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The Auditing And Assurance Services

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 1.Explain Sourced from ICAEW Audit & Beyond 2016 ?

 2.Critically discuss and explain what is meant by audit commoditization ?

 3. (A)Explain the nature, size and scope of the big four accounting firms ?

     (b)Explaain accounting firms or are they morphing into something else?


Answer :


The report discusses about the three questions and the first question deals with developing with the inner sceptic of the auditors. Audit commoditization has been explained in the second part. In the third part, size, nature and scope of the big four accounting firms has been discussed. Four accounting firms that have been discussed in the report are KPMG, Delloitte, Pwc and Ernst & Young.

Answer 1:

Professional skepticism or the being skeptical about the information or the documents presented to the auditors can be viewed as the attitude including the questioning mind. This would also include the critical assessment of the audit evidence and making oneself alert to the conditions that would indicate misstatement resulting from the errors and fraud. The inner skepticism of the auditors applies to their clients, which the auditors need to identify on every single assignment and ensure their documentation. The key weapon of every auditor arsenal is the skepticism about the documents, information and the explanations presented (, 2016). It is the crucial part of the mindset of the auditors. The approach of auditing the financial statements of the company is with an attitude of professional skepticism is becoming increasingly important. While conducting the audit, it is required on the part of the auditors to perform audit using the professional skepticism (Broberg, 2013).

The inner skepticism as stated in the application notes of IAS 200 makes the auditor alert to the following:

  • The reliability of the documents being questioned as result of the information and the auditors also needs to alert themselves of the responses to the queries that would be used as an evidence in audit.
  • Several conditions that is indicative of the possibility of the fraud.
  • Contradiction of the audit evidence based on the other obtained audit evidence.
  • In addition to the ISA requirement, the auditors should be alert to the circumstances suggesting the need for the procedure of audit.

The auditors at various points apply the inner skepticism during the process of auditing and at various stages from the client acceptance. This can be demonstrated with the help of an example. When auditors perform the procedure of the risk assessment during the planning stage of audit, it is required by the auditors to be skeptical. The auditors should not accept the explanation of the management at the face value when discussing the analytical procedures results. He should also needs to obtain the evidence for the explanation being offered. When the auditors are evaluating the evidence of audit, then they should critically assess the evidence of audit conducted. For any contradictory evidence undermining the appropriateness and sufficiency of the evidence obtained, the auditors should be alert.

                                                                    Audit process:

                                                           (Source: Messier, 2016)

The inner skepticism of the auditors should be used as a means to enhance the ability of the auditors in identifying the riskiness of the material misstatement along with responding to the risks identified, as required by ISA 200. The consideration of the auditor’s independence and objectivity is closely related with the inner skepticism. An auditor have seemed to conduct the high quality audit if he has performed the auditing process with an attitude of professional skepticism. The inclusion of the professional skepticism in the auditing would help the auditors in ensuring that the unusual circumstances have not been neglected. It also ensures that the results from the audit process is not over simplified or some inappropriate assumptions have been adopted (Esplin et al., 2016).

The application of the skeptical mindset is the professional as well as personal responsibility, needs to be embraced by every auditor. The subjective and the complex nature of the requirements of the international financial reporting standard requires the auditors to perform the auditing procedure with an attitude of professional skepticism (, 2016).


Answer 2:

Audit commoditization:

Audit commoditization is referred to as the process, which the clients use in reducing the selection decision of the audit firms to the lowest common denominator. The client views audit as the commodity and they intend to pay the lowest possible price for the audit service. The way audit industry is operates is impacted by the market for audit services and changes in economic environment (Arens et al., 2012). Audit service is the prestigious service rendered by the audit professional of the higher quality. Due to the evolvement and changing world, the auditors are chasing the clients for performing the work. The external environment is undergoing the rapid changes, which is forcing the audit profession to adapt to change and cope up with the expectation of the stakeholders. It will not be considered a good profession if there is any dilution in the core values. The profession of the auditor is becoming more vulnerable, which is resulting in the commoditizing of entire process of audit. It is evident from the history that the audit firms have “scrapped their mission of acting in the interest of public”. It went into the business of selling the ‘clean opinion on audit’. It was the time when audit became commoditized (Peterson, 2016).

                                                      Managing audit engagement:

                                                     (Source: Arens et al., 2012)

Rules related to audit commoditization:

The embracing of the commoditization of audit is based on three rules. It should be kept in mind that commoditization is not about the relationship. It is about the system. There has to be low customization and no frills. The process of selling the auditing service should be transparent as the audit clients are well-educated buyers. The audit firms should develop the transparent selling model discussing about the price, processes and deliverables so that the client knowledge is build off. The trust and integrity plays a very crucial role in the relationship of the auditor and its clients. There would be expectation gaps if there were the dilution in the application of the core values of the auditing profession (Louwers et al., 2013). 

The audit that is supports the vision of the management without sufficiently testing it and is merely confirmatory assist in the promotion the commoditization of the audit. It is required on the part of the professional knowledge to avoid the opposing forces in the light of avoidance of the downward fee pressure. These forces are increasing technological and services complications, lack of effective ways to contribute to the business of the clients and the preference of the clients in devaluing between the services and goods and lowering price denominator (Lombardi et al., 2014).


Approach used:

The commoditization of the industry can be fought for and this approach is suitable when the auditors have a deep relationship with the clients. Along with the regulatory changes, the concept of audit rotation is being introduced, which has its own merits and demerits. This is intended to assist in removing the perceived bias and demonstrate transparency. It would also help in commoditizing the audit by making profession a business and making auditors run for their business. Commoditizing the process of audit cannot be considered in reducing the auditing costs. It is not a solution to the prevailing problems in the auditing process. The quality of the auditing service provided is only the means of differentiation.  Many firms set up the department, which would be responsible for providing service to their clients (Cohen & Simnett, 2014).

The current situation in the auditing profession is that there are major accounting scandals taking place, there is financial failure of large corporates, complex arrangement of business and economic situation. Considering all the above factors, commoditizing the process of audit cannot be regarded as the solution to address this. The core value of the profession needs to be realized and it should be reincarnated on the platform of the core values. The profession of auditing is slowly becoming the business. It should be remembered that this profession is built on the special platform, which is cemented with the credibility and trust. It should be kept in the mind of the professionals that they keep the core values of the profession and the profession should be innovated by widening the horizons of the profession and not by customizing the profession of audit.

Answer 3:

(a)   Big Four accounting firms

The big for accounting firms are Deloitte, Ernst and Young, KPMG and PWC (Price water house Coopers).

Deloitte- Deloitte has the highest number of employees. The consulting business of Deloitte has generated $ 12.2 billion revenue in the last year. The deficiency rates of all the three firms except Deloitte witness decline. The brand name of the company has kept with the company values and quality standards. It has emerged as one of the most successful brand in the flied of auditing. The company has earned $ 35.2 billion revenue in the year 2015 and operates in more than 150 countries (Hung et al., 2014). The company is demonstrated to provide excellent service in consulting, auditing, risk management, financial advisory and providing tax services to the client worldwide. In order to sustain its momentum, Deloitte makes continuous investment in its product and people and make the innovation of the new product and services. The company is expanding its business through the organic growth, acquisitions and alliances (Arens et al., 2012).

Pricewaterhouse Coopers- In terms of revenue, PWC is the largest accounting firm. It has generated $ 35.4 billion revenue in the year 2015. It operates in more than 157 countries in the world and employs more than 208100 professionals. In different countries of the world, Pwc operates locally. Pwc is an independently owned firm, which share common values and standard. The merger of the company with Coopers and Lybrand was intended to establish good relations with the customers. Pwc has outperformed its rival Deloitte in the recent year. The company is best known for its service of assurance and taxation (William et al., 2016).

                                                      Change in professional fees:

                                           (Source: The Big 4 Accounting Firms, 2017)

Ernst and Young- It is a global organization of the member firm and operates in more than 150 companies. The core values of the firm lies in its people who are employed and are well equipped with the professional skills and values of respect and integrity. The organization has approximately 212000 employees and values skill development and knowledge. The company reported earnings of $ 28.7 billion in the year 2015. It offers the specialty services, assurance, advisory and tax (Lombardi et al., 2014).


KPMG- It is a global network of the accounting firms providing services such as tax, audit, special advisory and services that are industry specific. The company operates in more than 155 countries providing the quality services and employs approximately more than 173965 professionals. The company reported a revenue of $ 24.4 billion in the year 2015. The company places a great value on the quality of service and people. The company is known for its consulting and taxation service. Of all the firms, KPMG is the most Europe focused (Francis et al., 2013).

                                                 Profit ranking of Big Four firm:

                                                    (Source: Hung et al., 2014)

(b) Inspection about the four accounting firms:

The big four firms are building their consulting practices. The corporation named protecting investors through audit oversight inspected a sample of audit from each of the four accounting firms. The inspection was done to assess the performance and their compliance with the professional standards. The corporation inspected the riskiest audit done by these four firms and the problem detected may not reflect the performance of the auditors with respect to all the audits. Some of the deficiencies in the latest big four report of the firms was revealed by the PCAOB (Gul et al., 2013). The defects were mainly attributable to the internal control of these auditing companies. The defect was mainly reported in the procedures and policies that intends to protect against the fraud and errors. Four big audit firms that the inspection of the accounts is a reflection of their commitment in making the better of the auditing process. The inspection results of these audit firms is taken very seriously and the declining deficiency is encouraging (Knechel et al., 2013).

The Big four accounting firms appear to becoming better at avoiding the problems with their auditing process. The level of the deficient audits witnessed a decline. The Big four firms continue to explore the ways of improving the efficiency of audit about the assurance practice. These firms intend to increase the effectiveness of audit by integrating the analytical tool and data mining in the process of audit. In the recent years, advisory has become the largest service lines, and the big four firms needs to ensure that there is appropriate and sufficient focus on the quality of audit. The profitability of the firms’ lines of business is difficult to determine because these big four audit firms do not provide the information on the profit for the separate lines of business (Hayes et al., 2014).



From the above discussion, it is be concluded that the auditors should not use the inner skepticism as a means to enhance the ability of the auditors in identifying the riskiness of the material misstatement along with responding to the risks. The profession of auditing is slowly becoming the business. It should be kept in the mind of the professionals that they keep the core values of the profession and the profession should be innovated by widening the horizons of the profession and not by customizing the profession of audit. Concerning the big four accounting firms, it has been found that profitability of the firms’ lines of business is difficult to determine because these big four audit firms do not provide the information on the profit for the separate lines of business.



Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and assurance services: an integrated approach. Prentice Hall.

The Big 4 Accounting Firms. (2017). The Big 4 Accounting Firms. Retrieved 24 January 2017, from

Broberg, P. (2013). The auditor at work: A study of auditor practice in Big 4 audit firms.

Cohen, J. R., & Simnett, R. (2014). CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.

Esplin, A., Jamal, K., & Sunder, S. (2016). Demand for and Assessment of Audit Quality in the Market for Private Capital: A Field Study.

Francis, J. R., Michas, P. N., & Yu, M. D. (2013). Office size of Big 4 auditors and client restatements. Contemporary Accounting Research, 30(4), 1626-1661.

Glover, S. M., Prawitt, D. F., & Messier, W. F. (2014). Auditing & assurance services: a systematic approach. McGraw-Hill Education.

Gul, F. A., Wu, D., & Yang, Z. (2013). Do individual auditors affect audit quality? Evidence from archival data. The Accounting Review, 88(6), 1993-2023.

Hayes, R., Wallage, P., & Gortemaker, H. (2014). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.

Hung, M., Ma, Z., & Wang, R. (2014). Big Four Global Networks and Audit Quality Differentiation: Evidence from US-listed Foreign Firms. (2016). Audit & Beyond | Audit and Assurance Faculty newslette | ICAEW. [online] Available at: [Accessed 19 Dec. 2016].

Knechel, W. R., Niemi, L., & Zerni, M. (2013). Empirical evidence on the implicit determinants of compensation in Big 4 audit partnerships. Journal of Accounting Research, 51(2), 349-387.

Lombardi, D., Bloch, R., & Vasarhelyi, M. (2014). The future of audit. JISTEM-Journal of Information Systems and Technology Management, 11(1), 21-32.

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2013). Auditing and assurance services. New York, NY: McGraw-Hill/Irwin.

Messier Jr, W. (2016). Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education.

Peterson, J. (2016). Audit Quality and the Expectations Gap: It's Time for a Model that Fits the Data. The CPA Journal, 86(2), 6.

William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and Assurance Services: A Systematic Approach. Auditing and Assurance Services: A Systematic Approach.

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