Auditing and Assurance Services

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

1AUDITING AND ASSURANCE SERVICES
Synopsis
There are two main aim of this essay; they are to ascertain whether the Banking Royal
Commission should inquire the operations of the Big Four audit firms that are PwC, KPMG,
Deloitte and EY and to discuss about the challenges and opportunities in Australian auditing
profession along with the recent regulatory reforms. The findings of the report indicates that
these Big Four audit firms are involved in financial misconduct by providing huge non-audit
services and by acting like the insiders in the financial system. Thus, their actions need to be
scrutinized by the Banking Royal Commission. The finding also indicates towards the
presence of both the opportunities as well as challenges in the Australian auditing profession
in the 21st century; and the auditors are needed to take into consideration both of these
aspects. The findings also state that there have been certain major regulatory attempt both in
and outside Australia with the aim to enhance the overall audit quality.

2AUDITING AND ASSURANCE SERVICES
Introduction
Auditing is considered as a process where the auditors undertake the thorough
examination of the financial statements of their clients in order to make sure that they are free
from material misstatements (Knechel & Salterio, 2016). The auditors are needed to comply
with their responsibilities while discharging their duties and should maintain ethics in all
professional conducts (Chui & Pike, 2013). All over the world, the presence of four audit
firms can be seen which are regarded as the “Big Four” audit firms; they are PwC, KPMG,
Deloitte and EY. Large business corporations all over the world approach to them for
auditing their financial books. However, in the recent years, major questions have been raised
on their roles in providing auditing services since many are claiming that their operations
should be scrutinized by the Banking Royal Commission (Mohamed & Habib, 2013). There
are two parts in this essay. The aim of the first part is to shed light on the fact that whether the
auditing operations of these four audit firms should be scrutinized by the Banking Royal
Commission or not. The second part of this essay discusses about the opportunities as well as
challenges faced by the Australian auditors. This part also takes into consideration discussing
about the recent regulatory attempts taken for bringing improvements in the quality of audit
in Australia. This essay ends with a suitable conclusion based on the outcome of the whole
discussion.
Specific Discussion
According to the provided article in ABC News, the Banking Royal Commission
should undertake inquiring the auditing activities of the Big Four audit firms (abc.net.au,
2019). The aim of this section is to examine whether the Banking Royal Commission should
inquire the activities of these Big Four audit firms. In this context, it needs to be mentioned
that the Banking Royal Commission is the highest form of inquiry on the matters of public

3AUDITING AND ASSURANCE SERVICES
importance which is responsible for inquiring the misconducts in the banking, superannuation
and financial services industry (abc.net.au, 2019). In order to undertake the inquiry of the
audit operations of the Big Four audit firms by the Banking Royal Commission, there must be
certain misconducts by these audit firms.
In order to discuss this, certain factors need to be considered such as auditor’s
indepdence, audit quality and non-audit services. Auditor’s independence can be considered
as the independence of the internal as well as external auditors from the parties that may have
financial or non-financial interest in the audit client. Auditors must maintain integrity and
objectively for maintaining audit independence (Tepalagul & Lin, 2015). Quality audit is the
audit that undertakes the systematic examination of the financial statements of the firms. It
needs to be mentioned that there is a deep connection between auditor’s independence and
audit quality because it is only possible to conduct quality audit when the auditors are
independent from the audit clients (Gul, Wu & Yang, 2013). Non-audit service can be
considered as any professional services that the auditors provide to their clients during the
audit engagement. These services are not related to the audit of the financial statements and
the auditors charge separate fees for providing these services. Non-audit services have major
negative impacts in audit independence and audit quality (Svanström, 2013).
According to the provided article in ABC News, the auditors of these Big Four audit
firms have major conflict of interest due to the selling of major consultancy or non-audit
services to the same companies whose financial accounts they are mean to be independently
auditing (abc.net.au, 2019). Mr Brooks has also mentioned in the same article of ABC News
that the Big Four audit firms which are PwC, Deloitte, EY and KPMG provides advises to the
financial transactions, financial products and derivative products along with auditing services
(abc.net.au, 2019). Most importantly, as per the estimation of Mr Brooks, these Big Four
audit firms generate two-third of their income globally from proving non-audit services when