Auditor's Public Interest Responsibilities and Audit Quality Analysis

This report provides a comprehensive analysis of auditor's public interest responsibilities and audit quality, using Orica Limited as a case study. It explores key concepts such as auditor independence, whistleblowing, and the ethical guidelines outlined in APES 110. The report delves into the lessons learned from the Enron scandal and Arthur Andersen's behavior, highlighting the importance of ethical practices and safeguards. It also addresses the warnings issued by Greg Medcraft, former chairman of ASIC, and outlines steps auditors can take to enhance audit quality. The analysis covers stakeholder considerations, material misstatements, and the impact on decision-making, concluding with recommendations for auditors to uphold their public interest obligations and maintain audit integrity.

Running head: AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Auditor’s Public Interest Responsibilities and Audit Quality
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1AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Executive Summary:
The given discourse of the study has provided stakeholder evaluation of an ASX listed entity
pertaining to which Orica Limited has been taken into account for the study. The revelations
include conceptualisation of the auditing characteristics such as the scandal of Enron,
whistleblowing and independence of the auditors. The report has also focused on warning
statement provided by former chairman of ASIC Greg Medcraft. It can be stated that Orica
Limited seem to be maintaining numerous groups of stakeholders for which there is significant
material misstatement in the financial report. This is considered with having a negative impact
on the decision-making process of the company. In addition to this, whistleblowing and
independence of the auditor independence of the auditor are inferred as the two main
constraints of fair practice across global businesses. In addition to this, the failure of Enron’s has
been considered as a learning ground for the auditors so that they adhere to the obligations of
assurance. This is further cited with the importance of practising safeguard policies and
adhering to the appropriate audit principles and ethical norms defined under APES 110.

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Table of Contents
1. Introduction:................................................................................................................................3
2. Stakeholder analysis of Orica Limited:........................................................................................3
3. Auditors concept of independence and whistleblowing:............................................................5
4. Instructions for the auditors from Enron scandal:......................................................................7
5. Steps pertaining to audit quality in order to address the cautions provided by Greg Medcraft:
.......................................................................................................................................................11
6. Conclusion:.................................................................................................................................14
References.....................................................................................................................................15
List of Appendices..........................................................................................................................18
Appendix 1.................................................................................................................................18
Appendix 2.................................................................................................................................18
Appendix 3.................................................................................................................................19
Appendix 4.................................................................................................................................19

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1. Introduction:
In general, reckless audit procedures states that there may be not assertion made as per
the assurance of the significant stakeholders are susceptible to the risk considerations which
are similar to the auditors. The present standings of the report will be able to include a relevant
analysis of the stakeholders listed in ASX pertaining to which Orica Limited is taken into
consideration. The company has been depicted to manufacture and selling of products such as
commercial explosives and blasting systems explosives to the mining firms functioning in
Australia. As the stakeholder analysis is completed, the effect of the material misstatements
can be considered with identified group which would be analysed in case they are not disclosed
in an appropriate manner. Secondly, it will aim at the main concepts which are associated to
whistleblowing and auditor’s independence for the auditors and the link may be observed
among the requirement of public interest as per APES 110. The main focus on the next section
will highlight on the lessons associated to the auditors which relate to the scandal of Enron and
specifically Arthur Andersen’s behaviour. Lastly, the report would also include the relevant
discussions on the audit quality and steps taken by the auditor in adopting the statement put
forward by Greg Medcraft (Chernov and Sornette 2016).
2. Stakeholder analysis of Orica Limited:
Orica Limited is seen to observe the opinion of the stakeholder groups in case there is
any instance of material misstatement by the organizations. The total number of ways by which
an organization may be affected are stated as follows:
Suppliers:

4AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Orica has focused on ensuring that the long-term results of the company are depicted to
be beneficial for effective negotiations which shall be able to ensure sustainability among both
the parities. In any instance, the financial conditions are declined by the company then the
organization may be on the verge of incurring loss for failure to settlement due obligations.
Therefore, the overall effect on the material misstatement risk may be inferred with the
categorisation of the non-current liabilities or assets. The valuation will raise serval questions
on valuation of the assets and supplier concern (Haswell and Evans 2018).
Government:
It needs to be further discerned that Orica Limited coordinates with federal and state
governments in 2018 for issues of business operations. The adequate resource contributing to
the inquiries of the state and federal government are important in case an organization faces
any problem in responding to such a problem. If the material misstatements are rightly
observed then the tax computation in the financial information of Orica Limited may pose
considerable error and threat (Bhasin 2016).
Customers and staffs:
The customers of the company may be contacting the organization via websites, letters
and phone calls. The customer service department considers feedback in a serious manner as
and when they are received. In addition to this, Orica Limited has 11,500 staffs and all are
allowed to engage in the undertaking decisions as per personal communications, whistle-
blowers and surveys. In case material misstatement leads to overstatement, there may be
certain items in the financial statement where the decision making may be largely impacted. As

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stated in appendix 1, the stakeholder consideration is considered with competitive
remuneration which is aligned with the long-term success of executives at Orica. Furthermore,
appendix 2 and appendix 3 states about the importance of material sustainability which is
aimed at addressing the key values such as workplace safety, respect for all values, climate
change and incorporating ethical business practice along with good governance (Orica.com
2019).
Shareholders and investors:
For the purposed of effectively communicating with the shareholders, Orica Limited
conducted the general meetings annually. In addition to this, the special team was also
responsible for managing the share register. In addition to this, the investors briefings are held
during each year for a discussion on a half yearly basis. The prime interests of the shareholders
of Orica Limited includes gaining a certain knowledge based on the competition prevalent in the
mining sector in Australia. The capital apportions in also evident with the merger and
acquisitions. In case an auditor of Orica Limited is not able to disclose the financial information
on material misstatement, the shareholders may be misguided and assert inaccurate decisions
which may lead to decrease in the return of the investment. The appendix 4, shows that the
company reveals the earnings of executives in fair manner. This will draw more investors for
the company in the future (Orica.com 2019).
3. Auditors concept of independence and whistleblowing:
It needs to be understood that Audit independence is that which lies in the hands of
external auditors. This approach relates to the principle of integrity and objectivity

6AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
characterised in the independence report. Additionally, the auditors are needed to perform the
various obligations without considering any interreference pertaining to the principle of
objectivity. The independence of both the auditors is seen to be depicted with the
misstatement and violations pertaining to the misstatement in the financial statement. This is
critical for stating the professional and ethical obligations denoted with promise of
independence (Bhasin 2015).
Additionally, the independence commitment is having a favourable effect on the
independence commitment as per the whistleblowing intentions related to the external
auditors. The reason for this can be seen due to degree of the independence commitment
which is possessed by the auditors and brought into effect by the auditors. It is important to
note that whistleblowing process permits the staff for reporting incidences of unethical
practices which they find to be similar in nature. In general, a whistle-blower may report any
incidence which is illicit and wrong irrespective of the nature of the company. This aids in the
process of creating a sense of commitment and loyalty for the company along with description
for the job (Bounfour 2015).
The adoption of “APES 110 Code of Ethics for Professional Accountants” can be seen to
be relevant in this nature which is issues by APESB. As per “Section 210.11.1 of APES 110”, it
needs to be further determined that the nominated auditor may take the concern of the client
pertaining to the various types of the reporting objectives which are associated to the previous
auditor. In case the client is not willing to provide any reliable consent, the auditor may cancel
the nomination immediately pertaining to the auditor. In contrary to this, in case the auditor

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had the chance of asking previous auditor related to the necessary information undertaken
with the nomination decision. This will be able to help the auditors in providing protection to
the whistle-blowers associated with the government and disclosing any misconduct associated
to the agency. Additionally, the freedom of speech will ensure the staff and contractors about
variety of situations (Hosseini and Mahesh 2016). Furthermore, the whistle-blowers are free to
file complaints which may have been breached by collecting sufficient evidence based on
“Section 100.1 of APES 110”, this includes the following considerations such as:
 Gross wastage pertaining to fund
 Rule of law regulation
 Authority Exploitation
 Gross misconduct
 Substantial or particular threat of public safety
4. Instructions for the auditors from Enron scandal:
The significant nature of the corporate failures may be considered with the reductions
as per global perspective in case of collapse of Enron. The auditor will be further able to gain a
considerable experience pertaining to certain lessons which will allow the companies to avoid
any incidents which may take place in the future.
Manipulation of the accounting books:
A relevant capital market will allow the capital market to demand to make changes in
the correctly in the books of accounts and along with the relevant operations which takes place
in the organization. The auditor of Enron Arthur Andersen declined Enron as a representative of

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the entire profession. Precisely, the auditor is thought with the primary reason for the failure of
Enron. This has been further able to showcase improper documents required for the
investigations. This form of audit failure is due to the reason of the business relationships which
have aggravated further owing to the perverse incentives as per conflict of interest. As per the
theoretical perspective the shareholders are seen to recruit the auditors and it is the
responsibility of the auditors to take the responsibility of reporting perspective to the
shareholders. The leaders of the organization primarily choose the auditors and auditors needs
to work as per their opinions. The firms frequently sell the consulting services to the audit
clients in specific occasions. Moreover, the external auditors are offered with the specific job in
the top managerial position and internal auditors. Due to this, the organizations have faced
several issues associated to the capitalising the distress of the audit partner. As the latter fears
loss of profitable audit task. In case of such a situation, it is evident that there would be a
compromise in audit quality (Hamilton and Micklethwait 2016).
In order to address this concern, the auditor’s responsibility needs to be provided
among the government agencies pertaining to private audit firms. Despite of this, the changes
are also important to be implemented. If there is a likelihood of inherent risk then it may not be
ensured that the government agencies would not be able to make any errors pertaining to the
private audit entities. During the short-term, the auditors may not be appointed by the leaders
in the business. It is the responsibility of the government agencies to make this decision as per
the list of auditors provided by the organizations and they need to also ensure settlement of
the audit fees.

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The statutory regulations pertaining to the audit profession is needed to be particularly
strong. This should be further considered with disciplinary powers. The auditors have been able
to successfully manage the fiction of self-regulation with assistance of professional associations
and also peer review incorporated by them. The private auditors need to be restricted of the
consulting fees and other service pertaining to consultation. Another significant step taken by
the suitors can be also seen on a rotational basis of four years, so that the auditors does not
become committed towards their clients. Another review by the auditors needs to be seen with
companies entering in the accounting books of the predecessor. Therefore, ASIC decisions have
imposed restrictions on the recruiting managers and internal auditors pertaining to external
auditors (Bhasin 2016).
Exploration of improved standards:
The accounting role is inferred for having a negative impact in the scandal of Enron. The
firm’s behaviour has assured that there are several numbers of areas pertaining to the dealing
of off-balance sheet items. Moreover, the accounting standards in USA was seen to lack in
terms of uniformity which were subjective based on the evaluations. The regulatory authority
was seen to enforce a rigorous standard and at the time ensuring implementation of effective
principle with subjective guideline (Adu-Gyamfi 2016).
The collapse of the company has been seen to be emphasizing on poor CG and big
multinational firm. During the initial years, the balances needed to be formed as per leaders
serving the functions of agents for the shareholders who are actually seen to carry put the

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same. Despite of this, power was seen in the hands of CEO, it helps the management in
maintain highest possible options for shares.
The system is needed to be realigned for functioning with best interests of the
shareholders. The entities require to look for competent non-executive directors and assuring
relevant payment with devoting of essential attention to the job, audit committees and fair
independent remuneration along with an effective division for chairman and chief executive. It
is seen as duty of both firms and the auditors for ensuring a sound governance and audit
procedure to assets in smooth flow of operations (Friedman and Gerstein 2016).
Behaviour of Arthur Andersen:
During the conduction of audit for Enron, Arthur Andersen ranked second as per
seniority. The liability to ensure a correct financial statement for the organizations needs to be
taken into consideration as per internal bookkeeping. The audit report of Arthur Andersen for
Enron has considered the investment decisions as there were no report consisting of error in
accounting and material misstatement. Arthur Andersen was identified as the business partner
for Enron in that period which was evident as the executives were appointed for Enron. Based
on this, Arthur Andersen did not take the decision of very fine the partnership agreement. The
auditor was also found guilty of destructing certain documents of Enron in March 2002. This
clearly shows the unprofessional and unethical behaviour from Arthur Andersen as it took a
large sum of money from Enron in form of consultation fees and auditing fees (Goltz and Mayo
2017).

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5. Steps pertaining to audit quality in order to address the cautions provided by Greg
Medcraft:
The need for recognition of audit quality as per international perspective is yet to be
recognised. In order to make sure that external audit services are rigourous consisting of
professional scepticism to be performed the compliance is based on prevailing standards.
Despite of this, the specific elements can be noted in form of:
 Background knowledge of industry
 essential insights of the industry
 Observations of coordinating services from different international locations and audit
procedure
Greg Medcraft in his statements declared that Enron might take place in Australia in the
coming years, unless there is a strong improving initiative taken by the top four auditing firms in
the country. Therefore, the corporate firms are required to adhere appropriate auditing
standard so that any incident in the next financial crisis may be avoided (Roy 2017).
In case auditing work is not performed up to the mark, there may be an increased
possibility of events like Enron. Make sure appropriate auditing work is conducted, the auditors
need to discharge their jobs by gaining assurance of any absence of material misstatement in
the financial information published by the clients. “Section 2 of APES 110” ensures assurance of
auditors through disclosing financial information which consists of who and fair values for
declaring materiality. As depicted by Greg Medcraft, failure of Enron eventually triggered
financial crisis. Therefore, the auditors can be held accountable for providing the precise