Auditing and Assurance Services Assignment
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Added on 2020-05-16
Auditing and Assurance Services Assignment
Added on 2020-05-16
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Running head: AUDIT AND ASSURANCE SERVICESAudit and assurance servicesName of the universityName of the studentAuthors note
1AUDIT AND ASSURANCE SERVICESTable of ContentsIntroduction:....................................................................................................................................2Discussion:.......................................................................................................................................2Auditor independence and audit risks:............................................................................................2Situations leading to creation of threat to auditor’s independence:.................................................4Reviewing the literature of Enron, Worldcom and Lehman brothers and lessons derived byaccounting professional from such collapses:.................................................................................6Conclusion:......................................................................................................................................8References list:...............................................................................................................................10
2AUDIT AND ASSURANCE SERVICESIntroduction:The report is prepared to analyze the literature review on key audit risks and threats toauditor’s independence lying. It deals with further discussion on the factors that exactlyundermines the independence of auditors. Moreover, analysis of literature review on the cases ofEnron, Worldcom and Lehman Bros has been done for generating information’s on the lessonsthat have been learnt. Independence is considered as critical issue in the auditor’s profession as ithas considerable impact n audit quality. There is a possibility of auditors impairing audit qualityif they are not independent as they are less likely to report irregularities. Establishment ofrelationship between independence and risk helps in identification of where the key audit risksand threat to their independence lies. Audit activity is considered as holistic activity where theindependence in fact, issues of competence and audit risks are linked inextricably (Appelbaum &Vasarhelyi, 2017). Quality of audit is determined by auditor’s independence and it is regarded asone of the fundamental causes of many corporate failures and leading to their collapse andtriggering global economic meltdown of the middle 2000. Discussion:Auditor independence and audit risks:Independence is one of the most crucial attributes and it is measured by the honesty ofauditors in measuring material misstatements in the financial statements of any organizations.Several factors are responsible for undermining the independence of auditors and independencecan be impaired depending upon circumstances. The possibility of being perceived as not beingobjective increases by lack of independence of auditors (Arens et al., 2016). Auditor’s impairedevidence results in poor quality of audit and allows for greater earning quality and greaterearning management.
3AUDIT AND ASSURANCE SERVICESAudit risks are defined as framing an inappropriate audit opinion of financial statement of anyparticular organization. There are three components of audit risks and it comprises of controlrisk, inherent risk and detection risks. Control risks is defined as risks of the possibility ofoccurrence of misstatement that cannot be prevented, detected and corrected on timely basis byinternal control and accounting system. Inherent risk is the susceptibility of the class oftransactions or account balances to material misstatement and it is irrespective of internal controlsystem. Detective risk is the risk of auditors failing to detect the materiality of misstatement byusing its substantial procedures. Auditors’ independence on other hand is defined as state ofmind of provisioning an opinion that does not affect the influences of compromising personaljudgment, professional skepticism, exercising objectivity and allowing an individual to act withintegrity (Knechel & Salterio, 2016). The factors affecting independence of auditors have often been debated and there arebasic factors that lead to threats of auditor independence and cause and effect on quality of audit.Framework for research in audit quality and audit independence:(Source: Schmidt et al., 2015)
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