Auditing Theory and Practice: Introduction, Discussion, and Conclusion

This report delves into the evolving landscape of auditing, examining the impact of changing business structures and regulatory environments. It explores the core functions of auditors, including fraud detection and the delivery of accurate financial information, while also addressing the audit expectation gap and the challenges faced in maintaining audit quality. The report highlights specific regulatory changes in Australia, particularly those implemented by ASIC, and analyzes the implications of these changes on audit firms and their responsibilities. It further discusses the importance of technological advancements and the need for innovation within the accounting industry to meet modern auditing standards, including the use of analytical procedures and the importance of understanding the client's business. The report concludes by emphasizing the crucial role of both auditors and management in ensuring the integrity of financial reporting and the need for continuous adaptation to maintain high standards. This report provides valuable insights into the current state and future of auditing, addressing the challenges and providing potential solutions for students.

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Auditing Theory and Practice

Auditing
Introduction
Times have changed and so did the overall structure of the business which has also made the role
of the auditors to be altered. The target of an auditor is to deliver fault free information to the
customers and to see that no loophole prevails in the analyzing system. Strategic changes are
required to keep the quality of the audit intact. However, the profession of auditor is not free
from challenges. Considering the challenges, there has been various regulatory changes that aims
to instills stability.
Discussion
The main work of the auditor is to report the occurrence of frauds in the business. It can be said
that India has made this as a secondary aim of the auditor while Australia has a strict policy
which has to be catered with. Australian Auditing Guidelines says that if any fraudulent case is
linked with any senior member of the company then the auditor must report the same to the
management or to its client for prevention of any further manipulative work in the business
(Cappelleto, 2010).
The assumable difference that people see as auditor work to the work that actually an auditor has
to do is termed as the audit expectation gap. The work is not at all same as thought by the public.
Two core reasons are there because of which the gap seems to exist. The primary target of
detection and elimination of manipulative and fraudulent work has been seen to widen this gap
very much (Livne, 2015). Secondly, there is no perfect knowledge of the auditing framework
even after sessions of discussion and argument on the respected matter. It is to be seen that the
duty of the auditor is to distribute relevant information and the financial report made by the
auditors are analyzed first if a company collapses and then charging the auditor with governance
is a matter that should be reanalyzed upon again. Also, techniques should be undertaken to instill
knowledge in the public.
ASIC had to make some major changes in the powers of the auditors in 2012 in association with
the Corporations Legislation Amendment Act 2012. The Act was also seen to put down an
option of Strategic Review as per the request of the Treasury. The statements provided by the
Treasury says that the Australian government has put down the best auditing rules and standards
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Auditing
which are best in nature and so no changes are required in the same. The changes in the auditing
sector associated with power under ASIC are:
Annual transparency reports- it was stated that the auditing firms which are holding audits of 10
or more than 10 companies simultaneously must present their Annual Transparency report to the
public at all costs. These companies can include:
• Listed companies.
• Legal deposit-taking enterprises.
• On the chart legal schemes, and
• Insurance companies.
Independent function of the Auditor- The terms which defined the independence of the auditor
was erased and new laws were formulated which would work under the ASIC and the FRC. To
cater with the quality of audit work it was seen that the auditing bodies including the Minister
would be presented with appropriate legal advice so that all the work will be in accordance with
the terms set up by the ASIC and the FRC.
Audit deficiency notifications and reports- The ASIC has the power to issue a report termed as
the Audit deficiency notifications and reports which is delivered to auditing firms in a case
where the ASIC finds that the firm has failed to work on its duty as per the rules and regulation
prescribed for auditing. In such cases, the reports are stated with the fact that the particular firm
is poor in working and has disrupted the quality of the presented auditing report (Sikka, 2009).
Regulatory attempts
Alterations in business structure and market also change the standards of the auditing profession.
Companies are now laying more emphasis on the financial statements and their presentation.
Utilizing the technological services in association with the auditing skills and professionalism
can be a boon to the company as a whole. This will make the decision taking summits easier and
with increased revenue generation (Lapsley, 2012). If the above-mentioned measures are
followed then the accumulation of data will be huge and strict working will be required. Only
hard work will not be enough as this data will have to be stored which would require humungous
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Auditing
storage area divided into different segments as the accumulated data will be in different formats
like pdf files, images, texts, audio, video and many more (Niemi & Sundgren, 2012). All these if
followed thoroughly can flourish the company well but the terms set up in the audit are not
capable to exist with such statements and so is the reason that many auditing firms have received
reports about their disrupted quality of auditing (Geoffrey et. al, 2016). The fact that the firms
are not able to cater to the wants of the clients can get them stripped of their work with contract
cancellation.
Understanding the business type, catering to the field and making picture perfect plans to
eliminate the loopholes are some of the terms that must be added to the existing auditing
sequences. The atmosphere of the working must also be taken into consideration. Working
systems should be analyzed so that it is assured that they are in place for the detection of material
misstatements along with an analysis of internal measures followed by the company (Tadros,
2017). Analytical procedures must be straight and effective which can be done by keeping the
substantive features in place which also requires the test of ending balances to be done on a
timely basis.
Conclusion
The accounting industry must innovate and create new methods which would increase the
auditing standards in the upcoming times. The auditor and the company management are the
ones on which the auditing quality depends. The auditors need to get familiar with the business
of the client so that all the work done is as per the standard rules. Reports are bound to be
prepared as per the Clarified accounting International Standards and so the cost has been
seemingly rising enough. All these circumstances have led to a periodic reanalysis of the
auditing standards so that the firm can work properly and deliver fault free reports for the sake of
decision making of the public customers.
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Auditing
References
Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ,
Melbourne
Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-House
and Outsourced Internal Audit Positions: Views from External Auditors. Accounting
Horizons, 30(1), 143-156. https://doi.org/10.2308/acch-51309
Lapsley, I. (2012). Commentary: Financial Accountability & Management. Qualitative Research
in Accounting & Management, 9(3), pp. 291-292. https://doi.org/10.1111/1468-
0408.00081
Livne, G. (2015, May 18). Threats to Auditor Independence and Possible Remedies. Retrieved
from: http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-
independence-and-possible-remedies?full
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discussion/why-accountants-must-embrace-machine-learning [Accessed 16 May 2018]
Sikka, P. (2009) Financial Crisis and the Silence of Auditors. Accounting Organizations and
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Niemi, L., and Sundgren, S. (2012). Are modified audit opinions related to the availability of
credit? Evidence from Finnish SMEs. European Accounting Review, 21(4), 767-796.
https://doi.org/10.1080/09638180.2012.671465
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