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Auditing - Essay Example

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Auditing

As the financial statements are the representation of management, it becomes very important to maintain the reliability and authenticity of these statements in order to avoid fraudulent activities in their preparation. The auditors have the responsibility of expressing their views related to the maintenance of fairness by the management. They are authorized with the responsibility of assessing the financial statements for testing the fairness and transparency of the information available in those statements. They collect evidences for assuring the fact that figures which are mentioned in the information does not involve material misstatement. The credibility of the financial statements is increased through the audit process conducted by the auditors. The report provided by the auditors has high influence on the decision making of bankers, creditors, investors or other stakeholders. Issues affecting the credibility of auditors and increasing the need of their rotation The present economy is struggling to recover from the turbulent period that is filled with various corporate scandals and also lacks investor confidence. Nowadays, greater emphasis is laid on the improvement of transparency, credibility, accountability and trust related to the information available in the financial statements. ...
The major question which arises is that whether these types of activities affect the real performance of the auditors. In reality, it actually affects the auditor’s performances and reduces the accuracy or authenticity of the information available in their reports (Cooper and Neu, 2006). The auditors change the figures in the financial statements for earning high incentives. This has turned out to be one of the most highlighted issues that require immediate attention. Real evidences of material misstatements increasing the need of rotation of the auditors 1. In 2003, HealthSouth Corporation was accused by SEC for violating the civil law (Turner and The Staff of Vault, 2005). According to SEC, the chairman of the company Mr. Richard M. Scrushy has inflated the actual earnings of the company by an amount of $1.4 billion by 1999. SEC states that this fraudulent activity has been done in order to satisfy Wall Street’s demands and expectations. HealthSouth Corporation has manipulated the actual figures in the financial statement for satisfying its stakeholders by hiding the real performance. Scrushy along with Don Siegleman (the previous Alabama Governor) have been accused for a series of activities, such as racketeering, bribery, laundering and various other illegal activities. There were other executives involved in the criminal activity of displaying fake company earnings in the financial statement in order to increase its reputation. SEC has reported after detailed analysis that the real earnings of HealthSouth Corporation fell short of Wall Street analyst’s expectations. Thus, the ultimate solution found by Scrushy and his team was fixing the difference amount by overstating the profit figure. Frieswick (2003) argued that there were ...Show more

Summary

Does the rotation of auditors improve the quality of auditing? Introduction The auditors play an important role in the decision making purposes. They have the responsibility of assessing the authenticity of the financial statements. The financial statements are used by the owners of the organizations for evaluating the management stewardship (Okpala, 2012)…
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Auditing essay example
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