The prime motive of the auditor is to cover conformity with the client’s objective of maximization of profit, performance evaluation and developing working standards. There are basically two types of sampling ways, the statistical method and the non-statistical method…
Non-statistical sampling is upon auditor’s judgment and subjected to biasness (Resource Management Services, Inc, 1994).
In the process of performing auditing procedures, the population needs to be well defined for its true and perfect representation which will help in providing effective decision to the client’s reliability and internal control of daily transactions. The pre-defined sample provides a systematic and simple procedural approach while auditing and tends to increase the work speed (Indiana University–Purdue University Fort Wayne, n.d.).
There are certain risks and errors while determining the sample size. The risk, the tolerable error and the expected error are the significant factors that are liable to affect the sample. In such cases, the sample size will be misleading and the probability of biasness will be high.
The sample which is not properly designed and selected is subjected to risks and errors. This will increase the viability of truth and validity of the data and provide a misrepresentation of the facts. The misrepresentation will provide a false situation of the financial condition and facilitate deceptive course of action to be taken, hampering the performance of the business in due course of time (Hong Kong Institute of Certified Public Accountants, 1997).
The auditor needs to evaluate the result of auditing procedures based upon certain facts. The audit process should provide a premise of analytical review for the test of transactions and balances. The audit program should be detailed out properly with proper compliance to the generally accepted auditing standards (Fayetteville State University, n.d.).
The qualitative factors that need to be considered while encountering an error may be due to misrepresentation of documentation, representation by management in providing guidelines, misinterpretation of facts and mistakes in ...
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Whitehouse suggested that this is only achievable through quality audit (par. 3). However, according to the U.K. Competition Commission, most audit firms and public companies in the country are too interdependent, thus compromising the objectivity and skepticism that is intended to safeguard interests of shareholders.
Further, it is expected that the mandatory auditor rotation will result in higher audit quality, results in auditor’s independence, a downturn in audit costs and to lessen big audit firms market concentration. It is to be noted, in the recent past, Italy, India and Brazil have made the auditor rotation as mandatory whereas Canada and Spain have revoked their earlier decision, whether to make auditor rotation as mandatory.
There are those that argue that long-term relationships (auditor tenure) build more knowledge about the firm and its accounting procedures which, in turn, translates into more effective auditing practice and skills. 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 do a thorough job in assessing best practice within the organisation.
In this context, the Sarbanes-Oxley act was implemented in the US that aimed at bringing back public faith in financial reports. The Sarbanes-Oxley Act made it mandatory for the auditor to be replaced after every five years in the US. The European Commission, however, did not mandate a compulsory auditor rotation, and recommended in its proposal implementation of audit firm rotation and change of audit firms every six to nine years (European Commission, 2010).2 Globally, mixed approaches have been adopted as regard MAR, and in many countries such as the UK, audit partner rotation is given preference over firm rotation, while the regulators in Germany, the US and the UK have derived that pote
In general, auditing is fundamentally described as the systematic evaluation and the authentication of financial along with accounting records of a specific business organisation (Rathore, 2008; University of Mumbai, n.d.). It can thus be affirmed from a broader perspective that the auditing ensures the financial reports and the business finances of a specific organisation are appropriately reported and most vitally, effectively utilised (BMQR.org, 2011; Kumara & Sharma, 2011).
It has also challenged numerous businesses, in the event of economic crisis by translating into high systemic risks and financial instabilities. Over the past, numerous corporations collapsed because they worked on wrong assumptions that failed to fully reflect the condition of their finances.
This provision principally attempts towards ensuring that auditors are provided with better independence in their auditing operations as well as towards assuring that investors are offered with better confidence on the financial reports published following the auditing process.
According to the report the powers of the auditor sometimes put him/her in a tight position that calls for regulations and ethical standards to the test. UK auditing standards were developed by the Accounting Practices Committee (APC) from 1976 to 1991 and were issued as “Auditing Guidelines”. The APC also issued practice Notes.
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