Auditing Connection and Impacts - Essay Example

Auditing Connection and Impacts Table of Contents Introduction 3 Roles and Responsibilities of Auditors 4 The Impact of Non-Auditing Services Practised by Auditing Firms in the UK 5 Conclusion 7 References 8 Introduction In the present perspective, auditing is a broad concept involving various purposes and responsibilities to be performed by the auditor when hired by a company. According to the American Accounting Association (AAA), auditing is termed as a systematic process of independently obtaining and assessing the evidences related to any kind of affirmations arising within the organisational environment which is directly or indirectly affecting the financial health of the organisation (OReilly & Et. Al., 1999). It can be recognised from the above description that the roles and responsibilities of an auditor are concentrated on the execution of the auditing process including the ethical aspect of independence. However, certain real life evidences have revealed the fact that numerous auditing firms are engaged in serving their clients with non-auditing services which consequently have an affect on the quality and the effectiveness of the process. The paper shall, thereby, be focussed on the study of the roles and responsibilities of the auditor in the present scenario. Additionally, the paper shall also tend to identify the impact of the non-auditing services rendered by auditors on the quality and effectiveness of the auditing services in the UK business environment. Roles and Responsibilities of Auditors From the legal point of view, any company with limited liability should compel the auditing process before the presentation of their annual accounts in order to confirm the eradication of any misstatement in the financial statement of the company(s). Therefore, the roles and responsibilities of the auditor(s) are to examine the financial statements of the client’s company and ensure that the audited statements are mostly free from the mispresentation if not entirely. In other words, it is the responsibility of the auditor(s) to provide “reasonable assurance” to the conclusion that the financial statements presented by the company are at large free from any kind of material mispresentation occurring due to fraudulence or error. Apart from these responsibilities the auditors are also liable to communicate their viewpoints to the stakeholders which again call for an ethical behaviour from the end of the auditor (Green Paper, 2010). However, as revealed from various researches and studies, the focus of auditors, today, are inclined more towards the minimisation of risks occurring during the preparation of the financial statements. As quoted by the European Commission, the implication of auditing has been shifting from a verification based approach to a risk based approach raising certain major limitations on the part of the auditing process. For instance, the recent banking crisis was an example which apparently depicted the affect of this changing concept of auditing on the quality aspect and on the aspect of effectiveness as well (Green Paper, 2010). It is worth mentioning that the role practised by the auditors at present are inclined to be focussed majorly on the non-auditing services, (i.e. the eradication of risk of misstatement arising during the completion of the financial statements) rather than the auditing services which are centred on the evaluation of the financial statements presented by the company. The Impact of Non-Auditing Services Practised by Auditing Firms in the UK In the present day phenomenon, the practise of Non-Auditing Services by the auditors have gained a considerable amount of reaction from the global business environment, especially after the fall down of Enron. The reason of the dismissal according to a group of researchers is the impact of Non-Auditing Services on the aspect of auditor independence. On the contrary, a separate group of researchers state that the Non-Auditing Services in real life practises are beneficial for the auditors. According to the statements of the researchers favouring the Non-Auditing Services, it assists the auditor to know his/her client better, which in actual terms enhance auditors’ independence and in turn increases the efficacy of the auditing process. However, Non-Auditing Services also include the fees accepted by the auditors in return of their services. And thereby, in order to control these kinds of transactions, i.e. the purchase and sale of Non-Auditing Services, several regulatory measures have been enforced not only by the government of the UK, but also by other economies. For instance, according to the Companies Act 1985 in the UK, a discloser of fees was charged by auditors on the basis of both the auditing services and the non-auditing services, but was restricted in terms of further elaboration. It was in 2002, another regulatory board, i.e. the Coordination Group of Audit and Accounting was established. Consequently, the studies stated by the association revealed the fact that the impact of Non-Auditing Services on the quality and the effectiveness of the auditing process depend highly on the volume of the services rendered. In this regard, the association also stated that a strong conjecture should be compelled against the purchase and sales of non-auditing services excluding any kind of exceptional circumstances. This amendment concludes on the part that practising non-auditing services by auditors can be helpful under particular circumstances, but a larger volume of such services can hamper the quality of auditing and thereby reduce the efficacy level on the whole (Siddiqui & Et. Al., 2008). Conclusion With reference to the above discussion, it can be stated that the practises of non-auditing services have a significant impact on the quality and the effectiveness of auditing services rendered by the auditors. To be specific, the non-auditing services have a direct impact on the concept of auditor independence subject to its volume of application. However, to state about the audit quality, it can be termed as the fluctuation of occurrences of audit failures. To be precise, a high amount of audit failures reflect a low quality of audit while a minimised amount of audit failures refer to a high quality of audit. The occurrences of audit failures depend highly on the services rendered by the auditors that result in legal actions against the auditors supported by various legislations (Francis, 2004). Therefore, it is essential for the auditors to abide by few preliminary measures in order to enhance the quality of auditing by a minimised amount of audit failures. As remarked earlier, the impact of non-auditing services can be controlled through a proper litigation and control over the volume. Moreover, not only in the UK business environment but also in many other economies, there are several regulatory bodies established with an aim to control the auditing practices which make the process more complex. Hence, an individual regulatory body should be incorporated accumulating all the attributes of the auditing practices with the purpose to stimulate the quality of auditing. However, the last words of audit quality depend on the perception and the professionalism of the auditor and thus the auditors should be strictly aware of his roles and responsibilities in order to minimise the number of audit failures. References Francis, J. R., 2004. What Do We Know About Audit Quality? The British Accounting Review. Green Paper, 2010. European Commission. Audit Policy: Lessons from the Crisis. OReilly, V. & Et. Al., 1999. Montgomerys Auditing. John Wiley and Sons. Siddiqui, J. & Et. Al., 2008. Purchase and Disclosure of Non-Audit Services in the UK. University of Manchester. Read More