Audit and Assurance

This article discusses the role of external auditors in examining financial statements and promoting good governance in a business. It highlights the importance of auditor's judgement and the impact it has on investors. The article also explores the need for reliable audit reports and the steps that can be taken to improve audit quality.

Running head: AUDIT AND ASSURANCE
Audit and Assurance
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AUDIT AND ASSURANCE
Table of Contents
Literature Review............................................................................................................................2
Research Questions..........................................................................................................................3
Reference.........................................................................................................................................4

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Literature Review
The role of an external auditor is very important as he gives opinion whether the financial
statements which is prepared by the management of the company are showing true and fair view
or not. It is on the basis of the opinion which is provided by the auditor that investors take major
investments decisions. The auditor who is responsible for examining the financial statements of a
business needs to have proper education and experience so that effective services can be
provided to the clients. The auditors nowadays also identify fraud in a business, however the
same is not the main responsibility of an auditor. The main responsibility of the auditor is to
examine the financial statements and ensure that the same are showing true and fair view or not.
As per a study which was conducted by Kassem and Higson (2016), it was revealed that
the responsibility of the auditor is to establish that no fraud has taken place in the business due to
corruption and also to examine the financial statements of a bu8siness (Kassem & Higson 2016).
However, there are certain factors which affect the role and decision-making capacity of an
auditor which are self-interest, independence threat, association with the owners of the business.
As per DiGabriele and Ojo (2014), that the dual role of an auditor is affected when the same
auditor is related to some other services with the client. In such a situation, the auditor would be
less inclined to reveal the true results as there would arise a situation of self-interest (DiGabriele
& Ojo 2014). This affects the judgement of the auditor and its makes it less reliable for the
investors.
The investors and other stakeholders as well rely on the opinion of the auditor for
analyzing the performance of a company and then take investment decisions according to the
same. This makes the auditor’s judgement very important as any wrong opinion might affect an
investor adversely and bring about disrepute to the profession (Davidpublisher.org. 2019). There

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have been instances where an opinion which was given by a business was wrong and the same
affected the reputation of the firm as well as attracted huge losses for the investors. A case
related to the business of Sino-Forest Corporation which is an investment business took huge
loans from the capital market on the basis of audit report which was later revealed that the
company was engaged in fraud. The auditor of the company was Ernest and Young which is
regarded as one of the big four firms (Norris 2015). When it was later revealed that the
company’s shares were worthless, the market took a huge hit and there was in the market price
on a constant basis. This shows that a slight mistake on the part of the external auditor can cause
catastrophe in the security and capital markets. The auditing firm would be surely held
responsible for the mistake and the firm would be sued. This needs to be improved in order to
ensure that the public has confidence on the services which are provided by an external auditor.
Another case where the opinion of the auditor went wrong was in the case o Deloitte
Brazil which provided as wrong audit report which can cause serious damage to the investors of
the business. The firm was held responsible for the misjudgment of the auditing firm and the
firm was charged with a fine of civil nature of $ 8 million. This shows the seriousness of the
situation and proper steps needs to be taken by regulating bodies so that proper judgement can be
provided on financial statements if they are showing accurate figures. Therefore, the research
would be focusing on the fact as what steps need to be taken in order ensure that the reliability
on auditing profession.
Research Questions
1. What role is played by an external auditor in promoting good governance in a business?
2. What steps can be taken by the management of accounting regulators need to take in order to
ensure that the services provided by the auditor are competent.

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3. How does professional Skepticism help the auditor in collecting appropriate audit evidences
in a business?
4. How effectively can external audit minimize the risks associated with the business?
5. What are the threats which are present in a business affecting independence of an auditor?
6. How can the threats to the Principle of Independence be managed?
7. What are the impacts of external auditing on a business?
8. What role does external auditing plays in detection of financial statement frauds?
9. How can the reports provided by the auditor be made more reliable?
10. How can the audit quality be improved further?
Reference
Davidpublisher.org. (2019). [online] Available at:
https://www.davidpublisher.org/Public/uploads/Contribute/5a74280197e30.pdf [Accessed 25
Apr. 2019].
DiGabriele, J. A., & Ojo, M. 2014. Objectivity and independence: The dual roles of external
auditors. Journal of Forensic & Investigative Accounting, 6(2), 200-224.
Kassem, R., & Higson, A. W. (2016). External auditors and corporate corruption: Implications
for external audit regulators. Current Issues in Auditing, 10(1), 1-10.
Norris, F. (2015). Troubled Audit Opinions. [online] Nytimes.com. Available at:
https://www.nytimes.com/2011/06/10/business/10norris.html [Accessed 25 Apr. 2019].