Audit Quality, Ethical Codes, and Impact on Public Interest: A Report

This report provides a comprehensive analysis of audit quality issues, drawing on excerpts and cases from various sources. It discusses the concerns raised about audit quality, particularly in light of technological advancements and the role of the International Auditing and Assurance Standards Board (IAASB). The report examines the audit quality of several companies, including PWC, Forbes, ABC, and AFR, highlighting both positive aspects and areas needing improvement. A significant focus is placed on the Restructured Code of Ethics and how it can contribute to providing quality audits that serve the public interest. The report supports its discussion with relevant examples and case studies, both recent and historical, to illustrate the multiple pressures faced by auditors and the importance of maintaining high ethical standards and audit quality. The report also delves into the contributions of management in ensuring audit quality, and how the audit quality framework helps to enhance the audit work.

Running Head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
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Executive summary
International auditing and assurance standard board is an independent body recognized for taking
action on issues, length, complexity and proportionality related to the auditing. In this report it is
discussed about IAASB and its audit quality. Also how it could be improved and the ways how it
could support the audit working in day to day business work. Then it is discussed about the audit
quality of four different companies and also by considering the restructured code of ethics that
helped them to improve the audit quality.

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Table of Contents
Introduction......................................................................................................................................3
Importance.......................................................................................................................................3
Frame work of audit quality............................................................................................................4
Management contribution in audit quality.......................................................................................5
Audit quality of PWC......................................................................................................................6
Audit quality of Forbes....................................................................................................................7
Audit quality for ABC.....................................................................................................................8
Audit quality of AFR.......................................................................................................................9
Code of ethics..................................................................................................................................9
Restructuring changes....................................................................................................................11
Conclusion.....................................................................................................................................12
Reference list.................................................................................................................................13

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Introduction
Audit is a critical component of trust on the basis of which important decisions are taken
on the financial statement of a company and it is regulated by the international auditing and
assurance standard board (IAASB) which is an independent body who sets standards that serves
the public by giving them a high quality auditing standards of international level and provide
facility to adopt and implement them. IAASB on a regular basis tries to enhance the audit quality
and practice in the whole world to strengthen the auditing and assurance profession (Baharud-
din, Shokiyah & Ibrahim, 2014). IAASB is a global auditing standard setter and audit quality is
the vital part of it. So IAASB always try to improve the audit quality on the basis of professional
level. They release the framework and key elements for audit quality to explain the importance
of an auditor in a firm and for all stakeholders. The main objective of the framework includes
raising awareness of the key audit quality that everyone should have, encouraging the auditor to
improve the audit quality and facilitating as a support system. This framework describes the
inputs, outputs and processing factors that are required for quality audit in audit firm, financial
statement audit and international level audit. This frameworks and key elements are applicable
for all kind of entities irrespective of their size, nature and complexions (Byrnes, et al., 2018).
Importance
Audit quality includes some challenging accounting estimates that can affect the financial
position with the objective of obtaining reasonable assurance for the financial statement is free
from material misstatement and detecting material deficiency. Audit quality of a financial report
is the important part for both the internal and external of an entity. It creates confidence in the
market as well as to the investor. Consistent improve of audit quality is also required to maintain

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the confidence level (Cohen & Simnett,2014). While if a company financial report fails which
shows the effort of director and the auditor then they are questionable to it. Financial report does
not show the true performance of a company which is supported by the director and the auditor.
An auditor must make the financial report free from misstatement by exercising the
professionalism of quality audit. Auditor should deliver high quality audit through consistent
focus on the quality of audit through professionalism, proper apply of experience and resources,
effective supervision, proper accountability mechanism and identifying the audit risk timely.
Reviewing the firms audit quality is important to improve the audit quality which includes
conducting quality review, finding audit evidence necessary to form an opinion on audit report,
identifying the root cause for degradation of audit quality, developing and implementing the plan
for finding and monitoring the action to ensure its effectiveness and reviewing the staff structure
to know their capacity to undertake the complex audit (Earley,2015).
Frame work of audit quality
Audit quality framework is developed by the International Auditing and Assurance
Standard board. Which describes the inputs, process and output factors that forms the part of
audit quality. It is followed by the audit firms all over the world at national level. This
framework consist of importance of stakeholders and various contextual factors. Audit quality is
universally recognized due to its analysis process and complexity. The main purpose of audit
quality is to enhance the audit work which will increase the degree of confidence among the
users (Zorio, García‐Benau & Sierra 2013). Financial statement are prepared by the auditor by
checking all audit evidence to ensure audit quality. The key elements of audit quality that is
stated in the framework are as follows:
 Inputs

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 Process
 Outputs
 Key interactions
 Contextual factors
Primarily audit quality lies with the auditor when it is achieved in environment that is supportive,
appropriate interaction and financial reporting. Mainly the objective of framework is to raising
the awareness of audit quality, improving audit quality to encourage stakeholders and increase
confidence among the stakeholders. Inputs, processes and output factor that are described in the
framework represent the audit quality of an entity or audit firm at national level. Key interaction
with the stakeholder increases the importance of the contextual factors. So audit framework is
applied in all entities irrespective of their size, nature and complexity. It also applied to the audit
firm regardless of their size (Farooq & De Villiers 2017).
Management contribution in audit quality
Management plays an important role in audit quality. Because auditor lies on the data that
are made available by the management. Management defines audit quality by following some
aspect of audit like improving the complex issues, improving the accuracy of financial statement,
improving the audit control and identifying the risk (Knechel, 2016). The key areas of
management which contribute toward the audit quality are as follows:
 Optimizing management process to support audit – The better the management the better
it support the auditor in audit process. This may include communicating to the auditor,
delegate responsibility, support the auditor process and proper internal planning.

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 Planning between auditor and management – There must be a proper planning between
the management and the auditor before initiating the process of audit. Management
should understand the business environment to start the audit procedure.
 Communication between auditor and management – There must be a two way
relationship between the auditor and the management which will build confidence among
them.
Audit quality of PWC
PWC quality of work is known across the globe and they are investing heavily in new
technology to make a continuous improvement in the capabilities and effectiveness in audit with
other businesses. Giving high quality audit is the main purpose of the company. PWC
commitment toward the quality is the main strategy that they focus on; it does indirectly provide
trust to the clients, growth of capital market and wider society. PWC has a widespread network
to establish a clear objective about audit quality and support the firms to achieve their objectives.
Quality management framework is also implemented designed to support the highest quality
standard (Knechel & Salterio,2016). A highest quality cannot be achieved through right process
but it can be achieved by taking a reasonable degree of assurance for the financial statement by
removing the material misstatement. Important component of an quality audit is achieved by
fulfilling the objectives and requirement of auditing by meeting all of its standards.
Between 2016 to 2018 PWC reviewed more than 7000 audit worldwide out of which 200 audit
work needs improvement. Securities and Exchange Commission declares $600 million damage
against PWC due to the poor quality audit and this damage is one of the largest losses ever in
audit malpractice (Lombardi, Bloch & Vasarhelyi, 2014).

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Audit quality of Forbes
Forbes was founded as a charitable organization that was created to support social
initiative. Company’s board of director prepares statement to give a true and fair view and the
financial position. It is the auditor’s responsibility to give an opinion on the audit quality. Audit
involves all the procedures to obtain audit evidence and disclose according to the IAASB. While
making risk management the auditor considers all the financial controversial documents. Audit
evidence can be obtained to provide opinion on the IAASB more appropriately. In an auditor
opinion the explanation can be more appropriate by following IAASB which give the
information required by the act in a true and fair manner (Peters & Romi, 2014). According to
the financial times an article stated that one of the accounting scandals that Forbes faced is
because of switching in accounting standard from historical cost to assets fair value which
created a descriptive judgment on company senior management and finance manager which was
originally found to be the guilty of an auditor. It is a profit hungry profession that does not worry
about audit quality. So the need of auditor to improve its audit quality rose from this case.
However the investor has many reasons for having lack of confidence on audited financial
information.
Forbes limited has recently got negative impact for providing poor audit quality as per the two
biggest United States finance advisor that is institutional shareholders service and glass Lewis.
They voted against Forbes board to reappoint an auditor for every consecutive year and also
charged $20 billion. 65 percent of the shareholders accepted the Forbes reappointment and this
was noted as the fifth time since its first meeting (Sierra, Zorio,& García‐Benau, 2013).

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Audit quality for ABC
Australian broadcasting company is the pride source of Australian conversion, culture
and stories. ABC produces distinctive quality and award winning content that educates,
entertains and also informative throughout the Australia and the world (Svanström,2013). More
than 70 percent of the Australians watch ABC every day. Audit provides management and
objectives assurance that design the operation of the ABC risk management and internal control
system. Group audit is responsible for the risk management by contributing to the achievement
in business goals and objectives by evaluating the process of assessing and managing the key
operation, evaluating the internal control system and policies to improve the management,
playing the role of developing and maintaining the accountability and investing frauds and
support the integration in day to day operation to manage risk. So group audit is responsible for
preparing and implementing the audit plans by focusing the key areas of risk which is approved
by the audit committee. ABC value cannot be measured independently but in 2017-18 it was
more than $1 billion. In a rapid change of Australian media economy the developing service is
engaged. The commission of audit has abolition of Australia network which is produce by the
ABC and funded by the foreign affair department which is designed to promote a positive view
of Australia. But from a report it is said that Australian network is an expensive option for
meeting the diplomatic objectives (Wong & Millington, 2014).

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Audit quality of AFR
Australian financial review is an Australian business of financial review newspaper and
finance magazine. Audit committees are taking step to understand the new guidance and
determine how it may affect their daily business. Some audit committee develops new versions
to help their client. Quality audit includes rigorous process which requires high degree of
professionalism. AFR focus on audit quality by understanding what is essential without focusing
on the audit report and includes three dimension of audit quality that is delivering professional
excellence, internal communication and innovated audit approach (Mock, Rao & Srivastava,
2013). They work every day to achieve good audit quality by discussing with every client of how
they will deliver the audit after evaluating and taking audit committee suggestion. Advancing the
audit quality will also bring new challenges and opportunities which will enhance the business.
Quality is the core part of the audit consists of innovative tool and workflow process which
identify and examine the audit evidence. Bringing innovation in audit is an ongoing process
which helps the audit team to work in day to day work.
Recently AFR company director and the chairman said that the investment commission still
found issues while examining audits. It was claimed that inspection are inaccurate and does not
fit for the purpose. It was found that more than 40 percent of the audit work is not done up to the
mark (Knechel, 2016).
Code of ethics
Code of ethics explains the principle which governs the behavior of an individual or an
organization that can impact the internal auditing by describing the minimum requirement. In
auditing code of ethic plays an important role in promoting ethical culture. It helps an

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organization to accomplish its objectives in a systematic and disciplined way to improve the
effectiveness of risk management. Code of ethic in internal audit is applied on the basis of the
principles that are integrity, objectivity, confidentiality and competency. This principle
establishes a standard of behavior that reflects its recognition in public interest (Junior,Best &
Cotter,2014). Both principles and threats are unchanged. But structural revision is made to the
entire code which includes:
 More new conceptual framework which include extensive revision to the safeguard code
to protect from threats.
 Making the independent provision stronger as personnel are associated with audit client
directly.
 Strengthening the offering and accepting provisions including the hospitality.
 Revising the preparation and presenting information.
 Clarifying the applicable PAIB provisions.
 Inventing new material to emphasis more on importance of understanding facts and
professional judgments.
 Explaining the fundamental principle to exercise professionalism.
Conceptual framework sets principle that is required to deal with the ethics and issues. Extensive
changes are done to make the conceptual framework more strength able to clarify, evaluate and
identify the threats of the fundamental principles. Some safeguard are not effective enough to
enhance the conceptual framework at the acceptable level of the fundamental principles. It is also
not valid that all threats can be used as application of safeguard. Whereas the modified
framework emphasize more on the threats addressed by eliminating all threats. The enhanced
framework has features that remain alert when new information or changes in circumstance

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occur. This framework also explains the firms network which applies the framework, analyze
and evaluate them (Green & Zhou, 2013).
Restructuring changes
More substantive changes in code are done which includes several structural changes that are
more users friendly and responsive for all stakeholders. The language in the code of conduct is
now in simpler words. Having a good code of ethic helps the organization to have a moral
support and build trust among stakeholders. Advantage of restructuring the code of ethic is as
follows:
 Increase in sale – How much the company is big and how much it earns all depends on
the good ethic toward the consumers. Consumers are the one who purchase the product or
service of a company and stays loyal toward them if they trust them. So every
organization must create and promote ethical conducts which will helps both internal and
external of the company (Eilifsen et al., 2013).
 Equal rule for everyone – From the top position to the lowest position of an organization
has to follow the same code of conduct. It is made for all and everyone. Business ethic
has to be followed with honesty and with all laws and regulation applicable to it.
 Social responsibility: A good organization with sound ethical knowledge just does not
only target to make profit but also help the community to grow also which is also the part
of an ethical code of conduct.
 Accountability: With the code of conduct an organization keep his all stakeholders bound
by some rules. On a later period if someone breaks any rules or regulation then the
organization can dismiss them on a valid reason. So written code of conduct is very
important to make it more real (Farooq, & De Villiers,2017).

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Conclusion
Responsibility of performing a quality audit lies with the auditor’s knowledge and
experience. Best audit quality can be achieved in an environment where there is support,
interaction and participation by all other employee and employers. An auditor or a firm should
re-examine the main reason of their existence and the reason why all companies take their
services. Many professional firms have expanded their service for profit making purpose as an
advisory or practice. So rules and regulation need to rearrange the standards by considering the
trend of accounting firms avoiding the growth and profitability service aside. In recent research
big four companies of Australia had not provided high quality audits. They examined the issues
of audit quality by using accounting restatement. Whereas the client found evidence against this
big four that they are not using accounting restatement properly.

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