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Auditing failures and quantitative measurement of materiality judgement
Finance & Accounting
Pages 8 (2008 words)
ANSWER #1 The world of business, investment and commerce is faced with the challenge of rising percentage of audit failures. Audit failures not only harms the interest of the investors of business but at the same time may result in endangering the profession…
This may be resulting due to the intentional or unintentional involvement of the auditor in accepting serious misstatements from the company professionals. Large number of factors can be defined as the causes of the audit failure. However, broadly following four categories engulf almost all aspects of audit failure. First and foremost is the failure on the part of the auditor to ensure the compliance of reporting financial statement with the Generally Accepted Accounting Principles (GAAP) or standards of audit. An evidence in the survey reported that nearly 49% of the audit failure resulted due to inability of the auditor to fully comply with the GAAP and GAAS rules. For example, Ernst & Young in USA has recent been charged to pay around USD two million for violating PCAAOB rules of auditing in the audit of its client Medicis Pharmaceutical Corporation (Public Company Accounting Oversight Board, 2012). In the referred case, E&Y remained the external auditor of the company for nearly 20 years and financial statement of 2008 is found to have clear distortion from GAAP rules. The second reason that results in the failure of audit include the due involvement of the auditor. This results when auditor issues due report that warrants compliance of the financial statement with the set standards and principles. ...
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