The assertion of independence is at the core of the audit function. It is assumed by shareholders that auditor formulate their opinion on the financial information independently from the influences of the management of their client’s company. In case of Enron auditors are blamed for not giving regards to their professional obligations and maintaining independence. Prior to Enron case external auditors were observed to be highly dependent on their client’s business. They were providing not only audit services but also non-audit services that impaired the quality of audit and it was surely detrimental factor for the perception of auditors’ independence amongst shareholders. Independence that is seen as a form of mental state of auditors needs not only to be practiced but also displayed to shareholders in order to keep their trust and confidence in the opinions furnished by auditors (Lindberg and Beck).
Reasonable assurance is related to the planning and performing audit for accumulation of audit evidence that is considered sufficient to suggest that the financial statements are free from material misstatements, errors or even frauds. The reasonable assurance does not imply that the elements of errors or frauds are completely covered but it is based on the understanding that the management provides full access to auditors who then implement different audit techniques to collect sufficient evidence to formulate their opinion. The perception and understanding of reasonable assurance varies significantly amongst different ranks of audit professionals (Law) and it is widely argued that audit cannot provide complete guarantees (Pickett).
The audit function is split between internal and external audit. Internal audit is Both internal and external auditors are responsible for ensuring that the financial information prepared by companies’ accountant is in fact in compliance with the accounting standards set out by the regulatory bodies and accounting
Auditing is defined as the “independent examination of financial information of any entity whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon” (Ainapure and Ainapure)…
During this period, a relatively small number of accounting firms could perform audits for a relatively large number of entities. Professional accountants and auditors could render reports on the financial performance of different entities and could work for different investor groups.
The author states that public accountants, like other professionals, historically worked in professional partnerships or sole proprietorships. For many years professional accounting associations effectively controlled the form of Auditor organizations through explicit, formal restrictions.
Hayes, R., et al (2005) argued that a self-interest threat occurs when a member firm or member of the assurance team could benefit from a financial interest or other self-interest conflict with an assurance to client. Examples of circumstances that may create this threat include but are not limited to: a direct financial interest or material indirect financial interest in an assurance client; a loan or guarantee to or from an assurance client or any of its directors or officers; undue dependence on total fees from an assurance client; concern about the possibility of losing the engagement; having a close business relationship with an assurance client; potential employment with an assurance c
Organisations other than very small companies should have an annual audit to ascertain, if the information presented in the financial reports is accurate.
The audit committee, which performs the audit, plays a very important role in preventing financial reports from being fraudulent.
The factors include intimidation, self -interest and the like. The auditors opinion gives credence to the financial statements. The following paragraphs explain that independent auditors are the rule and not the exception (Snyder 2002).
In question 1 the different threats of independence as it is one of the most crucial characteristics of auditor. In question 2b, the ethical dilemma of the employee of a firm has been analysed with different point of view. In question 3 the liability of an auditor
ent, respectively; all these information concerning the organisation should be properly documented in the financial report and should reflect the accurate financial position of the company on a particular date. Organisations other than very small companies should have an annual
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
Although some experts have argued that auditing firms may still be able to legitimize their status by appealing to and incorporating professionalism in their practice, this is often difficult as they are often motivated to increase their profits and market niches just like other capitalist enterprises.
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