StudentShare solutions
Triangle menu

Does the rotation of auditors improve the quality of auditing - Essay Example

Not dowloaded yet

Extract of sample
Does the rotation of auditors improve the quality of auditing

ntial advantages of MAR fail to outweigh costs incurred and other associated risks. 3 In this context, the essay will review the available literature that analyses whether rotation of auditors improve quality of auditing. It will use deductive reasoning to derive that while there are not much empirical data that prove MAR significantly improves audit quality, at the same time, there is not much conclusive evidence that shows MAR has an adverse effect on audit quality, thus keeping the debate open. Discussion Audit, audit quality and auditor rotation In the UK, it is mandatory for all public sector organisations and large business firms to produce an annual, audited financial report. In this context, the term auditing refers to “a systematic process of objectively gathering and evaluating evidence relating to assertions about economic actions and events in which the individual or organisation making the assertions has been engaged, to ascertain the degrees of correspondence between these assertions and established criteria.”4 The Public Company Accounting Oversight Board (PCAOB) had recently published a report asking for public suggestions on the improvement of audit quality and auditor independence, wherein auditor rotation was taken into consideration.5 There are varying opinions on the effects of auditor rotation, and researches have revealed that existing literature fails to derive conclusively on the effects of audit rotation, hence researchers must be careful when analysing audit rotation reports from the past.6 Supporters for auditor rotation claimed that a long-term relationship between an auditor and a company develops a feeling of dependency that in turn diminishes audit quality.7 However, those against auditor rotation claimed that auditor rotation is an expensive process and the costs far exceed any derived advantages.8 Furthermore, they also claimed that auditor rotation is a hurdle, in regard developing a relationship between the firm’s managers and auditors based on confidence and trust, and social exposures between the two often lead to improved audit quality, without hampering auditor independence.9 The theoretical debate on the issue of auditor rotation is based on how one views the auditor. If the auditor is seen as a medium for wealth optimisation, there are various theories that support the concept that there is an improvement of audit quality due to rotation.10 However, if one viewed the auditor as an agent for the principals, rotation is deemed disadvantageous, and a long-term relationship would allow the auditor to get a better understanding of the principals’ objectives, thus making him/her a better auditor.11 The term ‘audit quality’ denotes the probability that an auditor will find shortcomings within a firm’s accounting system (competence), and will report on them (independence).12 ...Show more

Summary

Does the rotation of auditors improve the quality of auditing? Introduction Mandatory audit firm rotation (MAR) has been a topic for debate for many years among practitioners and academic experts.1 With the current economic crisis and audit reporting failures, such as, Parmalat and Enron, this issue has gained further significance, and has resulted in many governments imposing various modifications in accountability, on both auditors and financial reports, aimed at curtailing chances of fraud…
Author : bernhardart
Does the rotation of auditors improve the quality of auditing essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Does the rotation of auditors improve the quality of auditing"
with a personal 20% discount.
Grab the best paper

Related Essays

Does the rotation of auditors improve the quality of auditing
Whitehouse suggested that this is only achievable through quality audit (par. 3). However, according to the U.K. Competition Commission, most audit firms and public companies in the country are too interdependent, thus compromising the objectivity and skepticism that is intended to safeguard interests of shareholders.
7 pages (1750 words) Essay
Does the rotation of auditors improve the quality of auditing
Further, it is expected that the mandatory auditor rotation will result in higher audit quality, results in auditor’s independence, a downturn in audit costs and to lessen big audit firms market concentration. It is to be noted, in the recent past, Italy, India and Brazil have made the auditor rotation as mandatory whereas Canada and Spain have revoked their earlier decision, whether to make auditor rotation as mandatory.
8 pages (2000 words) Essay
Auditing
It is also used by the investors in their decision making process, related to purchase or sell of the securities. The auditors guide the investors and owners in their decision making process. The effective utilization of financial statements requires understanding of the functions of auditors as well.
7 pages (1750 words) Essay
Does the rotation of auditors improve the quality of auditing
There are those that argue that long-term relationships (auditor tenure) build more knowledge about the firm and its accounting procedures which, in turn, translates into more effective auditing practice and skills. Other stakeholders in the business world believe that audit quality is reduced when rotating auditors due to the lack of familiarity about business processes and accounting, thus impacting the ability of auditors to do a thorough job in assessing best practice within the organisation.
8 pages (2000 words) Essay
Rotation of Auditors Improving Quality of Audits
The rotation of auditors is one of the criteria that propose towards the quality of audit in most of the cases.The integrity of the financial statements is contingent upon the audit. Audit of the financial statements elaborates the dependability of the users of the financial statements upon the reliability of the information provided in the financial statement.
6 pages (1500 words) Essay
Does the rotation of auditors improve the quality of auditing
In general, auditing is fundamentally described as the systematic evaluation and the authentication of financial along with accounting records of a specific business organisation (Rathore, 2008; University of Mumbai, n.d.). It can thus be affirmed from a broader perspective that the auditing ensures the financial reports and the business finances of a specific organisation are appropriately reported and most vitally, effectively utilised (BMQR.org, 2011; Kumara & Sharma, 2011).
8 pages (2000 words) Essay
Does the rotation of auditors improve the quality of auditing
It has also challenged numerous businesses, in the event of economic crisis by translating into high systemic risks and financial instabilities. Over the past, numerous corporations collapsed because they worked on wrong assumptions that failed to fully reflect the condition of their finances.
8 pages (2000 words) Essay
Does the rotation of auditors improve the quality of auditing
This provision principally attempts towards ensuring that auditors are provided with better independence in their auditing operations as well as towards assuring that investors are offered with better confidence on the financial reports published following the auditing process.
8 pages (2000 words) Essay
Auditing and Accouning Ethics
From this definition the basic understanding of the purpose of audit is that auditors verify the financial information companies prepare and provide reasonable assurance to the shareholders and other stakeholders that this financial information is free from material
11 pages (2750 words) Essay
Does the rotation of auditors improve the quality of auditing
Other stakeholders in the business world believe that audit quality is reduced when rotating auditors due to the lack of familiarity about business processes and accounting, thus impacting the ability of auditors to
8 pages (2000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation