Being faced by many of the threats the financial statements are deemed to provide true and fair view and audit of the financial statements depicts that whether the information provided in the financial statements are up to the standards upon which the financial statements are to be presented and issued. The quality of the audit is crucial for the integrity and reliability of the information provided and disclosed in the financial statements. With the continuous increase upon the integrity of the financial statements there are efforts made and put in to practice in order to provide high quality audit. Many of the legislations and regulations are formed to excel the quality of the audit so that the quality audit can enhance the integrity of the financial statements. There are many factors, which contributed towards the quality of the audit and their relation with the quality of financial statements, one of which is the rotation of the auditors. The independence of the auditors is one of the major factor which reflects the quality of audit. The impact of the rotation of auditors upon the quality of audit ensuring auditor independence and how the factors affecting the auditors’ independence are tackled with rotation of audit is discussed. Importance of Audit Quality The quality of the audit is crucial for every user as the financial statements fulfilling the information requirement, which is different in every case. The importance of the transparency of information is critical as the users are dependent upon the provided information and that information is needed to be completely free of bias and should present the true and fair view of the company (Zabihollah, et al., 2003). The quality of the audit of the financial statements is decisive for every user as it is the quality of audit that depicts the dependency and reliability of the information provided in the financial statement. Regulations and Principals The importance of the audit is of utmost important as it elaborates the transparency and quality of the information that the company provides in its financial and non-financial statements (Anna & James, 2009). The information that is scrutinized in the audit process depicts the quality of the audit. The quality of audit is measured upon various techniques where the relation of the auditor is one of the major factors that result in the rotation of the auditors. The ethical implication of the audit and the principals provided by the international auditing and assurance standard board are issued in order to guide through the quality of audit. There are various legislations imposed in various countries where the rotation of the auditors is set as compulsory for the company. The importance of the audit is realized and various regulations were made and implemented. The Public Company Accounting Oversight Board has implemented laws that are mandatory to be followed where the rotation of the auditors are set to be followed by the companies. Corporate governance failure caused many of the scandals that gave rise to many of the regulations (Francine, 2011). In the corporate governance the best practice principals denotes the quality of audit to be enhanced when the rotation of the auditor is made after every three years. The corporate governance best practice is dedicated towards the operations of the company, which depicts the
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…
The Green paper had to demonstrate that European leaders embarked on an audit policy aimed at developing a well ordered relationship between a client and its auditors. The European Commission was in favor of mandatory firm rotation and mandatory rotation of audit partners.
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.
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.
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.
In this context, the Sarbanes-Oxley act was implemented in the US that aimed at bringing back public faith in financial reports. The Sarbanes-Oxley Act made it mandatory for the auditor to be replaced after every five years in the US. The European Commission, however, did not mandate a compulsory auditor rotation, and recommended in its proposal implementation of audit firm rotation and change of audit firms every six to nine years (European Commission, 2010).2 Globally, mixed approaches have been adopted as regard MAR, and in many countries such as the UK, audit partner rotation is given preference over firm rotation, while the regulators in Germany, the US and the UK have derived that pote
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).
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.
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.
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
Hire a pro to write a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Apply my DISCOUNT
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you an essay for FREE
Contact us via Live Chat, call us at +16312120006or send an email to firstname.lastname@example.org