Buacc5935 Auditing And Assurance Services Assessment Answer

In this context, it is required to be mentioned about the Auditing Standard ASA 200 that helps the auditors in maintaining the professional skepticism throughout the audit operations for the reduction of the audit risks (auasb.gov.au, 2018). Professional skepticism refers to the attitude of the auditors that includes a questioning mind, to be alert in the conditions of material misstatements and to be able to critically assess the audit evidences. It needs to be mentioned that the auditors should be able in maintaining the professional skepticism in order to judge the validly and truthfulness of the audit evidences (Quadackers, Groot & Wright, 2014). This standard is majorly beneficial for the auditors as compliance with this standard helps the auditors in accepting records and documents unless they have enough reason to believe this. At the same time, it helps the auditors is measuring the reliability of acquired audit information by the identification of the major issues that lead to the auditors to consider a document is not authentic (Quadackers, Groot & Wright, 2014). For this reason, the Australian auditing standards provide the opportunity to the auditors to further investigate and determine what are the necessary modifications and additions in order to solve the key audit matters (Glover & Prawitt, 2014).

In this context, the case of ABC Learning can be presented. It can be observed that Simon Andrew Peter Green resigned as the auditor of ABC Learning in the year 2007 after his name was involved in major auditing fraud in the company. After his resignation, Brian Long, the auditor from Ernst & Young, appointed as the auditor of the company and he discovered the presence of auditing fraud in revenue and earning management. In this context, it needs to be mentioned that the compliance with the Australian auditing standard provided Brian Long able with the opportunity to identify the accounting fraud by maintaining professional skepticism that leads to the questioning mind of the auditors (smh.com.au, 2018).     

It is also essential to mention that fact that the Australian auditing model helps the auditors in passing the professional judgment required for the effective conduct of the audit operations. By complying with the standards of Australian auditing model, it becomes possible for the auditors to interpret the relevant ethical requirements of audit operations so that the correct audit decision can be made (auasb.gov.au, 2018). By complying with the standards of Australian auditing model, the auditors can assess the materiality and audit risk related to the financial statements of the entities. Most importantly, auditors can do the evaluation about the fact whether sufficient audit evidence is obtained or not Knechel & Salterio, 2016). Evaluation of the judgment of the management is another major contribution of the Australian auditing model as it provides the auditors with the techniques of evaluating the judgment of the management related to the applicable financial reporting framework. On the overall basis, it can be said that ASA 200 helps the auditors to make informed and reasonable judgment (Knechel & Salterio, 2016).

It needs to be mentioned that the Australian auditing model provides the opportunity to the auditors to conduct the audit operations of both the private and public corporations. However, in this aspect, it needs to be mentioned that the auditors are required to comply with some additional rules and regulation while conducting the audit of the public sector companies. For this reason, the auditors get broader scope for the application of their auditing knowledge while conducting the audit of the large business entities. Lastly, it needs to be mentioned that compliance with the Australian auditing model puts the obligation on the auditors to be ethical as well as independent at the time of conducting the audit. In this regard, the obligation on the auditors is to comply with the standards and principles of APES 110 for ethics. Hence, these are the main opportunities that the auditors get for the auditing profession under the Australian auditing model (apesb.org.au, 2018).

The introduction of Artificial Intelligence (AI) can be considered as one of the major benefits that the auditors can avail under the Australian auditing model. AI technology is referred as cognitive technology that leads to the extension of the information technology power in order to perform the auditing operations (Tennyson, 2013). The use of this technology in auditing makes the auditors able in performing audit tasks that are performed manually; like the counting the inventories, processing of confirmation responses, analysis of accounting data from big samples and others. Most importantly, AI technology makes the auditors beneficial in the process of reviewing documentation.  For example, the name of PwC can be taken into consideration for the wide adoption of AI in their auditing operations. PwC favors the use of ‘sprint’ an agile AI software development model that is used to define the working model of the clients for gaining higher accuracy (forbes.com, 2018).                  

Challenges for Auditing Profession under Australian Auditing Model

The above discussion sheds light on the major opportunities that the auditors can get from the Australian auditing model. However, it needs to be mentioned that the auditors also has to face certain challenges from the Australian auditing model. It is mentioned in the above discussion that the auditors have to comply with the ethical principles and standards while conducting the audit under Australian auditing model and for this reason, the auditors have to face some major ethical challenges.

From the provided scenario, it can be seen that there are many instances where the auditors have been restricted from making the right audit judgment due to the pressure from the management of the client and the senior audit members. The pressure from the management of the client organization on the senior members of the audit firms is the main reason for this as the payment of the audit fees by the clients largely depends on the favorable outcome of the audit (Helliar & Bebbington, 2004). It needs to be mentioned that this particular situation involves the violation of the independence of the auditors under the Australian auditing model. According to APES 110, Section 100.12, there will be threat of auditor’s independence in case any audit member is deterred from acting objectively due to the presence of actual or perceived pressure (apesb.org.au, 2018). Thus, by applying this regulation in the present situation, it can be said that the management of the audit client companies is creating pressure on the auditors not to act objectively that is to take the correct audit decision by relating this to the audit fees. This aspect leads to the development of Intimidation Threat of audit independence. For this reason, it can be said that the auditors are facing the challenge related to violation of audit independence under the Australian auditing model (Pennington, Schafer & Pinsker, 2017).

In this case, the case of ABC Learning can be presented.  Simon Andrew Peter Green, an auditor of Pitcher partner, was responsible for the audit of ABC Learning. He was accused for the adoption of illegal accounting policy for the treatment of revenue and earnings that was the main reason for the collapse of the company. In this case, Mr. Green violated the principle of audit objectivity by not complying with the required audit standards for his own interest (smh.com.au, 2018).   

In another part of the provided situation, it has been mentioned that the auditing firms are the capitalists enterprises that largely depends on the client companies to generate income; and this particular aspect leads to the violation of auditing principles along with developing the threat of audit independence (Sikka, 2009). According to APES 110, Section 20, Objectivity, it is the obligation on the auditors not to compromise the business or professional judgment due to the presence of any bias, conflict of interest or any other influence as this can lead to the violation of the objectivity principle of auditing (apesb.org.au, 2018). In the provided situation, it is mentioned that the audit clients have the capacity to make the auditors silence that is to restrict them from providing the actual audit opinion about their organizations by providing them with huge amount of fees. This aspect indicates towards the violation of the auditing principle of objectivity. This aspect also puts question about the independence of the auditors. It needs to be mentioned that there will be occurrence of the threat of Self-interest Threat of audit independence in case the auditors have financial interest in the audit client that can influence the appreciate audit judgment (Ojo, 2013). Thus, as per the provided situation, in case the auditors compromise the professional judgment by coming under the influence of the audit client, there will be development of the self-interest threat of audit independence.

The collapse of HIH Insurance can be referred in this context. It can be observed that the auditor of HIH Insurance, Arthur Anderson provide the company with ‘all clear’ permit in the financial accounting when those accounts involved major financial frauds. In this context, it needs to be mentioned that Arthur Anderson did this deliberately for the fulfillment of his own financial interest. Thus, this action of the auditor created self-interest threat of audit independence (abc.net.au, 2018).    

From the above discussion, it can be observed that the auditors of Australians have to face some major challenges under the Australian auditing model while compiling with the ethical standards of the audit profession. The above discussion indicate towards the fact that there are certain loopholes in the Australian auditing standard that provides the opportunity to the audit clients to trade off the ethics and independence of the auditors with the audit fees (Everett & Tremblay, 2014). As the auditing firms are capitalists in nature, sometimes they have to compromise their professional and business judgment in order to gain higher audit fees so that they can ensure their survival. At the same time, it can also be observed that the auditors compromise their professional opinion and judgment in order to fulfill their own interest that leads to the creation of the threat of audit independence (Pitt, 2014). Hence, it can be observed that these are the major challenges that the auditors face under Australian auditing model.

Apart from the advantage of AI, the auditors also have to face some major challenges related to the application and use of AI. It is the responsibility of the auditors to consider both the strengths and reliability of the audit evidences along with the fact that whether they are relevant to the issues or not. Only the humans can think about these aspects like certain issues, relevant disclosure of the financial statements by complying with the required accounting standards, the presence of fraud, errors and manipulation in the financial statements, the underlying accounting assumptions and others. It needs to be mentioned that AI software will not be able to venture into this aspects. For this reason, the auditors face major challenges while using the AI in the audit process (Tennyson, 2013).    

Recent Regulatory Attempts in Australia to Improve Audit Quality

The following discussion shows the recent regulatory attempts in Australia that have been taken to improve the audit quality:

Australian Securities and Investment Commission (ASIC) is considered as a key regulator under the Corporations Act that has the responsibility for the surveillance, investigation and enforcement of the requirement of the financial reporting for the Corporations Act and the regulations of registered company auditors (RCA) (frc.gov.au, 2018). This aspect also includes the enhancement requirements of auditor’s independence and audit quality. For this reason, ASIC has taken the initiative of inspecting the audit firms in order to conduct surveillance on the audit projects covering all RCAs (frc.gov.au, 2018). It needs to be mentioned that this surveillance program of ASIC helps in the promotion of high quality external audit of the financial statements of the Australian Security Exchange (ASX) listed companies. Under this process, ASIC provides the audit entities with a confidential inspection report and the firms are required to respond to this report about how they will deal with the issues identified related to audit quality (frc.gov.au, 2018).

Apart from this, ASIC also publishes another report by stating all the issue related to the quality of audit in the companies and the audit quality inspection program (frc.gov.au, 2018). In this context, the result of ASIC’s most recent public report can be mentioned that was published in 30 June 2012 and this inspection program included 20 Australian audit firms. The results of the inspection show the fact that 18% of the auditors did not perform all the necessary processes; in order to obtain reasonable assurance about the fact that the financial statement are not materially misstated (frc.gov.au, 2018). After obtaining the results from the inspection, ASIC takes the necessary steps so that the quality of the audit operations can be maximized. Thus, this is a major regulatory attempt to improve the audit quality (frc.gov.au, 2018).

Another major regulatory attempt can be seen from the side of the Australian Auditing and Accounting Public Policy Committee (APPC).  As per APPC, the audit firms can increase the audit quality by providing the right audit opinion; and for this reason, both input and output factors play an integral part (frc.gov.au, 2018). Thus, in order to ensure the improvement in the audit quality, APPC is cooperatively working with FRC to address the issue related to the audit quality of the outcome-based audit that includes exploration of the views of the company directors and investors on the audit quality issues (frc.gov.au, 2018).

Apart from this, APPC is holding discussion with the stakeholders of the business organizations on the fact that whether the companies are required to include more forward looking financial statements so that they can provide the auditors with more specific information for conducting the audit of the companies (frc.gov.au, 2018). At the same time, intuitive from IAASB can also be seen. It needs to be mentioned that IAASB is consulting for the proposal of enhancing the reporting of auditors globally. For this reason, IAASB has proposed a draft seeking the view of the shareholders on how to improve the quality of auditing in the auditing firms (frc.gov.au, 2018). Some of the major components included in this exposure draft of IAASB for increasing the audit quality are ISA 70,  Communicating Key Audit Matters in the Independent Auditor’s Report along with the number of proposed revised of audit regulations including ISA 700, Forming an Opinion and Reporting on Financial Statements (frc.gov.au, 2018).  

Conclusion

From the above discussion, it can be observed that the auditors of Australia face both opportunity as well as challenges while complying with the regulations of Australian auditing model. It can be observed from the above discussion that the auditors get the chance to select the appropriate audit procedure based on the nature of the audit engagement and it can only be possible while complying with the Australian auditing model. At the same time, the auditors become able to maintain professional skepticism as well as delivery of correct professional judgment with the help of Australian auditing model. The above discussing indicates towards the fact that the auditors have to face major ethical challenges while complying with the Australian auditing standard. For this reason, the auditors have to face the violation of objectivity principle, occurrence of self-interest threat, intimidation threat of audit independence and others. The above discussion shows that has been the introduction of some major regulatory attempts from the regulatory bodies like ASIC, FRC, IAASB, APPC and others to increase the audit quality.

References

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