A recent FEE (Federation of European Accountants) publication states that “an individual’s objectivity must be beyond question when conducting and reporting on a statutory audit” (FEE). This paper will critically evaluate this statement with particular reference given to some fundamental financial/accounting/auditing concepts and external studies. Objectivity of statutory auditors There are many situations where a statutory auditor’s objectivity would be questioned when auditing financial statements of a firm. To illustrate, an auditor faces this challenge while dealing with the valuation of assets. In order to understand this situation clearly, it is necessary to discuss the difference between fair value and historical cost. Under historical cost accounting, assets and liabilities are valued at original acquisition price and any increase or decrease in their market value over the years is not taken into account (Shome 1995, p.135). In contrast, assets and liabilities are valued at the market price in the current date under the fair value accounting method (Wood 2009, p.344). Traditionally, books of accounts were kept at historical costs. However, fair value accounting replaced this conventional accounting practice nearly two decades ago and since then the assets and liabilities are measured at their current value estimates (Ramanna 2013). Today, most of the firms value assets and liabilities at the estimates of their current market value in order to give the stakeholders a detailed view of the financial status of the business. Since dubious assets/liabilities valuation practices have led to many corporate failures over the last decade, it is a challengeable task for auditors to certify the reliability of fair value accounting. Under such circumstances, a statutory auditor’s objectivity is likely to be questioned if he has any specific interest in the firm. Fair value accounting represents the social construction of reality whereby legitimacy, power, and illusions are created. As experts point out, new epistemic criteria have to be created to address the socially constructed reality of fair value accounting. Fair value accounting clearly represents socially constructed reality, and auditors are expected to maintain professional ethics and legitimate practices (Jeppesen & Liempd 2011). In order to verify this socially constructed reality, auditor’s independence has to be specifically promoted. The auditor’s independence can significantly affect the credibility of financial statements (Olagunju 2011). Hence, there is a positive relationship between independence of an auditor and credibility of the financial statement (Ibid). In addition, an auditor’s independence can justify his objectivity to a great extent. The auditor’s independence has two distinct aspects including real independence and perceived independence (Sucher & MacLullich n.d.). Accomplishment of both these aspects is essential to achieve the ultimate goals of auditor’s independence. Real independence can be simply defined as the independence of the auditor or independence of the mind (Palmrose & Saul 2001). More precisely, real independence is related to the state of mind the auditor maintains and how he manages a particular situation. A really independent auditor would make independent decisions even though he is forced to handle a compromising condition by the company’
Contemporary Issues in Accounting and Finance Introduction With the collapse of global corporate giants like WorldCom and Enron, organizations give particular focus to corporate governance principles, which particularly emphasise the importance of statutory auditing…
Contextually, in terms of both auditors and clients, this letter primarily depicts the terms and the provisions of the engagement where the purpose of the engagement and the terms of the compensation for the auditors are appropriately mentioned. The purpose of this letter is to establish an engagement relationship amid Hammerson plc, a FTSE listed company and Loughran and Shrives Chartered Accountants, who would act as an auditor for the company.
It also involves auditor’s responsibility towards the client. An engagement letter describes the lawful relationship or an engagement between an ‘audit firm’ along with its clients. The engagement letter involves within it the terms and the conditions of the engagement, which mainly addresses the opportunity of the particular engagement and the details of the compensation complying with the firm.
A subject area of accounting and finance, financial regulation, involves preventing economic crises (International Monetary Fund 2009). Accounting deals with “identifying, measuring and communicating economic information to enable informed judgements and decisions by users of the information” (Collier 2003, p.
This paper attempts to explore this concern and discuss the contemporary issues by providing logical answers based on an analysis of the practical application of theories by scholars. Accounting is a legal framework which consists of laws, regulations and therefore accounting regulations is very important.
Whoever undertakes to audit the legal issues should have a clear target of evaluation and analysis. Should be bound to given cord of principals in his attempt to come up with the analysis and research (Guta, 2004, p.341). Some of the values expected of the professional accountants are integrity, having the objective in the work they undertake, practicing the independence during the execution of the duty, generating the confidence in the analysis they do, and also should show or should be a professional in the field of law.
Discuss the types of manager-stockholder conflict that exist and the various mechanisms to mitigate such problems, drawing insights from relevant theories and empirics from the literature.
This essay discusses the various theories pertaining to the separation of ownership and control in a modern corporation and how this will, through the transfer of responsibility to professional managers, inevitably lead to a stockholder-manager conflict.
Accounting deals with “identifying, measuring and communicating economic information to enable informed judgements and decisions by users of the information” (Collier 2003, p. 3, citing a 1966 definition). At the same time, accounting is
Accounting deals with “identifying, measuring and communicating economic information to enable informed judgements and decisions by users of the information” (Collier 2003, p. 3, citing a 1966 definition). At the same