Audit Quality and Ethics: An Analysis of Issues, ASIC, and PwC

This essay provides an in-depth analysis of the challenges surrounding audit quality, focusing on ethical considerations, technological advancements, and regulatory initiatives by the Australian Securities and Investments Commission (ASIC). It examines excerpts from various articles highlighting the impact of technology, the risks of conflicts of interest, and ASIC's efforts to improve audit quality through increased scrutiny of top consulting firms. The essay also discusses PwC Australia's balanced scorecard approach to audit quality and considers how the Restructured Code of Ethics can enhance audit quality and serve the public interest. By referencing relevant cases and academic literature, the essay underscores the importance of maintaining audit quality to prevent corporate failures and ensure the reliability of financial reporting. Desklib provides a platform to access similar essays and solved assignments for students.

Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of the Student:
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Author’s Note

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Synopsis
The main purpose of the assessment is to analyze the different aspects which is related to quality
of an audit. One of the main aspects which is followed in an audit is maintenance of appropriate
quality while conducting the audit process of the business. The quality of an audit process can be
enhanced by effectively using computerized tools and advanced processes for the purpose of
collecting important audit evidences of the business. One of the major impacts which can affect
the quality of the audit process is the principle of conflict of interest. This is a major threat and
can impact the judgements which is given by the auditor. The assessment would be reviewing the
initiatives which are taken by ASIC for ensuring that quality of appropriate which can be done
by ensuring that proper inspection. The initiatives which are taken by ASIC are taken by PwC
Australia for ensuring the level of quality in the process of audit is maintained.

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Introduction
The role of an auditor is considered to be very important in a business environment as
they provide assurance to the shareholders regarding the fact if the financial reports are showing
fair presentation of the actual position of the business. The auditor needs to be competent person
who have appropriate knowledge of accounting standards and auditing standards which assist the
auditor if the annual reports are showing true and fair view. The auditors are also expected to
exercise proper audit procedures so that the required level of quality is maintained in the audit
process of a business (Minutti‐Meza, 2013). The emphasis on audit quality has gained
prominence in the business environment due to various corporate collapse which has affected the
financial markets. In some respect, the position of an auditor has also been questioned in such
cases of failure as the auditor was unable to detect any frauds while assessing the financial
statements.
Discussion
The following discussion is mainly associated with the issue which is faced by the auditor for
ensuring that the quality of audit and the following excerpts are considered while assessing the
audit quality.
Technology Advancements and Audit Quality
The first excerpt which is considered in the article was published in Forbes under the
name “How Advanced Technologies May Improve Audit Quality”. The passage effectively
shows how advancements in technology like data analytics and artificial intelligence can have an
impact on the overall process of audit. In a business organization, use of advanced technology
helps in maintaining the efficiency of the business and thereby also helps audit firms in

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maintaining quality in the operations of the business. The auditing firms are known for the
technological advancements as huge amount of investments are done in this respect for the
purpose of ensuring that the auditing process which is carried out by the business is appropriate
and can help the auditor in collecting appropriate audit evidences in a business (Lennox, Wu &
Zhang, 2014). As per a general survey which was conducted by KPMG revealed that most of the
corporate executives are dedicated towards maintaining efficiency in technology which is
followed by the business. In addition to this, it has also been revealed that most of the auditing
firms are in favor of using advanced technology for the purpose of ensuring that the business is
able to maintain effectiveness and efficiency in the audit operations.
One of the aspects which have an impact on the quality of the audit is the large data of
accounting which the audit needs to review and the same involves numerous transactions and
treatments which the auditor needs to follow while conducting the process of audit. In such a
case, application of advanced technology helps in reducing the time for analyzing the
information and ensuring that the data is effectively maintained (Tepalagul & Lin, 2015).. The
same helps the auditor in detection of matters which might be suspicious in nature and thereby
help the auditor on ascertaining if there is a presence of material misstatement in the financial
statements of the business or not. Further advanced technological tools help the auditor to better
visualize the accounting information and predict which area might be most affected in case a
manipulation has taken place in the accounting system. In addition to this, the use of advanced
technology such as RPA tool would help the auditor in analyzing trends and apply analytical
analysis. Therefore, it can be said that the application of advanced technology can help the
auditor in ensuring that proper review is done based on which an opinion is to be formed by the
business.

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Conflict of Interest and Audit Quality
The second passage which is considered for analysis is related to audit firms and conflicts
of interest and how the same impacts the overall audit process. The writer of the article has
provided strict warning that there might be more cases of corporate failures in business
environment if the threat of conflict of interest is not considered seriously. The chief of ASIC
identified that the main reason for the downfall of Enron was the conflict of interest which
affected the auditing process and thereby also the application of ineffective standards in the
auditing process (Christensen et al., 2016). The conflict of interest provisions affected the
auditors of Enron and thereby they were not able to detect fraud in the operations of the business.
The Chief of ASIC also recognized that fraud had also taken place due to the manipulation of
transaction in the annual reports of the business. Further, he stated that audit environment which
was created was not appropriate and not skeptic enough as it did not create any challenge for the
management of Enron and thereby was not able to detect the fraud which took place. The issue
of conflict of interest is considered to be a serious threat on the overall quality of audit and the
same needs to be maintained. In order to ensure this, the Royal commission had taken steps of
examining the work process of big four auditing firms which are operating in Australia.
The audit regulators therefore provide special emphasis on maintaining audit quality by
ensuring that there is no conflict of interest in the operations of the process. It is required by the
auditors to apply appropriate audit procedures so that the sufficient audit evidences can be
collected by the auditor for the purpose of maintaining the flow audit process. In most of the
cases, the quality of audit is affected if the auditor provides more than one services to the
business which may include consultancy services. These secondary services which is provided to
the auditor gives him more opportunity to earn more money which creates a situation of conflict

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of interest in the operations of the business (Cahan & Sun, 2015). It is therefore for such reasons
that the auditor should only provide pone service to a business so that the principle of
independence can be maintained and further the principle of objectivity is also not compromised.
It is for such purposes that an audit committee is maintained in the business for ensuring that the
reporting framework of the business is appropriate and the auditor is able to conduct his
activities in an independent manner. Therefore, it can be said that steps need to be taken by the
auditor for ensuring that conflict of interest in a business is avoided at all costs.
Top Four Consulting Firms and Audit Quality:
The third extract is additional news article that is extracted from the Financial Review
named ASIC to name and shame top four consulting firms over the quality of audit”. The article
is largely associated with the business controllers that have made an attempt to disclose the
individual company result regarding the audit investigation rule for making the disclosure the
names of top four audit company regarding their audit quality (Cohen & Simnett, 2014). As
referred by the Douglas Niven, being the senior executive lead of the audit and financial
reporting, additional determinations should be taken into consideration by top four audit
company so that they can improve the quality of audit.
The decision undertaken by ASIC is mainly directed towards improving the quality of
audit. This is because it would help in increasing the frequency of incidence of audit
investigation report starting from the time period of 18 months up to the time period of 12 years
(Knechel & Salterio, 2016). The ASIC has also in its expression stated that an added step should
be taken for improving the quality of audit while indulging in the professional audit service. As
per the purpose of ASIC, they are looking forward to make aware regarding large number of

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measures that needs to be taken into the consideration by auditors to make sure that improvement
of audit quality.
All the measures are taken into the account by the ASIC relating to the quality of audit in
order to undertake added effective measures as this will help in improving the quality of audit.
Beside the ASIC, this article clearly points in the direction of main concern where authorities in
Australia have cited their concern relating to the audit quality that is given by the top four
companies (Baharud-din et al., 2014). The previous chairman of the ASIC Greg Medcrafts have
also expressed his concern unless and until there is any big change in the quality of audit by top
four audit company, there will be yet another corporate collapse just like the Enron in USA that
can largely create an influence on the Australian economy. To prevent further any such
occurrence in future, all the audit companies that are operating must assure that suitable steps or
initiatives should be taken with the intent of improving their quality of audit work (Becker et al.,
2016). As understood from the analysis that has been conducted above in Australia the quality of
audit has now become a main concern and this can only be eliminated by taking the required
audit steps.
Balance scorecard and Audit Quality:
The fourth assertion is stated by the press release given by the PWC named following the
PWC releases which is Australia’s first balanced scorecard or audit quality and the press release
usually discusses regarding the information associated to the balance scorecard (Knechel, 2016).
PWC usually comprises of the results relating to the audit inspection by the ASIC together with
main audit quality measures particularly the internal inspection findings, rate of restatement and
financial statement related adjustments.

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The views articulated by Matt Graham being the assurance managing partner of PWC
Australia, several factors have placed an influence on quality of audit and the approach of PWC
to adopt the balance scorecard is considered important for issues associated to audit quality in
Australia and showing the procedure for improving the audit quality.
The increasing demand for ASIC is mainly to disclose the results of audit inspection
acknowledged by the audit firm and consequently, this has turned into a first audit company that
has developed and released the balance scorecard to disclose regarding the ASIC audit
investigation reports together with performance audit against audit quality measures (Becker et
al., 2016). PWC has further stated in its agreement the areas to further improve their quality of
audit which has been recognized by the ASIC in forming a quality audit improvement plan for
addressing the issues in audit quality.
PWC also believes that there is an existence of accountability and transparency that helps
in improving the quality of audit. The article additionally shows the areas of balance scorecard of
PWC which addresses matters associated to the audit inspection findings. It further demonstrates
the PWC international audit investigation, restatement of financial statements, audit adjustments
and non-audit services as well. The overall performance of audit company under this segment is
related to details of improving the audit quality. The balance scorecard makes additional
contribution to the PWC audit quality. As understood from the above analysis that they can serve
in the best interest of the company to produce more transparency for the investors.
Restructured Code of Ethics and Quality Audit
In order to put more emphasis on the process of audit, more emphasis has been provided
on maintenance of ethical standards in a business and rapid changes have also taken place in
internal ethical standards which is followed by a business. The changes require the accounting

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professionals to maintain ethical code of conduct in executing their duties. The auditors of a
business are also required to handle ethical issues in a business environment while following the
new amended code of ethics in a business. The auditors are required to combat threats which are
faced while conducting the audit following the ethical standards which are already established
and the same also helps in reducing the compliance risks of a business. Therefore, it can be said
that the amendment in the ethical standards have an important role to play in ensuring that there
no factor affecting the quality of audit procedures.
One of the steps is the revision of provisions of safeguards which needs to be aligned
with the threats to compliance. In addition to this, more focus is provided in maintaining the
independence of the auditor while conducting the operations of the audit. The auditors who are
conducting audit for the same company needs to be rotated so that there is no threat faced by a
business whole conducting the audit process. Another step which can be taken is related to use of
revised sections to appropriate present the financial information of a business. The presentation
and disclosure requirements ensure that the assertion of completeness is maintained in an audit
process (Abbott et al., 2016). Further steps which can be taken is related to ensuring that the
auditor has appropriate judgement regarding the annual reports. It is also stated that the auditor
can take help from experts of other fields if such an assistance is required for maintaining the
quality of the audit report which is issued by the auditor. Therefore, the analysis proves that
changes and revision in ethics code has contributed in the maintenance of quality in the process
of audit.
Conclusion
The above discussion makes it clear that the audit quality forms an important part of the
audit process and therefore auditing professional needs to take all steps for maintaining the same.

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The use of modern tools which advancement in technology has provided will help the auditor for
ensuring that the conflict of interest in a business and handle the operations in an effective
manner. The assessment also shows impact of conflict of interest in the audit quality so that the
process of audit can be efficiently be undertaken by the auditor. The above discussion effectively
shows the role of ASIC by developing the balanced scorecard in order to maintain quality in the
operations of the business. The role of ethics is also considered to be important as the same
guides the auditor in maintenance of quality in a business.

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Reference
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