Holmes Institute HI6026: Auditing and Assurance Services Report

This report provides an in-depth analysis of the demand for auditing and assurance services within the Australian context. It begins with an executive summary highlighting the importance of auditing in the modern corporate world, particularly in light of financial scandals and the increasing complexity of accounting systems. The report then delves into the factors driving the rise in demand for assurance services, including regulatory compliance, corporate governance, and technological advancements. It explores key theories such as agency theory, information hypothesis, and insurance hypothesis to explain the underlying dynamics. The report further examines the conditions that necessitate independent financial audit reports, such as fraud detection, credibility requirements, stakeholder interest protection, and ethical considerations. Finally, the report concludes by summarizing the benefits of implementing auditing standards for organizations and their stakeholders.

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author note

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Executive summary
The aim of the report is to give a brief analysis of the need of the auditing and assurance
services in Australia. The report analyses the various aspects that will adversely affect the
interest of the stakeholders. The report highlighted the theories that are used by the assurance
service to protect the interest of the stakeholders. The report concludes by stating the benefits
that the organisations will get from the implementation of the auditing standards.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Conclusion................................................................................................................................13
References................................................................................................................................14

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Introduction
The role of the auditors in the modern days corporate world is very important as they
provide the assurance that all the financial transactions of the company is recorded as per the
guidelines of the relevant accounting standards and that there are no major discrepancies
found in the financial statements of the organisation. the demand for the assurance services
are increasing due to the increase of the financial scandals and complexities in the accounting
system. the auditors help the organisations to guide the companies in following the auditing
standards and enhance the quality of the financial statements so that the stakeholders can get
a transparent and clear view of the financial position of the company.
In several areas, assurance can add an extra value for the organization. From the
perspective of the internal control system the assurance process can assist the organisation to
increase its effectiveness in the internal control process, the risk management process, ensure
that the organisations duly complied with the terms and conditions of the various contracts,
and to increase the efficiency of the key performance indicator of the organisation. It is
observed that the organisations that used to make investment in the assurance services are
found to be more dedicated to show their commitment towards transparency, increasing the
quality and rigour of internal control and the processes. This helps the organization to create a
strong corporate governance structure and ensure that the organisation is protecting the
interest of the stakeholders. The assurance services also increase the credibility of the various
internal and external reports like the taxation information and also the sustainability
reporting. Thus, assurance services can fulfil several objectives of the organisations and
ensure that the stakeholders can get a true and fair view of the financial position of the
company.

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Discussion
Main factors for the rise of demand for the assurance services
In the modern days the Australian companies give more focuses on the growth and
innovation of their business which requires regulatory compliances, effective corporate
governance structure, adapting technological improvements, big data analysis and the
framework for risk management. In the modern days the value of the organisations is not only
measured by the financial strength only but also includes these factors that helps the
organisation to achieve its objective in the future.
This is the area for which the need of the assurance services has been realised by the
organisations in Australia. The assurance report can give the organisation the opportunity to
provide such report to the stakeholders that will provide information that are more effective
than the traditional financial statements. The assurance skills of the auditors can provide more
ease to the management, directors and the external stakeholders over the data that are
essential for taking important decisions that are essential for the growth of the business. The
demand of the assurance services is mainly increased for the following reasons competing
incentives, the necessity of the reliability which can also be said as the main reason, the
increase in the complexity of the reports and the remoteness of the users. These points can be
explained in details based three theories that are agency theory, information hypothesis and
insurance hypothesis (Hoque and Pearson 2018).
Competing incentives (agency theory)
In this case the main problem raise between the investors and the managers of the
organizations, the managers acts as the agents of the resources of the investors and often it is

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found that in many organisations in Australia the managers does not take any initiative to
protect the resources of the investors and for that conflict arise between the investors and the
management. This problem between the investors and the management can be solved by the
assurance services, as the assurance service can help in ensuring that the management acts as
the agent of the investors and try their best to protect the resources of the investors. This is
one of the main reasons that the demand for the assurance services has increased over the
years in Australia (Mihret and Grant 2017).
Requirement of the reliability (information hypothesis)
This the main reason for the need of the assurance services in Australia. In the recent
times it has been observed that most of the organisations in Australia does not provide
reliable information’s to the stakeholders and give exaggerated reports so that the investors
like to invest in the organisation. this fact has increased need of the reliable information for
the investors and assurance service can provide reliable information’s to the stakeholders as
the assurance reports does not only contain financial information but it also contains all the
details of the regulatory framework prepared by the organization and which compliances the
company used to follow (Yee et al 2017).
Increasing complexity of the reports (insurance hypothesis)
In the modern days several complexities have to be followed by the organisations and
for that reason they have to prepare complex reports which is difficult to interpret and the
investors also get confused from the complexity of the reports. The assurance services ensure
that all the reports can be easily interpreted and from that report it will be possible for the
investors to get all the important decisions that are related with the organisation. the
assurance reports act as a means of insurance which means it helps in transferring the

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financial responsibility in case of any losses are expected from any litigation. The increasing
complexity in the various laws and regulations in the reporting system has also become a
major reason for the growing demand of the assurance services in the organisation (Wu et al
2019).
Four conditions that create need for independent financial audit report
The independent financial audit report gives a detail of the effectiveness of the
internal control system of an organisation and there by evaluate the nature, timing and the
process of the financial audit report. The four conditions for which creates the need of the
independent financial audit report are:
Detection of fraud
The independent financial report can help to detect the financial frauds of the
company. As the independent auditor can work freely and does not have to depend on the
opinion of the management, they can provide the report according to their own skills and
professional knowledge. The independent financial audit report highlights these areas which
can not be detected without working independently. The independent auditor can give report
without any biasness and the information contained in the independent financial report I free
from any manipulated information for that reason the investors can get more reliable
information from such report (Rikhardsson Singh and Best 2019).
Need for credibility
The independent financial report assure that the information provided in the
independent financial report are credible and free from any manipulated data. In the modern
days most of the financial information are not credible and for that reason the investors
wealth are mis utilised easily. The companies used to practice unethical practices and try to

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manipulate the financial information which creates negative impact on the performance of the
organisation. The independent auditor by applying their professional skills can interpret the
financial transactions adequately and there by provide information which are credible and
based on such information the investors can take the correct decisions.
Protection of the interest of the stakeholders
The protection of the interest of the stakeholders is very essential for every business
organisation. the interest of the stakeholders is given the highest priority over all the other
factors as the stakeholders play the most vital role in achieving sustainable growth of the
interest. the independent financial report by providing relevant information to the
stakeholders helps in protecting their interest and that can be considered as one of the main
conditions for the need of the independent financial report.
Ethical requirement
The ethical requirements are to be maintained in order to ensure transparency and to
give the correct view of the financial position of the financial statements. The independent
financial audit report contains all the points that indicates the fact that whether the financial
statements contains any information that can create confusion in the mind of the investors.
The independent financial report makes it sure that all the ethical requirements are duly
followed before preparing the financial statements and that all the information’s in the
financial report are correct and free from manipulation. The independent financial report
contains all the relevant data from which it can be possible to detect the unethical practices
applied by the management of the organizations to manipulate the financial statement and
thereby protect their own interest and neglect their responsibility to protect the interest of the
stakeholders (de Almeida and Araújo 2018).

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The three theories commonly used for explaining the demand for auditing are
 Agency theory
 Information hypothesis
 Insurance hypothesis
Agency theory
In the agency theory an agent principal relationship is created between the investors
and the management of the organisation. the theory states that there is a principal and agent
relationship exist between the investor and the management and in that relationship the
investors are considered as the principal the management of the organisation act as the agent
of the investors who try to protect the resources of the investors. The investors keep their
resources with the agents that is the management of the organisation.in this relationship a
conflict of interest arise between the management and the investors. In the relationship
between the management and the investors the management should try to maximise the
resources of the investors and in doing so they also have to reallocate the resources for
protecting their own benefit and in that situation the conflict of interest arises and the
managers used to neglect their responsibility to protect the interest of the principal that is the
investors, and stared to make misutilisation of the resources of the investors (Simpson
Aboagye-Otchere and Lovi 2016).
In order to monitor the activity of the management, the assurance standards provide
rules for the management and they are asked to show reasonable reports in which they should
state all the sources in which the resources of the investors are used and how they accounted
such resources of the investors in the books of accounts of the organisation. for this expected
conflict between the investor and the management for the protection of interest and the

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remoteness of the investors from the management, it is often found that there is biasness in
the financial reports and in this context the demand of the assurance services increases in
order to ensure the managers accountability.
Information hypothesis
The assurance service helps to increase the credibility and the quality of the
information provided in the financial reports. The value of the assurance service is measured
on the basis of the improvement that it can make in the financial and non financial data of the
organisation, which will help the management to take decision, in detection of errors and to
give motivation to the staffs in giving more effective efforts while preparing the important
financial records. The use of this theory also helps the investors to take accurate decisions as
they can get reliable information which is free from manipulation. The information
hypothesis is very essential to protect the interest of the investors as the investors will get the
correct data and can be able to take decisions that will increase the value of their resources
(Rossi and Tarquinio 2017).
Insurance hypothesis
The demand of the assurance increases for these investors who suffer loss by
investing in wrong organisations. Like if at the time of liquidation, the company declares that
it has no resources left to pay the dues of the investors the auditors may try to recover some
portion of the resources of the investors. As the assurance services ensure the insurance of the
potential losses of the investors the need of the assurance services become so popular in the
recent corporate world (Joseph and Nwaigburu 2019).
Stakeholders analysis

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A stakeholder holder analysis is a process of detecting the people who create direct
impact on the performance of the organisation. the stakeholders are classified under two parts
that is the internal stakeholders and the external stakeholders. The stakeholders play the main
role in assisting the organisation to achieve sustainable growth. As the organisation get many
benefits from the stakeholders it will be responsibility of the organisation to protect the
interest of the stakeholders and return some benefits to them.
Internal stakeholders
The managers, employees and the board of directors are the internal stakeholders of
the company. The assurance services help the managers to understand their responsibility
effectively and what roles they have to play to protect the interest of the investors. The
assurance services provide various guidelines to the managers following which the managers
will be able to perform their duties effectively and protect the interest of the organisations
(Salman et al 2018).
Board of directors
The assurance services help to create a strong corporate governance structure that will
enable them to maintain ethics while doing any activity and to promote the integrity of the
organisation. the assurance reports will provide information to the board of directors which
will make them aware about any unethical practice that is exercised in the organisation and
effects the performance of the company. Thus, based on the information of the assurance
reports the board of directors can take various important decisions which will improve the
performance of the organisation (Lessambo Lessambo and Weis 2018).
Employees

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Employees are the main part of the organisation based on which it will be possible to
run the operations of the organisations efficiently. the assurance reports can provide
information to the employees about the steps that the organisation is taking to protect the
interest of the employees.
External stakeholders
The external stakeholders of the organisation are the investors, customers the supplier
and the society within which the organisation carry on their activities.
Investors
The assurance service by providing credible and reliable information helps the
investors to take correct decisions. The investors are the main supplier of required fund to the
organisation that will help the organisation to operate its business activities. So, the resources
of the investors are highly precious and the organisation should try to increase the value of
the resources of the investors. The assurance reports can provide necessary information to the
investors from which it will be possible for them to understand the financial as well as the
regulatory issues of the organisation and whether the company will make proper use of their
resources or it will mis utilise the resources. In general term it can be said that the assurance
services will enable the investors to get an idea about the fact that whether it will be
profitable for them to invest in the respective company or they have to suffer loss in case they
take the decision to invest in the company (Ho 2019).
Customers
The assurance services can also provide benefits to the customers as the customers
will be able to get the correct information about the company and whether it will be
beneficial for them to use the products of such company or they will not get satisfied services

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from the organisation. the customers will be able to get all the information regarding the
value of the company and whether they provide service or products that can give full value to
the money spend by the customers (Farooq, M.B. and De Villiers, C., 2017).
Supplier
Suppliers provide necessary raw materials to the company so their role is very
important for the organisation. it is essential for the suppliers to get the information about the
financial strengths of the company as they provide raw materials on credit to the company.
The supplier should be aware about the capacity of the organisation to repay the debt it owes
to them. The assurance report by providing the accurate information helps the supplier to
decide whether they should supply raw materials to the company or not (Marques 2017).
Society
Society is an external stakeholder and the organisations has a responsibility towards
the society as they take many benefits form the society. The assurance report contains various
regulations that the organisation follows and based on that information it can be possible to
understand that whether the company is serving the society as per the guidelines and take
adequate steps to improve their contribution towards the society.
The benefits of well conceived and effectively implemented auditing standards
 The benefits of well conceived and effectively implemented auditing standards are
stated below
 The auditing standard helps to detect and solve the errors and frauds of the
management. The auditing standard can help to bring strict regulations in the
accounting system and ensure that the company does not violate any auditing
standards provided by the regulating authorities.

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 The auditing standards ensure that the financial statements of the company are reliable
and based on that financial statement the organisation can take loan from the banks
and other financial institutes.
 The implementation of adequate auditing standard increases the transparency of the
business activities
 The auditing standard can give information to the management regarding what
improvements has to make on the basis of their finding in the records.
 The auditing standard also ensure that the financial statements of the company is
giving true and fair view of the financial position of the company and based on that
the tax lability of the company can be calculated accurately.
Conclusion
From the above information it can be said that with the increase in the occurrence of
financial scandals the need of the assurance services has increased rapidly. The organisations
in Australia is neglecting the fact that the protection of the interest of the stakeholders is
essential and the company will never be able to achieve sustainable growth without giving
importance to the protection of interest of the stakeholders. The assurance services play a
vital role in increasing the awareness among the companies that the protection of the
resources of the investors should be the first priority for the organisation and for doing that
the companies has to follow all the compliances that are essential for enhancing the value of
the stakeholders. The company cannot mis utilise the resources of the investors and should
provide all the relevant information to the investors that will help them to take any
investment decision. the assurance services use three basic theories like the agency theory,
insurance hypothesis and the information hypothesis to provide correct and reliable
information to the stakeholders.

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