...Audit Quality: Accounting Firm Governance When performing an audit, an auditor’s main goal is to confirm the accuracy of a company’s financial statements through an independent examination to find any possible material misstatements within the financials. In order to ensure this accuracy, it is the responsibility of the auditor and audit firm to perform the audit to the highest quality and standard. The Public Company Accounting Oversight Board (PCAOB) has continuously been searching for ways to measure and enhance the audit quality to reinforce the confidence and trust of stakeholders, investors, and the public. Although there is no official definition, the PCAOB defines audit quality as “the meeting of investors’ needs for independent and reliable audits and robust audit communications on: 1: financial statements, 2: assurance about internal controls and 3: going concern warnings”. Accounting firm PricewaterhouseCoopers (PwC) states the key principles that a quality audit must consist of are: complete compliance of accounting and auditing standards, a vast knowledge and understanding of the clients business and financial environment, applying complete professional skepticism, and identifying and resolving any issues in the financials. In the Audit Quality Report released by PwC in December 2015, they state that these key principles can only be met to the greatest quality if the auditor and audit firm follow their key audit quality practices; PwC believes that these...
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...in a Quality Audit Project No.: 2 Student Name: Sonia Rana Name : Sonia Rana List of Contents Description Page No. Introduction Quality Audit and Its Importance Audit Team and Their Roles Audit Procedure Entry and Exit Meetings Reporting Audit Standards Summary References 3 4-5 5-7 8-11 11-13 13-14 14-15 15 15 Page 2 of 15 Name : Sonia Rana Introduction: This paper details the importance of the Quality audit, why audit are conducted and what is the purpose of auditing. It explains the process followed to organise, complete and report the audit. Also roles of the various audit team members including external experts/technical specialists are discussed. A brief overview of the audit process, what process and techniques are used during audit process. It also includes the importance of the entry and exit meetings, why these meetings are required and what is discussed in these meetings. This paper explores about the legislations, codes of practices and quality standards that applies to a Quality auditing. Also identifies what reports needs to be made as a result of audit findings, also discusses the formats of the reports and to whom these reports should be presented. A brief conclusion is presented in the last section summarising the findings and discussions. Quality Audits and Its Importance: Page 3 of 15 Name : Sonia Rana Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team...
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...of Contents: Question 1A------------------------- Page 3 Question 1B----------------------- Page 5 What is Quality Audit? The principles of Quality Audit, in the sense we mean it here, are based on the style of quality standards used in several formal national and international standards such as the ISO-900x international quality standards. These standards do not in themselves create quality. The logic is as follows. Every organization should define comprehensive procedures by which their products or services can be delivered consistently to the desired level of quality. As was discussed in the section on Quality Management, maximum quality is rarely the desired objective since it can cost too much and take too long. The average product or service provides a sensible compromise between quality and cost. There is also a legitimate market for products that are low cost and low quality. Standards authorities do not seek to make that business judgment and enforce it upon businesses, except where certain minimum standards must be met (eg all cars must have seat belts that meet minimum safety standards, but there is no attempt to define how elegant or comfortable they are). The principle is that each organization should create thorough, controlled procedures for each of its processes. Those procedures should deliver the quality that is sought. The Quality Audit, therefore, only needs to ensure that procedures have been defined, controlled, communicated and used. Processes...
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...LONG-TERM AUDITOR - CLIENT RELATIONSHIP ON AUDIT QUALITY IN SMEs INTRODUCTION 1.1 BACKGROUND TO THE STUDY Small and medium-sized enterprises (SMEs) play a vital role in the economy of any country, and the impact of their growth is experienced positively across the overall economy. As stated by the European Commission report, Small and Medium-sized Entities (SMEs) represent 99% of all the entities operating in Europe, and have been important for both the social and economic developments in Europe. In Europe, micro-enterprises within the SMEs are considered to be the real giants of European economy, and are the ones with fewer than 10 employees. As per the stats of Eurostat, 67% of the privatesector jobs in Europe are created by SMEs, which represents a major share in the overall economy of a country (European Commission, 2008). Most SMEs encounter limited financial as well as non-financial resources. They depend upon the creditors like banks and other financial institutions, or private equity. In this regard, banks have become one of the major sources for SMEs fulfilling their financial requirements. However, banks are less likely to provide loans without any reasonable assurance of creditability of the firms. Banks generally rely on the financial information of the firms. They do prefer credible audited financial statements by independent auditors as a matter of assurance. In other words, most banks view auditing as a guarantee for the quality of information disclosed in companies...
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...focus of this study is to test whether the market-perceived audit quality captures actual audit quality. It also investigates the relationships among actual audit quality measured by a post hoc identification of auditor failures and earnings management as well as financial analysts’ forecast errors. Prior literature in audit quality, earnings management and financial analysts’ forecast errors are reviewed in this section. AUDIT QUALITY AND ACTUAL AUDIT QUALITY Audit quality has been a topic of significant interest in accounting research. In order to improve the understanding of audit quality, numerous studies have tried to detect the association between audit...
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...regulatory standards worldwide, keeping you and us at the forefront of changes in safety requirements and testing methods. Personalized Service At Bureau Veritas, we are committed to meeting your evolving needs and helping you anticipate new market trends. We offer you customized and specialized services to meet your quality assurance needs throughout your supply chain. Providing you with the highest levels of service is a priority for us. So we do the Inspection, Factory & Social Audit to show responsibility by making sure that its facilities, equipment, products and services comply with quality, health & safety, environmental and social responsibility imperatives, whether they are: - regulatory: imposed by applicable codes or regulations which condition the "license to operate", - voluntary: based on sector specific requirements or recognized international standards, - proprietary: based on your own schemes, standards or requirements. We are able to carry out inspections of your facilities, equipment and products, and audits of your systems and processes against practically any referential, on a local or worldwide basis. In a number of cases, inspections and audits will ultimately enable us to grant a certification to your...
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...AUDIT CRUNCH: REFORMING AUDITING 3 Fundamental Flaws in Current Audit Practice 1st point From this journal, it mainly focuses on the debating of three issues which are deeply embedded in the current auditing practices. Firstly, auditing model is one of the fundamental issues that exist in the auditing practices. It makes auditors’ financially dependent upon companies and persuades them to prioritize their own economic interest at the expense of other parties which may have an interest in audits. This is because auditors are remunerated by the client company rather than by an independent body and resulting the auditors are not able to retain sufficient distance in delivering independent audit. Auditing firms used their control of the auditing markets to colonies adjacent a market to sell consultancy services to audit clients where it causes the auditing model in practice is further complicated. With this, it will increase the auditor fee dependency upon companies and hence cause impairment in the independence of an auditor. The current auditing model is flawed and cannot be repair as auditors are generally banned from selling consultancy services to audit clients. Potential Solution The legislators should be allowed to appoint auditors of major companies. Auditors will not fear of losing the job as they don’t have to socialize their client. Although the fees could come from client but legislator or government are the one selecting auditors for work. This is to segregate...
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...1666 K Street, NW Washington, D.C. 20006 Telephone: (202) 207-9100 Facsimile: (202) 862-8430 www.pcaobus.org ) CONCEPT RELEASE ON AUDITOR ) INDEPENDENCE AND AUDIT FIRM ) ROTATION; ) ) NOTICE OF ROUNDTABLE ) ) PCAOB Release No. 2011-006 August 16, 2011 PCAOB Rulemaking Docket Matter No. 37 Summary: The Public Company Accounting Oversight Board ("PCAOB" or "Board") is issuing a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced. One possible approach on which the Board is seeking comment is mandatory audit firm rotation, which is explored in detail in this release. However, the Board seeks advice and comment on other approaches as well. The Board will also convene a public roundtable meeting in March 2012, at which interested persons will present their views. Additional details about the roundtable will be announced at a later date. Public Comment: Interested persons may submit written comments to the Board. Such comments should be sent to the Office of the Secretary, PCAOB, 1666 K Street, N.W., Washington, D.C. 20006-2803. Comments also may be submitted by e-mail to comments@pcaobus.org or through the Board's Web site at www.pcaobus.org. All comments should refer to PCAOB Rulemaking Docket Matter No. 37 in the subject or reference line. Comments should be received by the Board no later than 5:00 PM EST on December 14, 2011. Board Contacts: Martin F. Baumann, Chief Auditor...
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...likely considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client poses a higher than normal degree of engagement risk? Engagement risk is composed of three broad categories: the entity’s business risk, the auditor’s audit risk, and the auditor’s business risk. Each subtopic has its corresponding factors in regards to an audit. * Entity’s Business Risk “Financial trends are the most important part of [an] entity’s business risk (Ethridge).” The main business risk of an entity is that their continuity is threatened. Furthermore, they may not be profitable to continue doing business in the future. As an example in this case, Ligand Pharmaceuticals’ stock price increased by 600% within one year ($4/share in early 2003 to $24/share in early 2004), despite not ever reporting an operating profit. Stock prices are a thin barrier to use, and the volatility of the market could cause Ligand to collapse due to insufficient funding. There is another example of entity business risk in the case where Ligand Pharmaceuticals had questionable accounting of its sales returns, because although wholesalers had the right to return any products, they did not “sell through” to their customers. An increase in return allowance could throw off the balance sheet as well as the stated income. “Special” treatment of accounts can mask or pad losses, so audit partners and staff must be aware of surrounding...
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...Question 2 Referring to Section 550 Quality Assurance and Practice review of the MIA By-Laws (on professional ethics, conducts and practice) and ISA220 Quality Control for an Audit of Financial Statements, do you believe that the engagement leader of an audit (like David Duncan on the Enron audit) should have authority to overrule the opinions and recommendations of the accounting & auditing function? Why or why not? In our opinion, the engagement leader of an audit should not have the authority to overrule the opinions and recommendations of the accounting and auditing function. To support our judgment, we refer the case to Section 550 Quality Assurance and Practice Review of the MIA By-Laws and ISA 220 Quality Control for an Audit of Financial Statement. Section 550.1 The By-Laws states that every member in public practice has to ensure that the firm adopts and applies policies and procedures designed to maintained adherence to professional standard. Enron had been hiding its Special Purpose Entity (SPE) by not consolidating the entity into its financial statements. The SPE were used to embezzle funds and hide the firm’s debts and expenses. This caused the firm to have understated expenses and profitable financial statements. The action of creating SPE is totally against the fundamental principles of auditing in terms of integrity. The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in all professional and...
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...whether the assurance provider comes from the auditing profession. Companies domiciled in more stakeholder-oriented countries are more likely to choose a member of the auditing profession II. Introduction Purpose ! understand emerging assurance market and the role of assurance in establishing corporate credibility Why buy assurance? Increased stakeholder or user confidence in the quality of the sustainability information provided Increased stakeholder trust in the level of organizational commitment to sustainability agendas III. Literature review on voluntary assurance Why report? Informing stakeholders ! reducing information asymmetry Reporting also attests to organizational commitment, risk management, and a desire to build a corporate reputation Demand for assurance stems from the need to mitigate information asymmetry with institutional creditors. The auditing profession has well developed global standards, a body of ethics and independence requirements, as well as quality control mechanisms at both the firm and engagement levels that help ensure that the assurance provided is of a consistently high quality. IV. Development of Hypothesis Assurance confers several benefits. It helps reduce agency costs and confers greater user confidence in the accuracy and validity of the information...
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...Case #2.4 – Enron: Quality Assurance I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 203 III. Classroom Hints This case provides students with an opportunity to understand what is meant by quality control in the financial statement audit process and to understand why a quality control mechanism is an important internal control procedure for an audit firm. Further, the case provides a terrific example for students to see what can actually happen when quality control breaks down at an audit firm. In the case of Arthur Andersen, the breakdown in quality control ultimately led to the demise of the firm. To meet these objectives, this case illuminates the role of the professional standards group (PSG) at Arthur Andersen and the dialogue that occurred for several technical issues between Andersen’s PSG and the lead partner on the Enron engagement, David Duncan. We believe it is essential for students to carefully read over the recommended technical knowledge, along...
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...surveyors follow the course of a patient’s treatment, they assess the health care organization’s compliance with Joint Commission standards. They conduct this compliance assessment as they review the organization’s systems for delivering safe, quality health care. ("Tracer Facts," 2012, para. 1) For this assignment I have reviewed the tracer patient summary information and there are several outstanding patient care issues. Some of these are related to documentation, such as history and physical exam not completed timely, lack of documentation pertinent to functional assessment, plan of care documentation outdated, and the lack of pain assessment documentation following medication administration. I have elected to address the patient care issue of documentation since many elements of the patient tracer revealed documentation to be a concern. The old motto goes, “if it is not documented, it was not done”, therefore, appropriate documentation is critical not only for successful patient care, but also for the delivery of safe and quality health care. Documentation is always a high risk item and often there will be deficiencies noted on audits and surveys due to the large number of requirements for same. Continued focus audits, random audits, and training will be necessary to continually improve on documentation. Training must focus not only on...
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...EVALUATION OF RESEARCH PAPER Title: When Bonding Fails: Audit Firm Oversight of US-Listed Chinese Companies Date: 15/11/23 Author: Joseph V. Carcello, Brian T. Carver, Clive S. Lennox, Terry L. Neal A. Describe the research problem or question. Evaluate the importance of the research question to audit practice. First, this paper composed by Joseph V. Carcello et al describes the traditional bonding argument failed for US-listed Chinese companies due to a lack of audit quality and audit firm oversight. Last, we think that there are two importance of what the paper relates to audit practice. One is that the study can implicate outside investors may be hit twice as a result of information asymmetry. Another is whether there are any omission or inadequate regulations need to amend due to transnational factors. B. Explain the author’s approach to solving the problem. This paper’s authors, Joseph V. Carcello et al used experimental designing and event studying to argue that the traditional bonding argument failed for US-listed Chinese companies due to a lack of audit quality and audit firm oversight. And, authors do provide descriptive evidence on the following research question: Which parties are most likely to detect financial reporting fraud and other accounting improprieties among the US-listed Chinese companies?(RQ1) because they didn’t test it. C. Describe the major findings of the research. The result of this paper find two points...
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...114 (Objectives 11, 13, 15) the following questions deal with audits by CPA firms. 14. Choose the best response. A. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? 1) It is difficult to prepare financial statements that fairly present a company’s financial position, operations, and cash flows without the expertise of an independent auditor. 2) It is management’s responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. 3) The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. 4) Itisacustomarycourtesythatallstockholdersofacompanyreceiveanindependent report on management’s stewardship of the affairs of the business. B. Independent auditing can best be described as 5) A branch of accounting. 6) Adisciplinethatatteststotheresultsofaccountingandotherfunctionaloperations and data. 7) A professional activity that measures and communicates financial and business data. 8) A regulatory function that prevents the issuance of improper financial information. C. Which of the following professional services is an attestation engagement? 9) A consulting service engagement to provide computer processing advice to a client. 10) An engagement to report on compliance...
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