BUACC 5935, Semester 3: Audit Quality, Ethics, Tech, and Cases

This report provides a comprehensive analysis of audit quality within the context of assurance services, addressing the critical issues raised in recent media and regulatory discussions. The report examines concerns surrounding audit quality, the role of technology such as robotic process automation and artificial intelligence in enhancing audit processes, and the impact of ethical considerations, including the Restructured Code of Ethics, on providing quality audits. The discussion is supported by relevant examples and case studies, including the collapses of Enron and HIH Insurance, as well as the findings from KPMG surveys and ASIC reports, highlighting both recent and past instances of audit failures and their consequences. The report also explores the potential solutions, such as the establishment of an audit commission, and the efforts of audit firms like PWC to improve their audit quality through the use of balanced scorecards and internal policies. The report emphasizes the importance of auditor independence and transparency in maintaining public trust and serving the public interest.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and assurance services
Name of the student
Name of the university
Student ID
Author note

1AUDITING AND ASSURANCE SERVICES
Introduction
Audit quality includes key elements those are used to generate the environment that
optimizes the possibility that the quality audits has been carried out on consistent basis.
Major regulation for Corporation Act is regulated by ASIC and the same is accountable for
surveillance, investigation and imposing requirements related to the financial reporting in
compliance with the Corporation Act as well as the regulation for the auditors applicable for
the registered firms (Baber et al., 2015). In addition, it takes into consideration the
management of auditor’s independence along with maintaining the audit quality. Main
objective of ASIC’s inspection program is to promote the external audits of high quality in
context of financial reports of listed firms and the firms those are interested publically. Large
numbers of leaders from finance sectors feel that external audit is beneficial only when the
advanced technologies such as data analytics, cloud and artificial intelligence is used (Abid &
Ahmed, 2014).
Discussion
As per the recent report of Forbes in context of KPMG survey that included 250
executives from the corporate finance sector, greater than 94 percent are in support of these
technologies for enhancing their audit quality. As per Steven B. Harris of PCAOB
enhancement to audit are not automatic process (Pcaobus.org, 2019). Various tools are
utilised by them to enhance the quality of audit includes (i) Robotic process automation – this
can be utilised for the software to interpret and capture transaction, to manipulate and send
the same in form of standardised response and automating statement with number of other
procedures (Forbes.com, 2019). In addition, it is executed in tax and advisory services widely
and it is used on enhancing basis in audit sector as the same is capable to streamline entity’s
operations and directing the workforce to add additional value. Robotic process automation in

2AUDITING AND ASSURANCE SERVICES
addition is well suited to reconcile transaction on the basis of revenues or other routine tasks
which in turn enable auditors in taking better decisions as well as judgements that will result
into higher quality work as depicted by West region manager partner of KPMG US, Bill
Tomazin (Forbes.com, 2019) (ii) Artificial intelligence - here large number of unstructured
data are there which are growing in leaps and bounds. It has been recognised by the
information researcher technology that in most of the firms’ storage capacity is managed for
50 where most of them are of unstructured nature and they are increasing at 40% to 50% per
year. AI mines the unstructured internal source system automatically and can recognise if any
red flag is there. Further, it can monitor external sources for data that includes social media,
audio-video sources and television for additional information for developing the
comprehensiveness of audit (Forbes.com, 2019).
As stated by former ASIC chairman, Greg Medcraft, interest conflict in global audit
professional may lead to corporate collapse for instance, Enron. In his first broadcast
interview after his retirement it is highlighted that the poor auditing standards as well as
interest conflict resulted into spectacular implosion in context of energy giant Enron from US
which was father allied by the widespread fraud as well as corruption those were not taken
into consideration. Major fact here is that for big corporations collapse is also big and is not
detected by the auditors. Enron can be considered as an example and hence quality of audit is
subject matter for concern since last few decades (ABC News, 2019). In addition it is stated
by Medcraft that the auditors are not sceptical sufficiently and are not willing to take
sufficient challenges. Major issues experienced by auditing firms are that they generally enter
the auditing firm and later prefer to shift into the consulting firm where money can be earned
rapidity. Therefore, considering the attractiveness, audit profession is not there where it shall
be and instead of higher level of regulation, increasing level of competition are needed to
ensure that the audit firms are delivering accurate as well as transparent advises to the clients

3AUDITING AND ASSURANCE SERVICES
as well as to investors (ABC News, 2019). Probable solution for this issue is establishing
audit commission to be held the same accountable for hiring the auditors from the big firms
listed and thereby set fees for audit for those big firms that will in turn minimize the race at
the bottom level. However, irrespective of several warning regarding quality of audit
Medcraft was not willing to comment regarding the Royal Commission criticisms that ASIC
was too comfortable with the firms those are regulated by it and thereby slow in accusing
misconduct (ABC News, 2019).
Though the audit firms are taking adequate efforts to enhance the audit quality and
executing the audit consistently, in conformity with the ASIC report there is still requirement
for additional enhancement and to contemplate new initiatives to enhance the audit quality.
Corporate regulators will publish the results regarding individual form for their inspection
regime in context of audit inspection while it will present its report for next year closing with
making the move to name and shame big 4 farms to consult regarding audit quality
(Australian Financial Review, 2019). Senior ASIC executive leader Douglas Niven stated in
context of financial reporting and Audit that big 4 firms for audit require additional efforts to
enhance the quality of work. Further, ASIC will enhance the audit inspection frequency to
make it a publication on each year basis. In context of audit inspection for the period closing
on 30th June 2019 that is due to release in December ASIC is expecting to publish finding in
context of individual percentage regarding each big firm. Further it is expecting to publish
wide range of the measures for audit quality that will supplement key measures in context of
inspection outcomes. Numbers of partners from various audit firms have combined reaction
regarding the regime of name and shame (Australian Financial Review, 2019). Voluntarily
PWC headed to disclose the outcomes whereas Deloitte raised issues regarding inspection
regime of ASIC stating that the same is not appropriate for the purpose and is highly volatile
along with defending the results voluntarily disclosed. ASIC made the move to strengthen the

4AUDITING AND ASSURANCE SERVICES
regime in context of audit inspection coinciding the same with Parliament voting to launch
wide range of investigations for audit quality regarding corporate audits in Australia.
Investigation highlighted firms as well as ASIC through surprise while the same were voted
up. It focused on the issue associated with Australian audit quality, associations among the
consulting as well as auditing firms of big 4, level of competition and performance of ASIC
regarding space regulation (Australian Financial Review, 2019).
PWC Australia introduced the balance score card in context of audit quality for
delivering true and fair picture of audit function. ASIC acts as the indicator for maintaining
quality of Audit and for focussing on audit of public firms all over Australia; PWC is
Australia’s 1st audit firm that disclosed results of inspection publicly as reported by ASIC and
their performance for enhancing the quality of audit. As per recent study it is noticed that
financial reports from PWC is not free from the material misstatement. 12% of key audit area
is misstated materially as against other industries and large farms in Australia (Carnegie &
O’Connell, 2014). On the contrary, PWC conducted the audit inspection in global basis
covering the period from 2016-2018 for establishing complete Framework in context of
enhancing audit quality. As per the survey it has been established that no public entities are
there under ASX those have complied with the PWC guidelines and pertinent Australian
audit standards. Investigation recognized 5 sample files from the small scale small firms that
they failed in complying with the PWC standards. PWC’s investigation has detected that
loopholes are there in number of entities in Australia while performing the auditors duties and
developing a plan for enhancing the audit quality (Clarke & Dean, 2014). Different scenarios
as well as internal inspection team for the public entities have noticed that it is not required to
restate the financial statement to market. As per the study each firm is required disclosing all
necessary information adjustments assumptions before they publish their financial statement.
In 2018, it is stated by PWC that while finalising as well as publishing the financial statement

5AUDITING AND ASSURANCE SERVICES
of the listed entities 6 adjustment shall be clearly explained (Pwc.com.au, 2019). As per the
Corporation Act of Australia external auditors for supporting the client to deliver services
those are not generated from professional relationship are strictly prohibited. In this context
PWC has applied necessary steps along with implementation of number of internal policies
for safeguarding auditor’s independence. In accordance with past 3 years’ information, near
about 26% of total audit fees accounts for non-audit services offered by PWC to its clients
listed under ASX 200. Hence, from Matt Graham, Assurance managing partner’s point of
view, audit firms are required to act in such manner that will protect the independence of
auditors and establish detailed scenario of audit quality in market (Pwc.com.au, 2019).
In Britain, audit quality issues led to wide range of the reviewers into audit practice as
well as quality after Carillion and Patisserie Valerie collapse. Past British Treasury officials
John Kingman already suggested significant changes in oversight of audit regime whereas the
regulators from British competition asked the big 4 for segregating audit services and
consulting services into separate operation units. ASIC already highlighted the conflict of
interest, particularly the matters those are generated from delivering non-audit services. MR
Niven from ASIC stated the concern regarding non-audit service types delivered by auditors
to the clients and highlighted that the regulators will also consider the aspects in context of
firms operations including culture as well as governance.
In January 2016, Founder and executive chairman of World Economic Forum, Klaus
Schwab stated that everyone is arriving into the fourth Industrial Revolution which is
featured by large extent of new technologies those in turn will change the approaches with
which the people live, work and are associated with each other. Further, he mentioned that
people are going through technological advances in different locations such as artificial
intelligence, robotic, biotechnology, autonomous vehicles, quantum painting, nanotechnology
and 3D paintings to be named as few of them and this can transform each of the industry in

6AUDITING AND ASSURANCE SERVICES
each of the nation (Leung et al., 2014). As per the recent report, expenses in accounting
profession is amounting to near about $3 - $5 billion each year on the technologies and same
is included as new baseline for operation cost in major organisations. New technological tools
have the capability of analysing as well as mining wide range of structured and unstructured
data linked with financial information of the farm. It my further allows the auditor to test
hundred percent transactions instead of analysing the sample transaction. Big firms related to
accounting is in the view that uses of these tools will eventually enhance the quality of audit
through automating time taking tasks those are manual as well as effective in nature. In
addition, other areas where competences can be used to implement these tools are processing
the confirmation response or utilising drones to scrutinize physical inventories (Tricker &
Tricker, 2015). Along with Enron, other case where key reason of collapse was quality of
audit is HIH insurance collapse. In addition to different reasons for failure on part of
auditor’s, major issue was considerable influence on audit profession specifically regarding
independence of audit committee and their legal liability. Another instance for corporate
collapse was One Tel Phone where the firm did not conformed to the ethical code of conduct,
accounting standards and principles, another issue that can be found out in case of these
companies was insufficiency of the corporate governance. These issues were not taken into
consideration by auditors that raised number of questions regarding audit quality (Hartman,
DesJardins & MacDonald, 2014).
It is likely that in future period, it will offer greater assurance level as against the
reasonable assurance level of his accident under present scenario as auditors can carry out
hundred percent investigation for the transaction. In addition, it is likely that tools regarding
advance technology will allow auditor to collect information to large extent from the client in
the standardized presentation and in timely manner that will lead to who lead the auditors to
forward into continuous approach for auditing and monitoring. Wide numbers of investors

7AUDITING AND ASSURANCE SERVICES
welcome extension of the assurance provided by the auditor. However, before development
of additional assurances that have impact of new tools as well as approaches for audit quality
must be thoroughly examined (Comino, 2015).
Ethical standard board and accounting professionals from Australia has revised as
well as re-structured the code of ethics for the professional Accountants in 2018. Main
objective of this revised code is protecting the independence of auditors and improving the
audit quality for the public interest. In accordance with standard 110 of APES, external
auditors must be conscious of the regulations as well as rules those are in favour of the
interest of public and shall not be involved in any type of business activities or any profession
that will have an impact on the fundamental principles like honesty, integrity and objectivity.
As the public Accountants member it has crucial role to play to gain the confidence from
public and preparing the financial statement in true and fair manner (apesb.org.au, 2019).
External auditors shall perform their duties effectively within the entity and must be able to
maintain the quality of audit. In addition they shall take initiatives to resolve the conflict
while performing their duties instead of considering the fact like fundamental principles,
system of internal control, ethical influence. They are required to determine the relevant
course of action. Restructured and revised code of ethics highlights audit quality and
therefore they shall not be involved in preparation of any returns and report that is
misleading, vague or misstated materially (Crane & Matten, 2016). If auditor deliver any
service to client and the same outside the scope of ethical code it shall be considered as the
auditor is not complying with the regulations and rules while carrying out the audit. Auditor’s
awareness will lead to new way for strengthening the fundamental principles and improving
the organisation’s audit quality. Hence, others must not be biased for the professional
accountants and shall take required steps while dealing with interest conflict as well as
unnecessary pressures (apesb.org.au, 2019).

8AUDITING AND ASSURANCE SERVICES
Conclusion
The restructured as well as revised code of ethics obliged auditors to behave in
professional manner while performing the duties related to audit. The aspect which is most
important in context of the revised ethical code is the prudence, accountability and
professional competency. As per the code of ethics, the professional must be able to possess
relevant and appropriate knowledge as well as required experience while performing the
duties. Further, they shall maintain the quality for standards. Hence, it can be determined that
the study provides the overview in context of the independence and duty of the auditors that
in turn will assist in enhancing the organization’s audit quality.

9AUDITING AND ASSURANCE SERVICES
Reference
ABC News. (2019). 'Not sceptical enough': Former ASIC boss warns audit failures could lead
to Enron-style collapse. Retrieved 25 December 2019, from
https://www.abc.net.au/news/2019-08-06/audit-firm-failures-could-spark-enron-style-
collapse-medcraft/11388164
Abid, G. & Ahmed, A., (2014). Failing in corporate governance and warning signs of a
corporate collapse.
apesb.org.au. (2019). [Ebook]. Retrieved from
https://www.apesb.org.au/uploads/home/02112018000152_APES_110_Restructured_
Code_Nov_2018.pdf
Australian Financial Review. (2019). ASIC to name and shame big four consulting firms over
audit quality. Retrieved 25 December 2019, from
https://www.afr.com/politics/federal/asic-to-name-and-shame-big-four-consulting-
firms-over-audit-quality-20190806-p52efr
Baber, W.R., Kang, S.H., Liang, L. & Zhu, Z., (2015).External corporate governance and
misreporting. Contemporary Accounting Research, 32(4), pp.1413-1442.
Carnegie, G.D. & O’Connell, B.T., (2014). A longitudinal study of the interplay of corporate
collapse, accounting failure and governance change in Australia: Early 1890s to early
2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.
Clarke, F. & Dean, G., (2014). Corporate Collapse: Regulatory, Accounting and Ethical
Failure. In Accounting and Regulation (pp. 9-29). Springer, New York, NY.
Comino, V., (2015). Australia's' Company Law Watchdog': ASIC and Corporate Regulation.

10AUDITING AND ASSURANCE SERVICES
Crane, A. & Matten, D., (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Forbes.com. (2019). Forbes Insights: How Advanced Technologies May Improve Audit
Quality. Retrieved 25 December, from
https://www.forbes.com/sites/insights-kpmg/2019/03/04/how-advanced-technologies-
may-improve-audit-quality/#511282375632
Hartman, L.P., DesJardins, J.R. & MacDonald, C., (2014). Business ethics: Decision making
for personal integrity and social responsibility. New York: McGraw-Hill.
Leung, P., Coram, P., Cooper, B.J. & Richardson, P., (2014). Modern Auditing and
Assurance Services 6e.Wiley.
Pcaobus.org. (2019). Technology and the Audit of Today and Tomorrow. Retrieved 13
September 2019, from https://pcaobus.org/News/Speech/Pages/Harris-statement-
PCAOB-AAA-4-20-17.aspx
Pwc.com.au (2019). PwC releases Australia’s first balanced scorecard on audit quality.
[online] PwC. Retrieved 25 December, from
https://www.pwc.com.au/press-room/2019/pwc-releases-balanced-scorecard.html
Tricker, R.B. & Tricker, R.I., (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.

11AUDITING AND ASSURANCE SERVICES