Auditing: Explaining Industry 4.0, EU-GDPR, VUCA, and NOCLAR

This document provides an explanation of terms related to auditing, including Industry 4.0, EU General Data Protection Regulation (EU-GDPR), VUCA, and NOCLAR. It discusses their definitions, significance, and impact on auditors' work.

Running head: AUDITING 1
Auditing
Name
Institutional Affiliation

AUDITING 2
AUDITING
1. Explain the following terms
Industry 4.0
This term is used to refer to the subset of the fourth industrial and technological
revolution. It mainly concerns the industries (Lee, Bagheri, & Kao, 2015). The fourth
industrial and technological revolution is mainly focused on the smart systems within the
industry rather than the industry itself. In some countries industry 04 is mainly referred to as
smart city. Industry 4.0 can always be referred to as the fourth industrial revolution. They are
often used interchangeably. It is in line with the recent concept of factories in which
machines are connected with wireless technology and movable sensors (Lee, Bagheri, & Kao,
2015). Most of the machines in such an industry have the capability of visualizing the entire
lines of production of the industry and have the capability of making decisions on their own.
The industry 4.0 is purely a description of the trend towards data exchange. It is used in
manufacture of technologies and processes which encompass with them cyber-physical
systems. Within it there is also inclusion of the internet of things (Agrawal, Schaefer, &
Funke, 2018). Cloud computing, cognitive computing and artificial intelligence are also part
of the system used. The essence of industry 04 is that it fosters smart factory. It is important
to the structured smart and televised factories, cyber technology that use physical systems and
those that monitor every physical process. It is important also in creating a virtual copy of the
physical world within the industry and decentralized decisions in relation to the included
analysis. Inclusion of over the internet within the industry helps in cyber-physical systems
through communication and cooperation with humans in real time (Stock, & Seliger, 2016).
The real time inclusion is done in both within and across more than one organizational
service offered by the participants of the industrial value chain.

AUDITING 3
EU General Data Protection Regulation (EU-GDPR)
This is a rule and regulation on the law on data which applies to all citizens of the
European Union by giving them a lot of privacy (Lu, 2017). It also involves the addresses of
the transfer of individual information outside the European Union. The major purpose of the
GDPR is to give privacy and ownership to the individuals who have their personal data. It
also gives and awards simple regulatory environment for cross the border corporations. The
regulation and new laws applies within any location of the EU without consideration of the
related processing personal data. It also doesn’t consider the provisions or the requirements of
the related established EEA.
The EU has replaced the traditional data protection directive (Rüßmann et al., 2015).
It is mainly designed to harmonize data privacy across all the Europe. The law also protects
and empowers all the EU citizens from the data privacy. This new regulation is argued and
considered one of the organizations that will help reshape the position in which most
industries manage data. It is considered a redefinition of the key roles that leaders play in
most international and local businesses (Rüßmann et al., 2015). With the new regulation, the
CEOs have to ensure that they have unbreakable consent management processes in place.
CMOs are also required to be the most effective right systems that manage data by ensuring
that they don’t lose their most valuable assets and data.
VUCA, A new level playing field
The term VUCA was coined from the military (Gilchrist, 2016). However, in the
world of business VUCA is the total accumulation of 50 years of movement from an
industrial economy to an economy that is based purely on information (Gilchrist, 2016).
Normally, it is the result of everything from automation to outsourcing, deregulation to
globalization, personal computing to the internet. It is these changes that have since been
considered to vastly improve productivity and connectivity. VUCA in turn paves way for

AUDITING 4
tremendous business innovations and consumer existing benefits. However on the flip side,
companies are likely, to get increased demand from their customers. They are faced with the
needs to meet relentless productivity and pressure especially from business competitors
(Voigt, & Von dem Bussche, 2017). The business model by the VUCA has been receiving
threats from upstarts within the new sectors. The model also receives quite stiff competition
from macro trends in business, some of which include; shifting the landscape of geopolitics,
the social rapid adoption of customers, moving and cloud based technologies, and the shifting
demographics of customers and employees (Wachter, Mittelstadt, & Floridi, 2017).
Within the VUCA world, the biggest challenge is how to predict and make decision
that change the course of action as needed in the VUCA world while steering organization to
the required destiny (Mack, Khare, Krämer, & Burgartz, 2015).
NOCLAR
In the year 2017, the International Ethics standards for accountants updated the rules
that respond to how clients comply with laws and regulations (Costa, & Kallick, 2018). It is
from such updates that NOCLAR came into existence. NOCLAR is an action that violates
laws which address the compliance matters of the accountants and their clients.
NOCLAR significantly restricts CPAs with confidential requirements. It ensures that
there is very minimal exception to when the accountants can divulge from the client or
employer information without their consents. It has since become the response framework for
most accountants’ decision making processes. NOCLAR has become very significant in
whether information should be divulged to any outside body or institution (King, 2018). The
process is quite significant for the accounting profession. The changes in this regulation
mostly affect the Board of directors and owner of the conduct. Other members of which
include; accountants and financial report holders are also affected by NOCLAR.

AUDITING 5
2. When do auditors need to highlight risk by issuing a "going concern"
emphasis of matter in their report?
The recent global economic crisis provides many challenges for both the managers
and the auditors. There have become so many things on the auditors of the published
statements (Wymeersch, 2017). The going concern, therefore, becomes an establishment that
gives additional direction to deal with this recent economic crisis (Wymeersch, 2017). The
going concern, therefore, becomes a well established guidance based on the following
objectives. The highlighting risks when this happens include;
When there is need to obtain enough and relevant evidence regarding the
appropriateness and accommodativeness of the management (Schroeder, Clark, & Cathey,
2019). The auditor and management use the going concern assumption to prepare the
financial statement in this case. For this case, the going concern then becomes quite relevant.
Additionally, the going concern can be used by the auditors to conclude. The
conclusion is based on whether a material exists or is in uncertainty (Bahn, & Granzin, 2015).
In this occasion, it is relevant to use going concern whether the events or conditions may cast
a lot of doubts on the entity’s and their ability to continue.
Going concern can also be used by an auditor at the moment they need to implicate
the auditor’s report (Commons, 2017). This is normally done when there is need to involve
an assessment of the appropriateness of then going concern and assumption (Commons,
2017). At this juncture there might be the need to perform additional procedures. These
additional procedures are normally demanded for the purposes heightened risks relating to the
going concern.
Worth important to note is that the going concern should be considered at all stages of
the audit. The audit should not only be done in terms of the appropriateness but in terms of
additional procedures (Mubako, & O'Donnell, 2018). These additional procedures are to be

AUDITING 6
considered at all the stages of the audit. The going concern cannot be considered for that
particular stage but for the audit cycle as a whole. All these should permutable through the
whole performance and the review of the audit (Kadous, & Zhou, 2016). The current
economic circumstances might make auditors to also consider the following when auditing;
It is used when assessing the risk at the planning stage of the audit. It can also be used
when re-assessing the risk in terms of the audit progresses. Additionally, it can be relevant
when the audit procedures lead to response of the assessed risks (Chen, Chung, Peters, &
Wynn, 2016). It is important that when the risk is designed an evaluation and a conclusion are
put on the results and the procedure before forming an audit opinion.
How can auditors cultivate an appropriate level of scepticism in order to do their
jobs properly?
Professional auditing skepticism is based on the attitude of the manager, which
includes questioning in the mind. It is being open to procedures that might lead to any
possible fraud and error (Gal, Amin, & Mohamed, 2016). It will, therefore, lead to internal
critical evaluation of the audit report. Professionally, skepticism cannot easily be measured in
any auditor. It is also realistic to conclude that skepticism is not just something that anyone
cultivates in them overnight. It is a skill developed over time. The skill of the auditors should
constantly build and be refined. To develop skepticism it will be important that the auditor
becomes a critic of most of their personal work. When they critic their own work, they
become less complacent and will develop skepticism. Most auditors don’t like their work
criticized; they mostly focus on other people. The best method, therefore, is to criticize our
skepticism is to critic our own work (Gal, Amin, & Mohamed, 2016). The review forms the
first levels of review, the review allow the auditor to take a step back and consider it from a
different vintage and level point. At the end consequently, the evidence that supports the two

AUDITING 7
conclusions are compared. The error between the initial conclusion and the evidenced
reviewed conclusion makes the auditor rate his level of skepticism.
In clear discussion, it is difficult to develop skepticism in any auditor. Its application
can also be quite difficult. It becomes a challenging to show any auditor of the value that they
articulate. A lot of attention is accorded to it during the professional training but its
achievement might be quite complicated.
3. Beware of the auditor – they only tick boxes. Discuss
Most auditors do not focus on quality delivery. Since most companies have a clear
provision of how an extremely helpful audit quality should look like, they provide the same
to the auditors. Over-whelmed by the responsibility most auditors regardless of their good
intention get inspired to do the check-tick box mentality. Since the list of item to audit is
lengthy they just complete check box spaces. It is easy to realize when the auditor has done
the same due to sustaining report. The sustaining report of the auditor becomes very little but
the whole of the SPC is entirely cleared (Schroeder, Clark, & Cathey, 2019). The lack of
support experienced is not failure of the quality system but certification in itself. At times it
can be blamed on the company or the organization for providing an SPC.
4. 10 impact on the auditor’s work
Halo effect- normally occurs when knowledge of the holistic assessment at the
beginning alters the other detailed evidence produced by the auditor. Halo effects influences
the decisions of the auditor so that they come up with what has been affected by the global
judgment (Schroeder, Clark, & Cathey, 2019). It makes the auditor focus on the holistic

AUDITING 8
approach and global knowledge compared to professional judgment, therefore, limiting his
decisions.
Anthropic bias –this is the tendency by the auditor to interpret information in a way
that in confirms preconceptions that were already slipped into the audit and are likely to
derail proper execution. It influences the auditors’ decision by formulating multiple
hypotheses which the auditor might pro-actively seek to disconfirm (Schroeder, Clark, &
Cathey, 2019). Auditors should avoid this trap as it eventually lead to biasness.
Availability bias- this biasness is normally caused by the auditors self –perceived
ability to be and remain objective. The auditor might remain on the bias blind spot for quite a
long time. A part due to biasness that operated outside of the immediate awareness, it
includes self serving tendencies within the auditor’s justifications.
Conjunction fallacy – conjunction fallacy rests on the auditor interpreting some
financial experiments and instruction in particular and expected ways. At this moment most
auditors are influenced by what is referred to as probable (Schroeder, Clark, & Cathey, 2019).
An auditor is affected by this fallacy when they start to think about, the probability of a
financial event to occur as predicted earlier.
Contrast effect- normally a contrast effect is when an auditor is affected by a similar
case, a similar event, a similar type of judgment that had been made earlier. The decision
made is normally based on previous experience of the auditor which is potentially critical to
the information provided. Each case should be treated with its own standards through contrast
effects affect many audiences.
Cultural bias -is mostly an independent of freedom conditions which threaten the
ability of the internal auditor to carry a perfect internal audit. Biasness from culture arises
when the auditors subordinate their judgment on audit matters and prefer external, cultural

AUDITING 9
and environmental influences. The objectivity of the audit will totally be lost. Internal audit
should at all times have impartial and unbiased attitude.
Framing effect- framing effect normally occurs when the manager of an organization
constructs a description of some entity allowing the information stated to influence the
decision made by other agents within the organization auditors included. Auditors should
remain unshaken by the frame they should focus on their role to evaluate and report on
fairness.
Hostile media effect – normally affects the decision made by the auditors when a
controversial issue is raised. The news consumption patterns are then affected by the public
opinion. The auditor is forced to be biased and produce a consumption that can be aligned to
what the general public can believe in due to the influence by the media.
Illusion of control – most auditors in most firms do not understand how important a
role they play. With such they underestimate or either overestimate their ability to control
financial events of the company or the organization under audit. To avoid influence of
illusion of control auditors should arise and create introspective insight into whether the
auditor is in control of any financial events. It is also referred to as introspection illusion.
Impact bias – this is a type of bias that arises from heuristics. The judgments of an
auditor might be influenced by the use of heuristics. It involves mitigation of the effects to
the client by the auditor when levels of risks are high. It is advisable that the auditor remain
within the reasonable constraint.
Organizational factors that affect the auditor
Internal control
Internal controls of the firm involve any personnel that are designed to assurance
regarding an organization. Internal controls of an organization normally play the committee

AUDITING 10
role (Commons, 2017). The audit committee should ensure that there is financial reporting
and corporate accountability. When these two issues are in order in an organization the
auditors duty becomes easier (Commons, 2017). However, when one of the decisions is in
non-existence, then the rest of the decision is affected.
Firm size
It is difficult in conducting audit in some firms. Firm size has become a surrogate in
performing audit. Larger firms support the auditor with all the required capacity to help him
build the firm further (Commons, 2017). Additionally, smaller firms limit the operation of the
auditor through limiting the auditor’s operation capacity. According to many auditors firm
size and quality audit are positively related and influenced.
Firm’s independence
In some firm the audit is independent from the management. In such firms expect to
get the right results from the auditors (Commons, 2017). However, to the case where the
managers have a hand in the organizational audit, the result of the audit will be affected since
the auditor will be influenced into taking particular sides of the analysis.
Firm specialization
There are fundamental differences in characteristics of errors and methods of
detection across the different industries that require auditing (Commons, 2017). It, therefore,
means the type of industry that the organization exists will definitely influence the decision of
the author (Commons, 2017). For example retailing industry that deal with direct customers
has the highest margins of financial error which will definitely affect the auditor in their
judgment. For proficiency the mentioned four organizational factors that influence the
decision of auditor should be limited as possible.

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