Auditor's Responsibilities, Audit Quality, and Stakeholder Analysis

This report delves into the critical aspects of auditor's public interest responsibilities and their impact on audit quality. It examines the significance of auditor independence and whistleblowing in maintaining public trust and ensuring the integrity of financial reporting, highlighting the potential consequences of material misstatements on key stakeholders like investors, debt providers, and employees of CSL Limited. The report analyzes the APES 110 code of ethics, emphasizing the importance of ethical conduct and adherence to public interest requirements. Furthermore, it draws valuable lessons from the Enron scandal and Arthur Anderson's behavior, emphasizing the need for effective auditing standards, independent oversight, and a strong relationship between audit committees and auditors. The role of internal audit is also discussed. The report concludes by stressing the importance of audit quality and the steps necessary to address potential risks and ensure the reliability of financial information.

Running head: AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Auditor’s Public Interest Responsibilities and Audit Quality
Name of the Student
Name of the University
Author’s Note

1AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Executive Summary
This report indicates that the presence of material misstatements in the financial
statements distress the decision-making procedure of the company’s key stakeholders. In
addition, auditor independence and whistlowing is associated as it provides major
assistance to the auditors to maintain the public interest requirements during auditing. The
auditors can increase certain knowledge from the collapse of Enron. Moreover, the audit
firms are needed to develop the audit quality to keep away from the collapses like Enron.

2AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Table of Contents
1. Introduction............................................................................................................................3
2. Analysis of Key Stakeholders of CSL Limited..........................................................................3
3. APES 110 Public Interest Requirements.................................................................................5
4. Audit Lessons from Enron Scandal and Arthur Anderson’s Behaviour..................................6
5. Audit Quality and Steps need to be taken for Addressing the Waring Note.........................9
6. Conclusion............................................................................................................................12
7. References............................................................................................................................14
8. Appendix..............................................................................................................................17

3AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
1. Introduction
In the process of auditing, the responsibility of the auditors is thoroughly and
independently inspects and examines the accounting records and financial statements of
the audit clients in order to make sure that they are free from material misstatements
(Louwers et al., 2015). In this process, the responsibility of the auditors is to ensure the
truthfulness and fairness of the financial reports of the clients. Performing quality audit
helps the auditors to gain sufficient assurance on whether there are any material
misstatements in the financial statements or not (Knechel & Salterio, 2016). While
conducting audit of the companies, the auditors must be accountable for the fact that they
represent the interest of public, not the audit clients. This particular aspect puts the
obligation on the auditors to make adherence to the principle of auditor independence and
professional scepticism (Chan & Vasarhelyi, 2018). In case the auditors of the companies fail
to perform quality audit, the proportion of accenting as well as financial frauds in the
companies can increase that is not good for financial reporting. The main objective of this
report is the analysis of the topic of public interest responsibilities of the auditors for
increasing the quality of audit.
2. Analysis of Key Stakeholders of CSL Limited
It needs to be mentioned that the key stakeholders of the companies can get
affected in the presence of improper identification, disclosure and adjustments of material
misstatements in the financial statements. The following discussion shows the impact of
materially misstated financial statements on the key stakeholders of CSL Limited:
Investors and Shareholders: It can be observed from the appendix that investors or
shareholders are one key stakeholder group of CSL Limited as this stakeholder group has

4AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
their stakes or vested interests in the company (corporateresponsibility.csl.com.au, 2019).
In order to make the investment decision, stakeholders or investors verify the financial
position and performance of CSL Limited from the financial information in financial
statements. Materially misstated financial statements create the risk of wrong investment
decision by these shareholders as material misstatements create barrier in obtaining the
correct financial information (Boyle, DeZoort & Hermanson, 2015).
Debt Providers: As per the appendix, another major key stakeholder of CSL Limited is the
Debt Providers which are certain individuals, corporations, businesses and financial
institutions that provide CSL Limited with required capital when needed
(corporateresponsibility.csl.com.au, 2019). Thus, they analyse the financial statements of
the company for judging the company’s ability to repay the debts in correct time. Hence, the
presence of material misstatements can create the risk of wrong analysis of the company’s
ability to repay the debt that can lead to loss for this stakeholder group ( Boyle, DeZoort &
Hermanson, 2015).
Suppliers: According to appendix, Supplier is another key stakeholder of CSL Limited that
includes international, national and local suppliers (corporateresponsibility.csl.com.au,
2019). They also analyse the financial statements of CSL Limited for making the necessary
credit decision about the company. This particular decision-making process of this
stakeholder group can be affected with improper identification, disclosure and adjustments
of material misstatements in the company’s financial statements (Boyle, DeZoort &
Hermanson, 2015).
Employees and Potential Employees: According to the appendix, employees or potential
employees are key stakeholders of CSL Limited as they consider the financial position of the

5AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
company as their future largely rest on it (corporateresponsibility.csl.com.au, 2019). Thus,
improper identification, disclosure and adjustments of material misstatements can affect
the employees (Knechel, 2013).
Business Partners: As per the appendix, Business Partner is another key stakeholder group
that associates with CSL Limited for sharing profit. For this reason, they analyse the
company’s profitability and financial position from the information in the financial
statements. For this reason, materially misstated financial statements can hamper this
particular objective of this stakeholder group (Brasel et al., 2016).
3. APES 110 Public Interest Requirements
Auditor Independence: Auditors’ continuous compliance with the principles of Audit
Independence provides major assistance in conducting the audit operations in the most
objective manner (Mostafa Mohamed & Hussien Habib, 2013). It becomes possible for the
auditors to avoid aspects like biasness, conflict of interest and influence while complying
with the principles of auditor independence. It demands the commitment of the auditors to
sustain auditor independence from the audit client so that the audit opinion is not affected
with conflict of interests, undue influence and biasness (Wainberg & Perreault, 2015).
Whistleblowing: Whistleblowing is considered as another major aspect in auditing as it is
internally connected with the aspect of auditor independence. Whistleblowing can be
regarded as the specific procedures that help the employees, suppliers and other staffs of
the companies in reporting illegal and unethical business practices to the correct authorities
(Zhang, Pany & Reckers, 2013). These authorities can be internal or external. The process of
whistleblowing in auditing is connected with the auditor independence as the main
responsibility of the auditors is to detect the presence of material misstatements in the

6AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
financial statements due to the occurrence of any kind of fraud or error (Church et al.,
2014).
Public Interest Requirements: The document of APES 110 Code of Ethics for Professional
Accountants includes all the requirements of public interest that the company auditors are
needed to consider while providing the auditing services. According to AUST210.11.1 of
APES 110, an auditor who is going to replace another existing auditor in the company needs
to ask to the client for the permission to communicate with the existing auditors
(apesb.org.au, 2019). The regulation is to decline the audit nomination as well as audit
engagement in case the client rejects the permission. However, the auditor is needed to
request in writing to the existing auditor for the required information about audit
engagements and nomination in case the client accepts the permission (apesb.org.au,
2019). The main aim behind the introduction of this regulation is to provide the
whistleblowers with the necessary safeguards in the process of whistleblowing. This
regulation also ensures the freedom of speech to the whistleblowers. Section 100.1 of APES
110 states that it is the unique trait of this particular profession that it acts in the interest of
the public (apesb.org.au, 2019). For this reason, there is a restriction on the auditors to
completely act in the favour of the audit client and the employers. For this reason, it is the
obligation on the auditors to comply with these sets of principles (apesb.org.au, 2019).
4. Audit Lessons from Enron Scandal and Arthur Anderson’s Behaviour
Requirement for Effective Standards: It needs to be mentioned that the collapse of Enron
has left the concern among the accounting and auditing profession as the accountability of
both of these professions can be seen in the Enron collapse. Hence, the lesson that can be
obtained from the collapse of this company is that effective auditing as well as accounting

7AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
standards need to be introduced in these professions that will put the obligation on the
accountants and auditors to comply with the globally accepted principles and standards
(Betta, 2016).
Accounting Books Fabrication: The management of Enron ensured appointing Arthur
Anderson as their audit partner so that they can fulfil their personal interest with the
assistance of the audit partner through accounting books falsification and audit fraud. Thus,
the particular lesson in this situation is that the government agencies should have all the
audit responsibilities of the companies in the place of the private accounting firms. Apart
from this, there need to be a ban on the rights of the auditors to give non-assurance and
consultation services in the exchange of huge fees as it can lead to self-interest threat of
audit independence (Mmadu, 2013).
Incentives for Auditors, Not Penalties: An important lesson that can be obtained from the
Enron collapse that there must be certain incentives for the company auditors in the place
of penalties for enhancing the audit quality due to the fact that the majority proportion of
the auditors have the tendency to comply with the principles of professionalism and
objectivity. Hence, the need is to use auditors’ insight as the supporter of enhancing audit
quality by recognizing the major strengths and weaknesses of audit operations. The
introduction of Sarbanes-Oxley Act can be presented as an example in this situation as this
act ensures that the companies do not disclose the audit inspection report that is based on
the critic on audit quality (Hosseini & Mahesh, 2016).).
Independent Oversight to reinforce Audit Quality: The collapse of Enron has provided the
auditors with a crucial lesson that auditors’ independent oversight can be introduced for
enhancing the quality of audit as the auditors of the companies can develop this

8AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
independent oversight with the assistance of acquired skills, knowledge and experience.
With the aim to achieve auditors’ independent oversight, audit inspection programs can be
introduced and these programs will undertake the analysis and examination of the crucial
audit judgments used by the auditors for forming the audit opinion (Jennings, 2014).
Cordial Relation between Audit Committee and Auditors: The collapse of Enron has
indicates towards the important fact that even the introduction of auditors’ independent
oversight cannot leads to enhance the quality of audit in case the audit clients do not have
any dedication to maintain the truthfulness and fairness in the financial information. For this
reason, both the external auditors as well as the audit committees of the audit clients need
to take initiative to develop a cordial relationship between them as it helps the companies in
gaining precious suggestions from the auditors on how to maintain the truthfulness and
fairness of the financial information (Peterson, 2018).
Role of Internal Audit: The collapse of Enron has pointed towards the crucial fact for both
the auditors and the companies that the presence of effective internal control around the
financial reporting helps the companies in gaining the trust of their key investors. Thus, the
companies are needed to take initiative to strengthen their internal control with the
assistance of the external auditors. Moreover, both the companies and auditors are needed
to consider the fact that auditing is a global profession and thus, the requirement for the
auditors is to ensure compliance with the global audit regulations (Haswell & Evans, 2018).
Behaviour of Arthur Anderson: At the time of the collapse of Enron, Arthur Anderson was
regarded as the second oldest audit firm and it was the audit partner of Enron. In Enron,
one of the main responsibilities of Arthur Anderson was to ensure that the company’s
financial statements are free from material misstatements and they reflect truthfulness and

9AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
fairness. However, in actual, the financial statements of the company were materially
misstated and it affected the key stakeholders of the company as they considered these
statements for decision-making. According to the information of Enron, Arthur Anderson
had major business relations with Enron as Enron provided job to some of the audit
executives of Arthur Anderson (McLean, & Elkind, 2013). Thus, in the presence of self-
interest in the audit client, Arthur Anderson did not feel the need to obtain information
about the audit engagement and audit nomination. In addition, some of the audit
executives of Arthur Anderson were responsible for destroying the important audit papers
before the federal government inquiry took place. Hence, it can be said based on the whole
discussion that Arthur Anderson did not maintain audit independence and did not comply
with the required auditing regulations (da Silveira, 2013).
5. Audit Quality and Steps need to be taken for Addressing the Waring Note
The global auditing standards do not provide any specific definition of audit quality,
but the presence of one can be seen under Australian Securities and Investment
Commission (ASIC). As per ASIC, Audit Quality can be considered as the matters that can
affect the auditors’ ability for the achievement of the fundamental objectives of auditing;
for obtaining the required assurance on the fact that there is not any material
misstatements in the financial statements (asic.gov.au, 2019). Hence, the responsibility of
the auditors is to communicate the detected deficiencies in the clients’ financial statements.
It needs to be mentioned that Greg Medcraft has warned the Australian auditors on the
occurrence of Enron line collapses in the country if the big four audit firms do not enhance
the quality of their audits for auditing the large corporations (abc.net.au, 2019).

10AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
With the aim to ensure the non-repetition of the collapses like Enron in Australia, it
is required for the auditors of the country to carefully perform audit of the accounting
books of large Australian companies. Thus, for obtaining sufficient evidences on the fact that
the accounts of the large companies are free from material misstatements; the auditors
must be committed towards maintaining their adherence with the required audit
fundamental and ethical principles. For this reason, Section 2 of APES 110 demands the
commitment from the auditors in ensuring the true and fair view of the financial statements
of the clients (apesb.org.au, 2019). What Greg Medcraft tried to convey through his
message that the Arthur Anderson’s audit failure was one of the most significant reasons for
the collapse of Enron. Thus, to avoid this, the suggestion of Greg Medcraft is to perform
audit of the big organizations accountably and responsibly by maintaining the audit quality.
In the recent time, ASIC took the initiative to obtain performed key audit samples of
the big four audit firms for the period of 18 months up to December 2016; and the result
surprised the authority due to the fact that the audit firms failed to provide the necessary
assurance in 23% of the cases (abc.net.au, 2019). It indicates towards the inability of the
auditors to deal with critical audit situations and this happens due to the lack of professional
scepticism. Accounting fraud was majorly responsible for the collapse of Enron. The
business operations as well as reputation of Arthur Anderson were affected due to the
involvement of the audit company in the collapse of Enron. This aspect indicates towards
the fact that it is needed for the auditors of Australia to maintain distance in the
involvement of accounting and auditing frauds with the aim to maintain their reputation
and business operations (abc.net.au, 2019).

11AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
According to Greg Medcraft, over six years, ASIC organized 7000 high-intensity
observation, a thousand number of exploration, restrained more than 80 people, restricted
more than 600 and refunded $1.3 billion for the investors (abc.net.au, 2019). In addition,
the Government of Australia ordered the involved staffs to finish their pending tasks. Both
the dictatorial authorities and the Australian government determined to inflict legal
penalties on them as it was apparent that civil penalties were insufficient (abc.net.au, 2019).
Thus, the obligation for the auditors is to continue audit independence so that safeguards
can be useful to decrease the risks to the safe level (abc.net.au, 2019).
Section 290.155 of APES 110 states that when a business organization possesses
only few people having the needed knowledge and experience to play the role of the key
audit partner, the safeguard to rotate the key audit partners may not be available in that
situation (apesb.org.au, 2019). However, if the independent regulator has excused the audit
partner from the rotation of key audit partner as per the regulation, then it is possible for
the audit partners to continue as a key audit partner for more than seven years, but the
safeguards of regular independent external review needs to be applied in this case
(apesb.org.au, 2019). Section 100.1 of APES 110 indicates towards one major trait of audit
profession that the auditors are needed to act in the best interest of the public and hence,
only the interest of the audit clients must not be completed satisfied by the auditors
(apesb.org.au, 2019). Section 100.2(c) of APES 110 indicates towards the fact that the
auditors are needed to ensure the application of the available safeguards when they feel
that there is a need to reduce the audit threat to the safe level. The auditors need to apply
the safeguards based on the nature of the audit threats (apesb.org.au, 2019).

12AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
With the aim to address the warning note of Greg Medcraft, one of the major
priorities for the auditors of Australia is to ensure the continuous adherence with the
professional competence and due care principles and standards with the aim to avoid the
Enron like collapses (abc.net.au, 2019). While auditing the accounting books of the large
Australian companies, it is needed to ensure the fact that the auditors have the needed
skills, experience and knowledge to deal with the tough auditing situations for providing
necessary assurance. Compliance with the ethical principles of APES 110 needs to be
ensured by the auditors and these principles are integrity, objectivity, professional
competence and due care, confidentiality and professional behaviour (apesb.org.au, 2019).
Hence, based on the above discussion, it can be said that one major way to enhance the
audit quality is to ensure the adherence with all needed principles and standards of audit
profession (Gul, Wu & Yang, 2013).
6. Conclusion
The above discussion indicates towards the fact that the improper identification,
disclosure and adjustments of material misstatements in the financial statements can create
the risk of wrong decision by CSL Limited’s key stakeholders due to the consideration of the
company’s financial statements for the purpose of decision-making. The above discussion
also indicates towards the aspect that the presence of auditor independence helps in the
effective whistleblowing within the organizations for revealing the illegal and unethical
business operations. At the same time, APES 110 provides the required regulations that can
be used for safeguarding the whistleblowers within the organizations. It can also be seen
from the above discussion that the auditors can certain major lessons from the collapse of
Enron and the behaviour of Arthur Anderson due to the involvement of the auditors in this

13AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
total failure of the company. The above discussion also indicates towards the steps that
need to be taken to address the warning note of Greg Medctaft. The auditors are needed to
ensure the continuous compliance with the standards and principles of audit profession. In
addition, the auditors are needed to be extra careful and responsible while auditing the
accounts of the large corporations in Australia.

14AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
7. References
APESB. (2019). Apesb.org.au APES 110 Code of Ethics for Professional Accountants.
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Investments Commission. (2019). Asic.gov.au. Retrieved 19 January 2019, from
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Betta, M. (2016). Three Case Studies: Australian HIH, American Enron, and Global Lehman
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Brasel, K., Doxey, M. M., Grenier, J. H., & Reffett, A. (2016). Risk disclosure preceding
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Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing.
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McLean, B., & Elkind, P. (2013). The smartest guys in the room: The amazing rise and
scandalous fall of Enron. Penguin.
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17AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
8. Appendix