...Audit – a long-term investor position paper on proposed EU reforms 22 November 2012 Context The signatories to this paper are large institutional investors and investor associations. The institutions manage approximately EUR 1.66 trillion on behalf of their members / investors. We are all long term investors who take our ownership responsibilities seriously, investing significant resources and time in securing, monitoring and voting our assets. Financial reports provide vital information for us to be able to monitor executives’ use of our capital, and the audit of annual statements offers an essential assurance that information in company accounts is ‘true and fair’ (as required by the 4th and 7th Accounting Directives of the EC). The quality of the audit is, therefore, of utmost importance. We believe there are a number of worrying features of the audit market. At a very fundamental level, we are concerned about auditor independence and professional scepticism. Potential conflicts of interest have always been present in the system of auditing, so the challenge is how these are managed. We believe the current system is not delivering, as evidenced by: The failure of auditors to provide adequate warnings prior to the collapse of a number of banks and insurers in the financial crisis. In the EU alone, between September 2008 and the end of 2010, 182 banks received liquidity aid and/or debt guarantees, and 114 banks received either capital injections or asset relief aid1. None of...
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...Auditing Standards Ethical Standards Ethical Standards (FRS, 2010) is issued by Auditing Practices Board. Its responsibilities are set up standards and guidance for auditing work. According to this standard, APB tries to enhance confidence on auditing process for public. ESs includes five requirements that auditors must adhere to and its primary objective is to give ‘true and fair’ opinions on financial statement. The credibility of audit opinions depends on the integrity, objectivity and independence of the auditor. Accordingly, it requires the quality of audit more stringent, especially the independence of auditors’ assurance. ES2 illustrates the guidance on some particular circumstances, which may generate threats to the independence and objectivity of auditors. ES3 states that senior positions have collaborated with audit engagement for a continuous period should be rotating. ES4 explains that there is no relationship between audit opinion and audit fees or other remuneration. ES5 shows that audit firm should consider whether non-audit service have significant effect on the threats to the auditor’s objectivity or independence. International Standards on Auditing ISA (FRS, 2009) copes with independent auditor’s overall responsibilities when implementing auditing process. These professional standards establish objectives of independent auditors together with explain the scope and nature of auditing process, which is designed to enable auditors to achieve the objectives...
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...Determinants Of Audit Fees: Empirical Evidence From Emerging Economy Kamal Naser* Hamed Abdullhameed** & Rana Nuseibeh*** Abstract This study investigates the structure of audit fees in an emerging economy, Jordan. Data were collected from a sample of companies listed on the Amman Stock Exchange that forms 90% of the total population and fairly presents all industrial sectors within the economy. Consistent with previous research, the results of the analysis revealed that corporate size, status of the audit firm, industry type, degree of corporate complexity and risk are the main determinants of audit fees in the Jordanian environment. Unlike previous studies, however, variables such as corporate profitability, corporate accounting year-end and time lag between year-end and the audit report date appeared to be insignificant determinants of audit fees in the sampled companies. Key Words: * Audit fees, Emerging Economy, Jordan. S S cientific Journal of Administrative Development Vol.5 I.A.D. 2007 Dean College of Business Administration, Al-Ain University of Science and Technology, UAE. ** Freelance Financial Analyst, Jordan. *** Link Officer, National Health Service (NHS), UK. 84 Determinants Of Audit Fees: Empirical Evidence From Emerging Economy Introduction Although a number of studies have provided empirical evidence on the relationship between audit fees and the attributes of audited companies, most have tended to focus on developed economies...
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...regulations can help keep neighboring countries on a similar system so that rules do not get misinterpreted causing financial fraud or other violations. The US corporate governance is determined mainly by legislation of the Sarbanes Oxley Act of 2002(SOX) and detailed regulations which SOX required the Securities and Exchange Commission (SEC), New York Stock Exchange (NYSE), and NASDAQ to draw up. I recently found through research that at this point in time the United Kingdom corporate governance does not exist. I also think that this could cause problems when trying to avoid trade regulations and other violations. The US and the UK can be compared when it comes to corporate governance. They both have a different set of guidelines but they have ways of relating them to each other. In the US the “SOX” is the main guidelines for corporate governance while in the UK they passes an act in 2004 that requires big time companies and all of their agents to provide to necessary information needed to carry out investigations if ever...
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...THE AUDIT FIRM GOVERNANCE CODE A PROJECT FOR THE FINANCIAL REPORTING COUNCIL Audit Firm Governance Working Group Chairman: Norman Murray January 2010 The ICAEW operates under a Royal Charter, working in the public interest. Its regulation of members, in particular in respect of auditors, is overseen by the Financial Reporting Council. As a world leading professional accountancy body, the ICAEW provides leadership and practical support to over 132,000 members in more than 165 countries, working with governments, regulators and industry in order to ensure that the highest standards are maintained. The ICAEW is a founding member of the Global Accounting Alliance with over 775,000 members worldwide. © ICAEW 2010 All rights reserved. Laws and regulations referred to in this document are stated as of December 2009. No responsibility for any persons acting or refraining to act as a result of any material in this document can be accepted by the ICAEW or the Audit Firm Governance Working Group. January 2010 ISBN 978-1-84152-863-2 THE AUDIT FIRM GOVERNANCE CODE A PROJECT FOR THE FINANCIAL REPORTING COUNCIL Audit Firm Governance Working Group Chairman: Norman Murray January 2010 Contents Page Introduction A B C D E F Leadership Values Independent non-executives Operations Reporting Dialogue 2 5 5 6 7 9 10 Appendix 1: Involvement of independent non-executives Appendix 2: Independence considerations Appendix 3: Working Group members and terms of reference 11...
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...INTERNATIONAL APRIL/MAY 2010 ACCOUNTANT FEATURES INCLUDE Issue 52 Banking & Finance Risk & Compliance International Financial Reporting Standards Global outlook Banking & Finance Feature Is corporate governance a modern fantasy? Andrew Higson discusses the reality of financial reporting and asks if corporate governance still has a role to play in the modern business world. W hat is the difference between the collapse of Enron and the recent collapse of the banking sector? Well, the obvious answer is that Enron’s demise was not as significant. Yet, in the wake of Enron’s collapse, the Sarbanes-Oxley Act was rushed into law in the USA in order to cure the perceived corporate ills of, and give back credibility to, corporate America. Organisations around the world have since spent thousands of hours becoming Sarbanes-Oxley compliant in order to be able to continue trading with companies in the USA. At the centre of Sarbanes-Oxley was its focus on strengthening corporate governance procedures to prevent fraud and mismanagement – but the chaos in the banking sector must raise a question over the success of Sarbanes-Oxley and, more significantly, over the whole idea of corporate governance. way in which an organisation is run and the way in which its results are presented to the outside world. So where does this leave the non-executive directors? One of the main elements in the recent development of corporate governance has been the growth in the...
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...situations which would tend to weaken objectivity or create personal preconceived notions (Porter and Simon et al., 1996). Audit improves the trustworthiness of the financial statements giving it sensible assertion from an independent source that the financial statements is true and fair in agreement with accounting standards (Olagunju, 2011, pp.85-86). The next section of this essay provides detailed information on how value is added to the financial statement when the auditors’ audit with independence whilst appraising how the accounting profession has or is reacting to auditor independence. While the last section will evaluate the risks or threats to independence and explain ways of mitigating identified risks. Value of Independent Auditing on Financial Statements The significance of audit services will be impaired when independence is absent (Sweeney, 1992); therefore, an uncompromised independence gives a better quality audit to the financial statements (Baber et al., 1995). In addition, if an auditor is independent, the motivation to do a better audit is not undermined as the auditor will report misstatements (Pike, 2003). Stewart (1994) in Porter and Simon et al., (1996), likened independence to the “corner stone of auditing”. This means if the auditors are not independent of parties and other factors; it may affect their view on the audit report making the audit function have no value (Porter and Simon et al., 1996). An independent auditor adds value to the financial statement...
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...Introduction According to Merriam-Webster, the definition of an audit is “a methodical examination and review” (Merriam-Webster). Throughout this whole semester, our class discussions have been about the audit practice and the process of auditing companies’ financial statements. There are many other instances where an audit is necessary to produce opinions, outcomes, and conclusions. The music industry consists of different segments where an audit is needed to make sure everyone is getting what they are entitled to whether it is the artist, songwriter, or the producer. I will discuss the roles of a royalty auditor and the process they go through during their audits. I will also point out royalty frauds that can occur within the music industry. But first, I will explain exactly what a royalty is and how it works. How Royalties Work A main concern in the music industry is royalties. It is the main source of income for anyone who has something to do with a particular song. A royalty is a payment made for the use of property, such as a patent, copyrighted work, franchise, or a natural resource (Investor Words). It can be a percentage of profit from sales and will be settled by an agreement (usually in writing) between the parties (Obringer). Songwriters and publishers have different royalties than the artist who performs it or records vocals on the song. The artist gets royalties from the sale of their recordings such as CDs. One misconception in the music industry is that the...
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...internal audits carried out are carried out in compliance with Internal company standards and procedrues has been assessed by the National Safety Authority (Railway Safety Commission) as part of the submission for safety certification under Commission Regulation 1158/2010. Our internal audit processes meets the requirements of section S of the Common Safety Method Directive (CSM) by demonstrating that there is an auditing system that is • Independent • Impartial and transparent • Planned and revised dependant on results of previous audits • Procedures are in place for competent auditors • Management of recommendations and communications of findings to persons who have accountability to implement findings. This requirement is not dissimilar to the obligations imposed on UK railway undertakings under Schedule 1 (k) of the Railways and Other Guided Transport Systems (Safety) Regulations 2006 (ROGS). However from July 2013 the CSM for monitoring will require more defined processed for monitoring to enable effective management of safety in the railway The risk is that without audit structures which define the role, purpose and processes of auditing, the benefits of auditing and the potential outcomes of not carrying out diligent audits is not understood by the management team. This paper will attempt to clarify the role, purpose and processes involved in auditing its value to the organisation if carried out to appropriate and transparent standards. The Role of the Audit The...
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...Guidance for audit committees Reviewing auditor independence November 2003 The Combined Code on Corporate Governance – July 2003 C.3 Audit Committee and Auditors Main Principle: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Code provisions C.3.1 The board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set out in written terms of reference and should include: • to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; • to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; • to monitor and review the effectiveness of the company’s internal audit function; • to make recommendations to the board, for it to put to the shareholders...
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...the non-audit services that auditing firms can provide to their audit clients. (1) Discuss the benefits and disadvantages of auditors providing non-audit services to clients The objective of this assignment is to examine the benefits and disadvantages of auditors providing non-audit services to their clients. Further discussing in what ways the European Union proposals may prove beneficial and in what ways they may be disadvantageous. Auditing is considered an exceedingly complex process, maintaining a relevant and valuable insight to a company’s financial statements and its reports based on the conduct of their audits. (Gray, I. and Manson, S. 2011). An auditor’s priority is to provide assurance services through evaluating; providing the best financial or non-financial information to clients. (Europa.eu, 2015). Therefore this allows the clients to make the best informed decisions regarding their business. In the recent times, the appearance of professional service firms has resulted from a growing demand for specialist advice to help them achieve business advantage in the competitive market. In May 2014 the European commission published a directive, amending the Statutory Audit directive and a new Audit regulation. (Campa, D. and Donnelly, 2015). Non-audit services that are provided by auditors consist of management consultancy, tax advice and human resources consultancy. These services are aimed to increase the efficiency and effectiveness of an audit and the identity...
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...How to improve and maintain the independence of external auditors Auditor's responsibility is to give advice based on the company's annual financial statements. A company will work with the auditor's annual report of the decision. So this is an important auditor to provide accurate reports. (Dr Jill, Professor Robin)[online] An independent auditor to give the opinion that is no other factors. It includes human, economic, monetary, and so on. Their view is that there is no limit, and give them the freedom to express their views based on their expertise. Besides, they must be clear and to ensure no errors in the opinion. As they say is a company in important business decisions. Although this is the advice given by person, but as a professional auditor should reduce accidents. Professional auditor must be independent of its work. When problems occur, they must be the cooling time and the time taken to solve the problem, without any confusion. An independent auditor must be a smart, intelligent person. Because they know how to handle and solve their own problems without people help. Code of ethics Code of ethics is formed to help the auditors aware to the areas where ethical pressure may exist and be in dependent all the time. Independent auditors are not only responsible to their client but also the public interest. Therefore, they should follow the code of ethics. (Sagar, Mead, Bampton, 2008) There are some fundamental principles in code of ethics which must followed by them...
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...Merging of numerous national generally accepted accounting principles with the International Financial Reporting Standards (IFRS) guarantees reliable and comparable financial information that will help investors in making the best investment decisions. Many countries and the International Accounting Standards Board plan to implement or converge with the International Financial Reporting Standards with a goal of comparing uniformed financial statements across countries. Having uniform standards for accounting worldwide not only would make it easier to compare financial statements, but it will coordinate the free movement of debt and equity capital worldwide. (Mukoro & Ojeka, 2011) Hofstede defined culture as, “the collective programming of the mind which distinguishes the members of one human group from another” (Gray, 1988). Hofstede went on to explain that “culture” is society at large or entire countries, while a “subculture” is used for a level of personal, professional, and organization. The amount of culture integration may vary from society to society, but most subcultures within a single society have similar characteristics (Gray, 1988). Hofstede identified four major types of societal/cultural characteristics. They are individualism versus collectivism, power distance, uncertainty avoidance, and masculinity versus femininity (MacArthur, 2006). In an individualistic society, individuals are independent of one another and self-sufficient whereas in a collectivist society...
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...REPORT RE: RECENT ACCOUNTING AND CORPORATE GOVERNANCE SCANDALS Contents INTRODUCTION: 3 CORPORATE GOVERNANCE 5 CORPORATE GOVERNANCE IN IRELAND 5 RESPONSE FROM REGULATORS TO THE MOST RECENT SCANDALS IN BANKING SECTOR 7 US CORPORATE GOVERNANCE at a time of Tyco scandal 8 RESPONSE FROM THE REGULATORS -SARBANES-OXLEY ACT 2002 9 AUDIT 10 EXTERNAL AUDIT 10 INTERNAL AUDIT 11 INTRODUCTION TO ANGLO IRISH BANK 12 The Scandals 12 Loans to Sean Fitzpatrick 13 Irish Life and Permanent Depositing Funds 14 Corporate Governance Situation of Anglo 16 Ernst & Young – External Auditor 17 Impact on Shareholders & The Public 18 Company Law, Financial Regulator, Accounting Standards IFRS and GAAP 19 TYCO INTERNATIONAL 20 DETAILS OF TYCO’S SCANDAL 21 ACCOUNTING ISSUES IDENTIFIED 22 THE CORPORATE GOVERNANCE WEAKNESSES AT TYCO 22 PERFORMANCE OF EXTERNAL AUDITORS 23 CONCLUSION 27 The Main Reasons for The Scandals 27 Steps taken afterwards-will they prevent similar events happening in the future? 33 END REFLECTION 36 Bibliography: 37 Appendices: 41 INTRODUCTION: Accounting and corporate governance scandals have been a growing problem in the recent years. Many believe that the blame for those scandals should be borne on two groups of people. Those responsible for managing a company and those whose duty is to provide assurance on the accounts prepared by the directors (auditors), both of whom failed to perform their jobs adequately...
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...Ernst & Young EXECUTIVE SUMMARY Ernst & Young commonly referred as EY, is one of the Big Four professional services firms along with Deloitte, PricewaterhouseCoopers and KPMG Ernst & Young is a multinational professional services firm headquartered in London, United Kingdom and was the third largest professional services firm in the world by aggregated revenue in 2012. The firm has employed 167,000 people and has more than 700 offices across more than 140 countries, providing assurance (including financial audit), tax, consulting and advisory services. In FY 2012, EY earned a record of $24.4 billion USD in revenue, ranking the third among the Big Four, after PricewaterhouseCoopers and Deloitte, ahead of KPMG. Ernst & Young offers its services to companies in a vast range of industries, including asset management, life sciences, mining, media and entertainment, retail, technology, and hotel and leisure. The company's financial reporting segment offers an IFRS/GAAP comparison so companies can compare and contrast the international and US accounting standards. The group's members firms are organized in four geographic areas: Europe, the Middle East, India, and Africa; the Americas (including Ernst & Young LLP); Japan; and the Asia/Pacific region. Ernst & Young is increasingly focused on the emerging markets, which have seen more rapid economic recovery than the developed nations. The company sees the trend of growth in the emerging markets as one that...
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