Modern Auditing and Assurance - Essay Example

Auditing and Assurance Student’s Name Institution Auditing and Assurance The most technical and complex processes in business are the accountancy and the auditing. On the other side, ethics might be considered pure, and the only tricky part in it is having the information on what one should do and making others do the right thing. Ethics involves the truthfulness, care, honesty, integrity, and even loyalty, and everyone knows what they require (The Auditing and Assurance Handbook, 2014). Thus, in promoting ethical auditing, decent individuals should be attracted into the profession, well trained, and should not be subjected to temptation that they cannot cope up. Verification requires a code of ethics in laying down the minimum standards of the professional conducts. Those professional behaviors have complaints and the disciplinary processes that assist in dealing with any errant deeds that may reach the attention of the expertise bodies like the Institute of Chartered Accountants. Such professional organizations jointly issue the code of ethics that offer guidance to the members. Some attentions are given to the ethics in training the accountants and the auditors. Given that the expertise is in existence, assumption is made that ordinary moral sensibility both with examples of the senior colleagues who can take good care of the ethical side of the business. This attention given to the ethics of the auditing connect professional firms with the respect minimization of risk (Leung et al., 2011). The risk is in relation to the dangerous, unlawful activities of evil occasions. The likelihood of the legal liabilities and the general concern of their reputation are considered. In this situation, one can understand that the research into the ethics of the accountants and the auditors focuses on the discovery of the way to maximize the compliance with the accepted principles of the professional conduct. If the professional attitudes are not appropriate, then it is due to the exceptional publicity that is given to the auditing failures revealed in the distrust of the collapse of the major corporations. The accounting practice of such organizations is seen to have been seriously deficient and even downright dishonest, without mentioning the unlawful and the criminal in the more that merely technical sense (Leung et al., 2011). One can perceive the crisis of the public confidence in the accounting profession that comes due to these events as a threat to both the business of auditors and the business itself. It confirms that major corporate insolvencies come up due to the irregularities in auditing. Thus, it becomes very difficult to have trust in the reliability of the accounting and the auditing standards and the procedures in general. Previously, in the situation that the one cannot believe the audit, the audit loses the value (Leung et al., 2011). Therefore, ethical issues in business concern the auditing function in that there is a complex interrelationship between the questions that concerns the manner in which the auditors should behave. It also involves the rules and the principles that the accounts ought to adopt and follow. It also tells how they should promote a culture whereby individuals can expect the compliance with the laid norms. The ethical issues that relate to the auditing should be classified in three spheres of the activities. It includes the practice of the auditors, the setting of the auditing standards and the laws. The last area is the management and the culture of the auditing firm (Leung et al., 2011). Ethically, most of the things may not be straightforward at that level of personal auditors engaged in the practice of the verification activities (The Auditing and Assurance Handbook, 2014). The auditors are expected to carry out the standard procedures in a careful manner, diligently, and even in a punctual way. The audit activities are supposed to be done in accordance with the given instructions, the appropriate auditing standards, and the procedures. The virtues of the objectivity, integrity, confidentiality, independence, professional standards, competence, due care, and the upholding technical seem to be particularly appropriate in the sphere of the practice of the auditors. Integrity is the prerequisite for those who act in the public interest. It is essential that the reporting accountants should work and are seen acting with the integrity that does require not only honesty but also abroad range of the related qualities. Such conditions include fairness, candor, intellectual honesty, courage, and even the confidentiality. It is crucial for the directors and the management of an engagement client to rely on the audited report in order to treat the information that is obtained during the meeting as confidential unless its disclosure is authorized. The third parties may also already know the information or the reporting auditor has the legal right to disclose such information (The Auditing and Assurance Handbook, 2014). Without that information, there may be a danger to both the directors and then there is a possibility of management failing to disclose the information to the required reporting accountant. Thus, the outcome of the engagement will thereby be impaired. Objectivity is the state of the mind that excludes prejudice, bias, and even compromise. It provides impartial and fair consideration to all the matters relevant to the task, as it disregards those that are not relevant. Objectivity requires that the judgment of the auditors do not become affected by the conflicts of the interests (Leung et al., 2011). Thus, objectivity is a fundamental ethical principle just like the integrity. The need for the objective accounting report arises from the fact that the critical issues, which involves in an engagement, are likely to relate to the questions of the judgment rather than to the questions of the effects. Thus, the auditors are engaged to undertake an investment circular reporting engagement. Objectivity requires that it express an impartial opinion. Independence is the freedom from the situations and the relationships that may make third party be reasonable and conclude that the objectivity either is impaired or could be impaired. Independence is related to and underpins objectivity (The Auditing and Assurance Handbook, 2014). It also refers to the circumstances surrounding the engagement that include the employment, financial, business and even the personal relationships that is between the auditors and its engagement client and even other parties connected with the investment. The need for the independence arises since, in most cases, the financial information users and the third parties luck required information necessary to assess whether the report are objective. Different organizations have tried to define audit quality in various ways to initiate the standard definition that could evaluate the performance of an individual. The first definition says that audit quality is all about the delivery of appropriate opinion that supports necessary evidences and the objective judgments (Leung, 2011). Ultimately, auditors provide a quality service to the shareholders by providing audit reports, which are reliable, independent, and even supported by the adequate audit evidence. Another definition says that audit quality entails accessing sufficient and even appropriate audit evidence that conclusions that the verification report bases and making objective and relevant audit judgments. It also requires proper and complete reporting by the auditors who enable Audit Committee and the Board properly to discharge their responsibilities. Both the definitions are at a higher level. They also identify specific features thought to be necessary for an audit to be of the high quality (Leung, 2011). The judgment made by the auditors must be objective and supported by adequate audit evidence or even sufficient appropriate audit evidence. Neither providing the independently defined or objectively verifiable measure of the sufficiency of the proof required before an audit opinion may be correctly given. The audit expectation gap refers to the difference that is in between the public and other financial statements users perceiving the responsibilities of the auditors. These responsibilities are in relation to the detection of the fraud in the relation to the going concern concept, which are two areas that mainly associate with some of the existences of expectations gap. There are several dimensions in of the expectations gap. Those aspects include the auditor's independence, responsibilities, quality, and even liability. The profession uses many instruments of self-regulation to ensure audit quality. Such tools include peer review, professional ethics, continuing professional education, and even rotation of auditors and concurring review (Leung et al., 2011). Peer review involves a reviewing the work of one accounting firm by another accounting firm of comparable size. It gives an assurance to the public that the company performing auditing services are having an efficient quality of the control system. The accounting services provide reasonable assurance that its auditors are complying with statements of accounting standards. It also aims at evaluating the quality control by testing compliance of the firm's auditing and accounting engagement. Audit quality entails a lot such as the responsibilities of the company directors and those of the auditors in the preamble to the auditor's report. Thus, the increasing audit quality can address the audit expectation gap in that it spells out the respective responsibilities of both the directors and the auditors of the company. The shareholders are reminded that the responsibility for the preparing and presenting fair financial statements that include responsibility for designing, implementing, and even maintain the internal control rests squarely with the directors (Leung et al., 2011). On the other hand, the auditors have the responsibility of expressing an opinion on the financial statements. They then produce the report to the directors after performing procedures aimed at obtaining audit evidence those disclosures the financial statements. Accepted accounting principles, (GAAP) involve setting common accounting standards, policies, and the procedures used by various companies in compiling their financial statements. Therefore, GAAP is the combination of the reliable standards and commonly accepted means of recording and even reporting the accounting information (Leung et al., 2011). The imposing of GAAP on companies is expected to give the investors a minimum level of consistency in the financial statements used in analyzing the companies for the investment purposes. It covers things such as revenue recognition, outstanding share measurement, and even the balance sheet item classification. Thus, all firms are expected to follow the GAAP rules whenever they are reporting the financial data through the financial statements (Leung et al., 2011).AICPA contributes a significant role in the establishing the accounting standards. Committee on Accounting Procedures (CAP) issues a series of the Accounting Research Bulletins (ARB) having the purpose of standardizing the accounting practices. The APB substituted the committee that dealt with the accounting research. FASB foundation is governed by sixteen board members of trustees who are appointed from the memberships of the eight organizations. FASB is concerned with the auditing the financial information that are prepared in line with the GAAP. The audited report is also made according to the set standards of the FASB (Leung et al., 2011). That audited report shall contain the expression of opinion regarding the financial statements that may be a whole or assertion to the consequence that the opinion cannot be expressed. One needs to state the reasons in the situations that the opinion cannot be expressed. The audited report should also contain an indication of the features of the work of the auditor. If possible, indicates the degree of responsibility the auditor takes. The report of the auditor may not have been in accordance with the accounting principles (The Auditing and Assurance Handbook, 2014). Thus, the auditor has to satisfy the first standard by disclosing in the report that it has been made in conformity with another comprehensive basis of the accounting. The conformity is other than the accepted accounting principles. Therefore, GAAP has much significance. First, it creates the uniformity in the tax code and the IRS, which assist in giving specific financial information from different businesses. GAAP is also important for the investors who are researching the potential companies in order to invest. In addition, GAAP also allows for the flexibility (The Auditing and Assurance Handbook, 2014). They give the room for various groups to have different decisions. They can also use different methods as they make money quickly and in a quick way. It also straddles the line between improving the honesty and the prevention of the fraud as it allows the business to become creative (The Auditing and Assurance Handbook, 2014). Lastly, GAAP is applicable even to the international business. Thus, it paves the way for the international set of the principles, which various countries can use in common. Even though the management is having the responsible for making the financial statements, it is the part of the auditors to ensure that the financial statements are in accordance with the principles of the GAAP. References Leung, P., Coram, P., Cooper, B.J., and Richardson, P. (2011). Modern auditing and assurance services. (5th Ed.). John Wiley & Sons, Brisbane. ISBN 978-1-74216-845-6 The Auditing and Assurance Handbook (2014). The Institute of Chartered Accountants in Australia, John Wiley & Sons, Brisbane: OR (CPA Australia, Pearson Australia) Read More