor of the Corporate Governance. It supports in improving the trust of the shareholders about the directors' stewardship to take important decision for the company (Christensen, Cottrell, & Budd, 2016). The assurance given by the auditors is a main quality control on the reliable information.

It helps in improving the credibility of the financial information of a company. The audit report by an independence auditors enhances the credibility of the company and help in appealing the investors. The unqualified report by the independent external auditors on the account must provide credibility as well as improve the appeal of the business firm to the investors of the company. Thus, this specific unqualified report must represent the perceptions of the independent experts who are not influenced by any types of personal interest for providing a favorable judgment (Clark, & Baker, 2011).

The lacking in independence possibly failed to complete professional needs to get adequate evidence to make a base of the audit opinion.   The failure by the auditors to perform this challenges lead to reduce the credibility of the accountancy professionals. The lack of independence appears to mean that significant audit work possibility not done by the auditors as well as for this specific reason the shareholders do not get proper value for the auditing fees (Hargie, & Tourish, 2009).    

 

Provision of the first outline of recommended changes their benefits and drawbacks

In Australia the auditors’ independence is controlled by a combination of law provisions in the Corporation Act along with the professional standard:

  1. The Corporation Act Section 307C
  2. Divisions 3,4 along with 5 pf part 2M.4 of the Corporation Act
  3. Auditing Standard ASQC 1 Quality Control for the Firms, which perform audits plus reviews reports along with other financial information as well as other assurance involvement.

Under the Corporation Act of Australia, an individual auditors or an audit firm or an audit company possibly appointed as the auditor of a business organization, company or registered scheme. In this matter, it must be seen that the auditors are the auditor of a registered company. The Australian audits standards are competent with the other standard provided by the various accounting standard board (Horngren, 2013). However, the Australian auditing can be improved by some regulatory changes, administrative changes, and for the ethical changes. The accounting law in Australia is competent with the best accounting practices of the world. However, to make it more prominent, the corporate laws amendment Act are suitable.

Regulatory change

The regulatory changes in this provision are also important for ensuring the independence audit within the business organization this essential amendment in the regulatory framework of the auditing standards help in improving the audit quality as well it ensure the auditor's independence. The Australian Auditing Standard Board provides essential rules for the auditing. Thus the provisions must be amended within the auditing standard the regulatory change has been most important that must be changed with the time being (Horngren, 2014). The regulatory changes help in improving the quality of the auditing, and the quality must be improved as the auditing is important for the business organization to improve the credibility of the audits. The regulatory changes are important for the improvement of the auditing as well as its support in improving the auditors' independence of the auditors. The regulatory body must improve the auditing standard to improve the laws of the auditing that support the auditing.

Administrative change

The administrative changes are also important, and these also play a vital role in improving the auditing standard of the country. The administrative changes support in improving the auditing task it enhances the auditing performance of the auditors' firms (Jones, 2013).

Ethical change

The professionals associated with the auditing functions needed to follow a range of auditing as well as professional standards in conducting auditing. The auditing standards include the basic principles plus necessary process with related guidance that will be implemented throughout the auditing and in the audit related services. The professional ethics declarations give the guidelines on the ethical issues plus detail the minute approved standards of professional, conducts by the members of the accounting profession. The Auditing and Assurance Standard Board of the Australian Accounting Research Foundation developed the auditing standard, and the standards are approved as well as issued by the National Councils of the two professional accountancy entities. The professional ethical standards that make the code of the professional conduct are established by National Council of the 2 professional accountancy entities (Libby, Libby, & Short, 2012).   The ethical issue must be managed by the auditors to conduct the audit within the client company. The auditors must keep in mind that they have taken the important responsibility for auditing the firms that help in assessing the future perspective of the company. The information provided by the auditors are useful for making the important decision of the stakeholder of the enterprise. The auditor is responsible for investigating the financial reports of the companies. The auditing standards are developed by the auditing and assurance standard board, and accounting research foundation is useful in providing required guideline to the independent auditors to conduct the audit within the firm.  The code of conduct is important for the auditors as it provides the requisite guidelines to the auditors to perform an auditing task of the undertaken business organization. Auditing and Assurance Standard Board of the Australian Accounting Research Foundation developed have to make few necessary amendments in the auditing standard and the ethical framework of the auditing for the auditors (Parrino, 2015). It has been recommended to the committee that the quality of the Australia's auditing and the professional ethical standard should be of highest quality. Moreover, it must be considered as one of the best standard and practices. The Australian Accounting Entities have invested significant professional time as well as effort in developing the auditing standards to expand to develop and implement at least equal or most exceeded the international standard.  The accounting and the assurance standard board suggested it has been committed to a plan of harmonizing the auditing standard with the international auditing standard it has a paly vital role in the several international research project.

 

Provision of the second outline of recommended changes their benefits and drawbacks

An audit can be depicted as the process of collecting and assessing evidence to help the financial report being made by the management of an organization. The requirement for the Auditor independence is becoming an emerging question, and the issue is rising among the accounting professional.  The auditors must be independent of the firm that use to be undertaken for the audit purpose (Powers, & Needles, 2012). In this way, the audit decision cannot be influenced by the any of link between the auditors' firm and the undertaken firm that will be conducted auditing. The auditors are expected to provide an unbiased plus honest professional opinion on the financial statement to the shareholders. To support the impendence of the auditors the auditing and assurance board has to develop and implement some important rule in respect of the regulatory framework of the auditing task. The present laws in Australian Auditing and Assurance Board are not adequate for the ensuring the independence of the auditors to perform auditing task within a company. Apart from the regulatory provision, the administrative provision is also important for the auditing profession (Rahman, 2015). The administrative changes are also important for the improvement of the auditing task in Australia. Thus it is recommended that the administrative changes should be brought within the auditing rules that support in improving the auditing quality as well as help in ensuring the auditor's independence will be secured during the process of the auditing tasks.

Regulatory change

The regulatory changes are important for the auditing task. Moreover, the Auditing and Assurance Standard Board support the auditors by providing necessary rules that support in improving the standard of the auditing. The regulatory framework of auditing or the related laws used in Australia are vulnerable to protect the independence of the auditors, and it may affect the auditing process and influence the auditing decision (Ricchiute, 2006). The laws are not adequate to provide quality audit that supports the auditing task within the organization. Hence the amendment in the regulatory framework is becoming essential to make sure that the auditing will be performed appropriately.

Administrative change

The administrative changes are also important for ensuring better quality audit task. The Australian Accounting Standard Board has prescribed some important rules that help in performing the administrative responsibilities and in proving an improved quality Audit to the clients. However, the laws of the Australian Accounting Standard Board and Auditing and Assurance Standard Board are not adequate in protecting the interest of the shareholders and the other stakeholder which are the important users of the financial statement of the company (Saxena, Srinivas, Rai, & Rai, 2010). The auditors are responsible for reviewing the financial statement of the company and the auditors after reviewing provide a useful report that helps in making the important financial decision to the users of the financial reports.

Ethical change

The ethical changes are also required for the Australian accounting standard that provide the essential guidelines that provide effective, ethical changes. The ethics are one of the most important aspects of the business organizations' audit. The auditors must obey the audit ethics to conduct the auditing tax within the organization (Shim, Siegel, & Shim, 2012).   

 

Provision of the third outline of recommended changes their benefits and drawbacks

Regulatory change

The regulatory changes that can be explained in this case clearly show the enhancement of the result which is being shown for the betterment of the structure and also the regulatory changes are providing a lot of benefits as considered in this study. The explanation clearly shows the changes in the consistency of the existing structure of the standards that are being used by showing the construction of the structure of the work. Therefore the structure of the work can be made by showing the enhancement o f the study showing the changes that are used for avoiding the misinterpretations over the auditor’s obligation (Waterston, 2006). The conformity with the ISAs and the best international practice can be easily shown by showing the conduct of the practices which are used for showing the conformity with the ISAs and the appropriate international practices can be depicted. The barrier considered in this case shows the auditing standards must be compiled by showing the enhancement of the programs and the changes that are depicted for showing the compliance costs.

Administrative change

For the betterment of the outcomes, the administrative changes are depicted to be consisting of the study programs in an appropriate way. The enhancement of the analysis can be depicted by showing the construction of the work which is being used for showing the control of the misinterpretations of the auditing rules and the regulations (Weil, 2017). These are constructed by showing the enhancement of the study and also the practices can be appropriately regulated by showing the enhancement of the work and also the consideration can be made by showing the appropriate changes in the framework of the structure.

Ethical change

The ethical changes enable in including the process of the structure which is defined to be structured by showing the enhancement of the work and also the construction of the work can be made in an appropriate way by showing the enhancement of the work. Therefore the ethical values that are considered which is being structured by showing the appropriate structure of the work. The construction can be appropriately constructed by showing the enhancement of the focus on the ethical values which are considered in this case (Welch, 2014).

 

References

Berk, J., & DeMarzo, P. (2017). Corporate finance. Harlow, England: Pearson.

Besley, S. (2016). Corporate finance. [Place of publication not identified]: Cengage Learning.

Brealey, R., Allen, F., & Myers, S. (2006). Corporate finance. Boston [u.a.]: McGraw-Hill/Irwin.

Britton, A., & Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice Hall.

Christensen, T., Cottrell, D., & Budd, C. (2016). Advanced financial accounting. New York, NY: McGraw-Hill Education.

Clark, R., & Baker, D. (2011). Finance. Oxford: Oxford University Press.

Hargie, O., & Tourish, D. (2009). Auditing Organizational Communication. Hoboken: Taylor & Francis.

Horngren, C. (2013). Financial accounting. Frenchs Forest, N.S.W.: Pearson Australia Group.

Horngren, C. (2014). Accounting. Toronto: Pearson Canada.

Jones, M. (2013). Accounting. Chichester: Wiley.

Libby, R., Libby, P., & Short, D.(2012). Financial accounting. Hoboken: Taylor & Francis.

Parrino, R. (2015). Corporate Finance. Singapore: John Wiley & Sons.

Powers, M., & Needles, B. (2012). Financial accounting. [Mason]: South-Western, Cengage Learning.

Rahman, N. (2015). Corporate Finance. North Ryde: McGraw-Hill Australia.

Ricchiute, D. (2006). Auditing. Mason, Ohio: South-Western/Thomson Learning.

Saxena, R., Srinivas, K., Rai, U., & Rai, S. (2010). Auditing. Mumbai [India]: Himalaya Pub. House.

Shim, J., Siegel, J., & Shim, J. (2012). Financial accounting. New York: McGraw-Hill.

Waterston, C. (2006). Financial Accounting. Pearson Education UK.

Weil, R. (2017). Financial accounting. [Place of publication not identified]: Cengage Learning.

Welch, I. (2014). Corporate finance. Los Angeles: Ivo Welch.

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