ACCY962 Auditing Theory: Attributes of Qualified Auditors and Career

This essay discusses the important attributes of a qualified auditor and how the knowledge gained from the ACCY962 Auditing Theory course can help in building a career as an auditor. It uses the Harris Scarfe case, a corporate scandal involving Ernst & Young, as a basis for reflection. Key attributes discussed include independence, ethical approach, professional competence and due care, confidentiality, professional behavior, integrity and objectivity, detection and prevention of fraud, and consideration of internal control processes. The essay emphasizes the auditor's responsibility to act ethically and independently, highlighting how Ernst & Young compromised these attributes in the Harris Scarfe case, leading to the company's liquidation. The discussion is supported by references to relevant sections of the Corporation Act 2001 and APES 110.

Auditing Theory and
Practice Assignment

1
By student name
Professor
University
Date: 25 April 2018.
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Contents
Background and Abstract............................................................................................................................2
Key attributes..............................................................................................................................................3
Conclusion...................................................................................................................................................4
References...................................................................................................................................................5
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Background and Abstract
A report has been prepared on the important and critical attributes that is expected out of an auditor
and how would the learnings gained throughout the subject will help in the career building as an
auditor. The case study revolved around the corporate scandals and unethical work being conducted by
one of the famous accounting and auditing firms in the industry, E&Y for the client named Harris Scarfe,
which collapsed in 2001 due to a debt burden of $ 265 Mn (Axelsen, et al., 2017). The main reason
behind the same was fraudulent entries being passed in the books to inflate the share prices and
reflecting the increased profits and the auditors were equally responsible as the management of the
company as it did not fulfil any of its responsibilities.
Key attributes
Some of the major and key attributes of the auditing profession are mentioned below:
1. Independence: The first and the foremost attribute of the auditor is to ensure independence
while auditing the given company. The same has been explained in Section 307 of the
Corporation Act 2001 and it mentions that the auditors of the company should have no financial
interest in the business and should be unbiased in its approach. In the given case, the
independence of the auditor was being compromised because of undue pressure from
management and because it was performing, the non-audit services but was not independent
enough in its approach (Appelbaum, et al., 2018). Thus, there should be no conflict of interest
between the auditors and the client and the auditors should be able to exercise impartial
judgement while auditing the books. There can be various types of threats to the independence
of the auditor, some of which are self-review threat, familiarity threat (applicable in given case),
intimidation threat, advocacy threat (applicable to given case) and self-interest threat
(applicable to given case).
2. Ethical Approach: Professional ethics is one of the most astounding characteristics that needs to
be possessed by the auditor as it is the auditors’ report on which the users of the financial
statements rely upon and make various financial and economic decisions. In the given case, the
same was being compromised with to provide high quality audit report and attract investors. It
is for this unethical approach that the auditing firm received more amount as non-audit fees as
compared to the audit fees and thereby it helped the company in window dressing the accounts
and the financial books (Bailey, et al., 2017).
3. Professional competence and due care: It is very important for the auditor to exercise due
competence while performing the auditing and use the professional knowledge acquired. This
also includes applying professional scepticism at every step of audit and testing the client for
fraud risk analysis, which was not done and exercised in the case of Harris Scarfe (Jones, 2017).
4. Confidentiality: This is one of the very basis and critical requirement to be possessed by the
auditor. It means that the private and confidential information of the client should not be
disclosed or shared to/with anyone and in case it is the required to be shared then the prior
consent of the client needs to be taken (Marques, 2018).
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5. Professional behaviour: This again is one of the basic requirements of the auditor and he/she
should maintain the professional behaviour with the clientele. In case the same is compromised
with, it directly or indirectly affects the independence of the auditor and thereby the quality of
the audit report and the opinion of the auditor thereby may be compromised (Fukukawa &
Mock, 2011).
6. Integrity and objectivity: Integrity here means that the auditor should be free from any sorts of
conflict of interest and should not knowingly be part of misrepresenting the information and
facts to the users. On the other hand, objectivity means that the auditor should have an
unbiased mental attitude and should perform the audit in such a way that no quality
compromises are being made. In short, they should not be subordinating their judgement on
given audit matters to others. They should therefore, be ethical, fair and honest in their
approach while conducting the audit of the client. This aspect was missing in the given case of
Harris Scarfe as the auditor gave the false and biased opinion on the financial statements for
their own interest. They were not being honest, due to which the users of financial statements
and the investors had to face the consequences (Heminway, 2017).
7. Detection and prevention of Fraud: The auditor should be applying the principles stated in APES
110 and the professional scepticism and should gain thorough understanding of the business of
the company before auditing it. However, it is not the responsibility of the auditor to point out
all the frauds within the organization but the auditor should try to identity the possibilities of
fraud and highlight them in the auditor’s report for the greater good of the society and public at
large (Lessambo, 2018).
8. Consideration and recommendation on the internal control processes within the organisation:
The auditor applied substantive and analytical audit procedures while doing the audit to find out
the audit evidences and give the audit opinion. The procedures are being applied on the basis of
the strength of the internal control, greater the internal control, lesser the audit procedures
applied and lesser are the risks of material misstatement and the frauds and vice versa. It is for
this reason that the auditor should comment on the adequacy of the internal control in the
organization and suggest for any changes and improvement, if required.
Conclusion
Based on the above-mentioned attributes and characteristics required in the auditor, it can be said that
the auditors Ernst and Young in the case of Harris Scarfe have compromised on various aspects
mentioned above and it is due to this reason that the company had to liquidate in 2001. Therefore, the
auditor has the greater responsibility to act ethically and be independent at the same time.
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References
Appelbaum, D., Kogan, A. & Vasarhelyi, M., 2018. Analytical procedures in external auditing: A
comprehensive literature survey and framework for external audit analytics.. Journal of Accounting
Literature, 40(1), pp. 83-101.
Axelsen, M., Green, P. & Ridley, G., 2017. Explaining the information systems auditor role in the public
sector financial audit. International Journal of Accounting Information Systems, 24(1), pp. 15-31.
Bailey, C., Collins, D. & Abbott, L., 2017. The Impact of Enterprise Risk Management on the Audit
Process: Evidence from Audit Fees and Audit Delay. Auditing: A Journal of Practice & Theory, 37(3), pp.
25-46.
Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A
Journal of Practice & Theory, 30(1), pp. 75-99.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, pp. 1-35.
Jones, P., 2017. Statistical Sampling and Risk Analysis in Auditing. NY: Routledge.
Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and
Forensics, 3(1), pp. 183-202.
Marques, R. P. F., 2018. Continuous Assurance and the Use of Technology for Business Compliance.
Encyclopedia of Information Science and Technology, pp. 820-830.
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