BUACC 5935: Audit and Assurance Services - Quality and Ethics Report

This report provides a comprehensive analysis of audit quality issues, drawing from research papers, news articles, and the restructured code of ethics. It examines concerns raised by regulators and stakeholders regarding audit quality, including conflict of interest, inadequate assurance, and the impact of technology such as artificial intelligence and data analytics. The report discusses how the restructured code of ethics aims to improve audit quality by enhancing the usability and understandability of ethical principles for professional accountants. It analyzes the importance of independence, professional skepticism, and the role of key audit partners, supported by examples and cases. The analysis covers the influence of technology on audit quality, the ethical considerations surrounding its implementation, and the potential for technology to enhance audit processes. The report also highlights the importance of transparency and accountability in audit practices and the role of regulatory bodies in ensuring audit quality.

Running head: AUDIT AND ASSURANCE SERVICES
Auditing and assurance services
Name of the Student
Name of the University
Author Note

AUDIT AND ASSURANCE SERVICES
Introduction:
The paper conducts a comprehensive analysis of the various issue over audit quality
that has been reported in some of the research papers and journal articles published in the
newspaper such as abc.net.au and forbes.com. In addition to this, the improvement in the
audit quality brought by the restructured code of ethics has also been analysed. Various
corporate bodies and government regularities have been placing importance on strong ethical
behaviour in the given spate of accounting and financial scandals. Concerns have been raised
at the international level and in Australia by the regulators regarding the quality of audit. The
emerging technologies in the audit profession are equally significant and exciting and the
development of cloud enablement and block chain and better integrated ERP system has
resulted in higher quality of audit.
Discussion:
The implementation of artificial intelligence technology is expected to play a
prominent role in the risk management of enterprise. Board of the organization is required to
take into account some issues for implementing the technology to the benefits of auditing.
Ethical issues concerning the technology adoption should be managed by developing an
appropriate infrastructure in organization. The auditing profession is expected to be
transformed by the artificial intelligence but the work of auditor would never be replaced
(Arnold, 2018).
In one of the reports published by the government of Australia conducted an analysis
into the audit quality perception by the professional investors, influences and value of audit
that is the perception of value and quality of audit is influenced by the professional investors.
Also, measurement and defining of the audit quality is regarded challenging. The perception
of audit value is significantly influenced by the information quality presented in the auditor’s

AUDIT AND ASSURANCE SERVICES
report. Report has presented the analysis of audit quality across some group of stakeholders
and found that the evaluation of audit quality is based on the process, output, contextual and
output factors. There exist a clear connection between the financial report quality and audit
quality and is demonstrative of the fact that the financial reporting quality is influenced by
the auditors. When assessing the value and utility of audit services, the professional investors
place importance on the transparency report of the audit firms. Such report intends to provide
the indicators of audit quality and transparency to the market about the firm. In addition to
this, the information presented in the auditor report is also influenced by the use of artificial
intelligence and data analytics. The contribution of technology in enhancing the quality of
audit is more than generating efficiencies in terms of costs. That is the investor considers that
the technology has the potential to enhance the audit quality rather lowering the audit cost
(Tidd & Bessant, 2018).
The article published in forbes.com titled” How advanced technologies may improve
audit quality” presents arguments on improvement of the audit quality due to use of various
advanced technologies. The fact that the audit quality improves with the help of technologies
has been found from the survey conducted on corporate finance executives. Audit
improvement are not incremental with the audit firms spending on technology by around $ 5
billion in a year. Improvement in audit quality is being done by the adoption of primary tools
by the auditors such as visualization, artificial intelligence and automation of robotic process.
These technologies are considered to be good until they are guided by the audit team and
analysing the results. It is inferred from the analysis of this paper the work of auditors are
augmented by technology and has the potential of improving the audit quality (Eileen
Hoggett, 2020).
The media news from abc.net.au on “the conflict of interest in the audit firm that
could spark Enron style collapse” has presented the global auditing profession facing the

AUDIT AND ASSURANCE SERVICES
issue of escalating conflict of interest. Unreported corruption and the widespread fraud due to
the poor auditing standard and conflict of interest has resulted in the collapse of Enron. The
quality of audit report was questioned by the regulators whether there was enough evidence
to make justification of opinions. The companies regulated by ASIC and ASIC itself have a
cosy relationship as the prosecution of any identified misconduct is not done promptly. The
audit firm’s professional conduct have become a matter of concern due to growing conflict of
interest between lucrative consulting firms and auditing. Article has presented an issue over
consulting and auditing firms and the inclination of the staffs towards consulting firms
because of lucrative offers. A policy solution has been recommended on the growing issue of
conflict of interest to have an audit commission actually appointing the large listed
organization’s auditors and determine the audit fee (Kokina & Davenport, 2017).
An article from afr.com over audit quality of big four firms presented regulation of audit
quality. It is reported in the article that the regulation of audit quality found that most of the
audits were accomplished with inadequate assurance (afr.com 2019).
In the press release by Pwc, the first balance scorecard on the audit quality on the
debate of audit quality to improve the audit process was presented. The increasing demand of
disclosing the results of audit inspection by audit firms and the regulation of such results is
supported by Pwc. Balance scorecard published by the company has assisted with the issue
over audit quality by disclosing the results of inspection on audit to public along with the
disclosure of the performance against other measures of quality. The measure of the audit
quality comprise of the global audit inspections, findings of audit inspection of ASIC,
adjustments, restatements, independence and non-audit services. On the findings of audit
inspection by Australian securities and investment commission, non-reasonable assurance
was obtained in 12% of key areas of audit that there is no material misstatement in the
financial report. In addition to this, in the global inspection by Pwc, it was found that the

AUDIT AND ASSURANCE SERVICES
company did not comply with the standards of Pwc (pwc.com.au, 2020). Moreover, it was
also identified that such audit work conducted does not have any inappropriate opinion.
However, it is required to make an improvement in the documentation and performance of
audit work. Adjustments form an important and critical part of the process of audit and in this
regard, various adjustments to the financial statements of the reporting entity was identified
by Pwc and the appropriate treatment to such adjustment is ensured. In order to ensure that
there is no impairment of independency, there is comprehensive internal policies laid down
by Pwc. There are some work which the external auditor cannot perform as per the
requirement of corporation Act.
The critical component in quality of audit is the findings of regulator and small
percentage of thousands of areas is represented by the riskiest areas of audit of the public
company. It is expected that the facts involves in any audit work is provided with better
overview and would help in driving greater accountability when it comes to audit quality.
There is a rapid shift in enhancing the audit quality that helps in serving the interest of
community and investors. For instance, audit work should involve new coverage levels such
as misconduct, fraud and accounting for various non-financial measures such as controls,
culture and cyber security and thereby including the financial in information that is beyond
the historical information and the events already occurred (Austin et al., 2019).
The restructuring of code of ethics is intended to enhance the usability and
understandability of the code that facilitates their effective implementation and adoption. For
the professional accountants, it is important to have ethics code in place so that they comply
with the fundamental principles of ethic in their profession. Development of the framework
of audit quality contributes to improve the audit quality by encouraging the stakeholders to
explore the ways to address quality issues in audit, making people aware of the key elements

AUDIT AND ASSURANCE SERVICES
of the quality of audit and the gaol of improving the audit quality is acknowledged by
facilitating the dialogue pronouncing audit quality between key stakeholders.
One of the focus of the inquiry into the auditing regulation of Australia is on the audit
quality. The code of ethics have been extensively restructured and in accordance to the
conceptual framework, there is also substantive revisions. The revised code of ethics is
effective from June, 2019 and is renamed to” International code of ethics for professional
accountants” and all the independence and substantive advancement in ethics is incorporated
into the revised code. The new code lays down the new provisions relating to regulations and
noncompliance with law. New guidance outlined in the revised code emphasizes on
understanding professional judgement under the circumstances and facts and how the
professional scepticism in audit is exercised for explaining compliance with the fundamental
principles (Richins et al., 2017).
The behaviour standard expected out of any professional accountant is established by
the fundamental principles such as objectivity, integrity, confidentiality, professional
competence, professional behaviour and due care as outlined in the revised or restructured
code. Some of the substantive revisions made to the code in addition to the structural
revisions, and such substantive revisions include strengthening the provision of
independence, addition of new material supporting the professional scepticism exercise by
complying with the fundamental principles in the assurance or audit engagements (Byrnes et
al., 2018).
Strengthening the provision of independence is regarding the long term relationship of
the personnel with audit clients. Although, the fundamental facts to the audit quality is having
an insight of the environment and understanding of the audit client, the long association of an
individual with the team member of audit might impose familiarity threat. Such association

AUDIT AND ASSURANCE SERVICES
might be with the senior management with the audit client, their operation and audit client
itself. Such association might be with the financial statements on which auditors is required
to express opinion. In addition to this, the long standing relationship of client with the
auditors and the judgement of auditors might be influenced inappropriately by such threat.
The restructured code outlines the factors that are pertinent in evaluating the level of
self-interest or familiarity threat. These factors are divided into the facts in relation to audit
clients and individual. The factors in relation to audit clients is the complexity ad nature of
financial reporting and accounting issues of client, changes in the government structure or the
people in charge of governance and identifying any structural changes in the organization of
client (Sirois et al., 2016).
Relating to individual, the factors include closeness of the personal relationship of
individual with senior management, frequency, nature and extent of interaction between
people charged with governance and senior management. In addition to this, it also involves
the overall length of relationship of individual with the clients and performance of individual
as an engagement team (ifac.org, 2020).
The self-interest and familiarity threats might be eliminated by rotating the individual
off the audit team who are involved in the engagement team over a period of long time. Other
examples of addressing such threats include hiring appropriate reviewer who was not the
member of audit team, changing the role and nature and extent of task of individual and
performing external and internal quality reviews of the engagement independently (Byrnes et
al., 2018).
An individual in respect of auditing the public interest entity should not perform the
role such as engagement quality control review, engagement partner and audit partner role.
The continuity of key audit partner is crucial to the audit quality and he can be permitted to

AUDIT AND ASSURANCE SERVICES
serve additional year when the firm is faced with any foreseen circumstances that cannot be
controlled. Such extension of the role is done as long as there is reduction or elimination of
threat to independence at a level that can be accepted. Therefore, the minimum cooling off
period required is the significant amendment made to the requirement rotation of new audit
partner. The extension of time can be by the additional two years for which permission has to
be obtained from audit committee or the regulator (Eileen, 2020).
The key input to audit quality is professional judgement and professional scepticism.
When performing and planning audit, it is required by the professional accountants to
exercise professional scepticism in the form of maintaining integrity, due care, professional
competence and objectivity (He et al., 2017). The exercise of professional scepticism should
be supported by the auditors in the financial statements audit and complying with the
fundamental principles. Exercising of the professional judgement by the auditors
appropriately is facilitated by the professional scepticism. It is also important to document the
attitude and professional judgement and this would contribute to transparency to the overall
audit process. Some other amendments incorporated in the restructured code of ethics in
enhancing the audit quality is that the same board should not develop the standards for the
audit related ethical standards and audit (Barr et al., 2019).
The value of audit by the big four audit firms is being undermined by the failure to
challenge the management of company in scrutinizing financial decision and future forecast
and this calls for an improvement in the audit work of the firms. Banking audit has been
another area of focus and this requires improvement in the work of the audit firm EY. Factors
that are considered vital to the audit work must be addressed on urgent basis and the audit
quality must be improved by strenuously renewing the efforts of firms. This in turn would
help in meeting the legitimate expectation of stakeholders and investors (ey.com, 2019). The
identified areas of audit quality improvement includes completeness and accuracy of the

AUDIT AND ASSURANCE SERVICES
major audit of individual, independence procedures and completeness on the internal control
system reporting. Therefore, the restructured code of ethics has brought changes to increasing
the accountability, improving the governance structure and leadership responsibilities of the
firm. This also include addressing the engagement quality and its sturdiness, performance and
documentation. The appropriate audit work is driven by enhancing the assessment of risk by
sharpening the focus of auditors (Bumgarner & Vasarhelyi, 2018).
Conclusion:
The paper outlines the review of various media news by discussing the issues that is
raised over the audit quality. Various papers published in the newspaper prepared report by
expressing their concern over issue of audit quality. Another paper has also thrown some
light on the adoption of technology and its contribution in improving audit quality. From the
analysis of the issues discussed in the paper over audit quality, some facts has been deduced
on the audit work and lack of assurance provided by the big four audit firms. Another facts
highlighted in the paper is the conflict of interest between the consulting services and
management of organization and its impact on the audit quality. It has been found that the
firms do not provide detailed disclosure on the results on the investigation done on the firms.
This has been dealt by the introduction of the balance scorecard that make a detailed and
publicly disclosure of the observations made and results obtained. Last but not the least, the
issues of audit quality has been addressed by the revision to the code of ethics and the
amendment that is made to the relevant standards.

AUDIT AND ASSURANCE SERVICES
References list:
Arnold, V. (2018). The changing technological environment and the future of behavioural
research in accounting. Accounting & Finance, 58(2), 315-339.
ASIC to name and shame big four consulting firms over audit quality. (2019). Australian
Financial Review. Retrieved 14 January 2020, from
https://www.afr.com/politics/federal/asic-to-name-and-shame-big-four-consulting-
firms-over-audit-quality-20190806-p52efr
Austin, A. A., Carpenter, T., Christ, M. H., & Nielson, C. (2019). The data analytics
transformation: Evidence from auditors, CFOs, and standard-setters. CFOs, and
Standard-Setters (June 28, 2019).
Barr-Pulliam, D., Brown-Liburd, H. L., & Sanderson, K. A. (2017). The Effects of the
Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit
Quality, Assurance, and Auditor Negligence. Assurance, and Auditor Negligence
(August 17, 2017).
Bumgarner, N., & Vasarhelyi, M. A. (2018). Continuous auditing—A new view.
In Continuous Auditing: Theory and Application (pp. 7-51). Emerald Publishing
Limited.
Byrnes, P. E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J. D., &
Vasarhelyi, M. (2018). Evolution of Auditing: From the Traditional Approach to the

AUDIT AND ASSURANCE SERVICES
Future Audit 1. In Continuous Auditing: Theory and Application (pp. 285-297).
Emerald Publishing Limited.
Cdn.tspace.gov.au. (2020). Retrieved 14 January 2020, from
https://cdn.tspace.gov.au/uploads/sites/21/2019/05/Audit_Qulaity_in_Australia_-
_The_Per.pdf
Eileen Hoggett, R. (2020). Improving audit quality with new technology. KPMG. Retrieved
14 January 2020, from https://home.kpmg/au/en/home/insights/2019/02/audit-
technology-future-technology-audit-quality.html
Frc.org.uk. (2020). Retrieved 14 January 2020, from
https://www.frc.org.uk/getattachment/5d176788-3330-4b62-b18e-276c678d3d2c/
Developments-in-Audit-Final-Screen.pdf
He, X., Pittman, J. A., Rui, O. M., & Wu, D. (2017). Do social ties between external auditors
and audit committee members affect audit quality?. The Accounting Review, 92(5),
61-87.
How artificial intelligence will transform the audit. (2019). Ey.com. Retrieved 14 January
2020, from https://www.ey.com/en_gl/assurance/how-artificial-intelligence-will-
transform-the-audit
How the New Ethics Code Will Affect Your Standards. (2019). IFAC. Retrieved 14 January
2020, from https://www.ifac.org/knowledge-gateway/supporting-international-
standards/discussion/how-new-ethics-code-will-affect-your
Ifa.org.uk. (2020). Retrieved 14 January 2020, from
https://www.ifa.org.uk/media/760411/Code-of-Ethics-final-211117.pdf

AUDIT AND ASSURANCE SERVICES
Kokina, J., & Davenport, T. H. (2017). The emergence of artificial intelligence: How
automation is changing auditing. Journal of Emerging Technologies in
Accounting, 14(1), 115-122.
'Not sceptical enough': Former ASIC boss warns audit failures could lead to Enron-style
collapse. (2019). ABC News. Retrieved 14 January 2020, from
https://www.abc.net.au/news/2019-08-06/audit-firm-failures-could-spark-enron-style-
collapse-medcraft/11388164
PwC releases Australia’s first balanced scorecard on audit quality. (2020). PwC. Retrieved
14 January 2020, from https://www.pwc.com.au/press-room/2019/pwc-releases-
balanced-scorecard.html
Richins, G., Stapleton, A., Stratopoulos, T. C., & Wong, C. (2017). Big data analytics:
opportunity or threat for the accounting profession?. Journal of Information
Systems, 31(3), 63-79.
Sirois, L. P., Marmousez, S., & Simunic, D. A. (2016). Auditor size and audit quality
revisited: The importance of audit technology. Comptabilité-Contrôle-Audit, 22(3),
111-144.
Tidd, J., & Bessant, J. R. (2018). Managing innovation: integrating technological, market
and organizational change. John Wiley & Sons.