BUACC5935 - Auditing: Opportunities and Challenges in Australia

This essay analyzes the opportunities and challenges faced by auditors under the Australian auditing model. It highlights opportunities such as selecting correct audit procedures, maintaining audit skepticism through ASA 200, and exercising professional judgment. The case of ABC Learning is presented to illustrate the importance of professional skepticism in identifying accounting fraud. The essay also addresses challenges, particularly ethical dilemmas arising from management pressure and the conflict between generating income and maintaining audit independence, referencing APES 110. The introduction of AI in auditing is discussed as a major benefit, enabling auditors to perform tasks more efficiently and accurately. The essay concludes by emphasizing the need for auditors to navigate these challenges to uphold audit quality and ethical standards.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

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Synopsis
The main aim of this essay is to analyze the opportunities and challenges faced by the auditors
under the Australian auditing standard. It can be seen that the auditors can get major
opportunities like the selection of correct audit procedures, maintaining audit skepticism,
professional judgment and others from the Australian auditing standard. At the same time, the
auditors face ethical challenges while complying with the Australian auditing model.

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Introduction
In today’s business world, Auditing Profession is considered as a major factor that largely
contributes towards the success of the companies. Auditing is regarded as the process to conduct
inspection and analysis on the financial statements of the business entities in order to make sure
that they are free from any material misstatements (William Jr, Glover & Prawitt 2016). The
presence of material misstatements is a major barrier for the users of financial statements to
judge about the financial performance as well as financial standings of the companies as it
provides a false financial picture of the entities (Eilifsen et al., 2013). There is not any exception
of this fact in Australia. In Australia, it is the requirement for the auditors to comply with the
principles and standards of Australian auditing model, known as the Auditing and Assurance
Standard Board of Australia (AUASB). The main objective of the development of this auditing
model is to provide the auditors with opportunities and advantages to provide quality audit
service to the clients (auasb.gov.au, 2018). However, in the recent years, it can be observed that
the auditors are facing some of the major challenges at the time to provide the professional
services to the clients and they are facing these challenges while complying with the Australian
auditing model. The main aim of this essay is to conduct a discussion on the opportunities and
challenges that the auditors are facing in the presence of the Australian auditing mode. At the
same time, this essay also sheds light on the recent regulatory attempts taken by the regulatory
bodies of Australia in order to improve the audit quality.
Opportunities for Auditing Profession under Australian Auditing Model
From the above discussion, it can be seen that it is the legal requirement for the auditors
to comply with the standards and principles of the Australian auditing standards in order to

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conduct the audit operation on the financial statements of the business entities. The auditors can
be majorly beneficial while complying with these auditing standards. It needs to be mentioned
that the Australian auditing model sets out the overall objective for the auditors and this aspect
provide the auditors with the opportunity to understand the nature and scope of the audit
engagement (Chandler, 2014). Based on the nature of the audit engagement, the auditors can take
the crucial decision regarding the selection of audit procedure in order to achieve the audit
objectives. At the same time, the Australian auditing model provides assistance to the auditors to
understand their responsibilities in the audit operations. In order to comply with the standards of
ethics and audit independence, the auditors should be able in identifying their role and
responsibilities. Moreover, in the presence of the Australian auditing model, the auditors can take
the opportunity to extract the historical data of the audit client for conducting the audit
operations (Chandler, 2014).
In this context, it is required to be mentioned about the Auditing Standard ASA 200 that
helps the auditors in maintaining the professional skepticism throughout the audit operations for
the reduction of the audit risks (auasb.gov.au, 2018). Professional skepticism refers to the
attitude of the auditors that includes a questioning mind, to be alert in the conditions of material
misstatements and to be able to critically assess the audit evidences. It needs to be mentioned
that the auditors should be able in maintaining the professional skepticism in order to judge the
validly and truthfulness of the audit evidences (Quadackers, Groot & Wright, 2014). This
standard is majorly beneficial for the auditors as compliance with this standard helps the auditors
in accepting records and documents unless they have enough reason to believe this. At the same
time, it helps the auditors is measuring the reliability of acquired audit information by the
identification of the major issues that lead to the auditors to consider a document is not authentic

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(Quadackers, Groot & Wright, 2014). For this reason, the Australian auditing standards provide
the opportunity to the auditors to further investigate and determine what are the necessary
modifications and additions in order to solve the key audit matters (Glover & Prawitt, 2014).
In this context, the case of ABC Learning can be presented. It can be observed that Simon
Andrew Peter Green resigned as the auditor of ABC Learning in the year 2007 after his name
was involved in major auditing fraud in the company. After his resignation, Brian Long, the
auditor from Ernst & Young, appointed as the auditor of the company and he discovered the
presence of auditing fraud in revenue and earning management. In this context, it needs to be
mentioned that the compliance with the Australian auditing standard provided Brian Long able
with the opportunity to identify the accounting fraud by maintaining professional skepticism that
leads to the questioning mind of the auditors (smh.com.au, 2018).
It is also essential to mention that fact that the Australian auditing model helps the
auditors in passing the professional judgment required for the effective conduct of the audit
operations. By complying with the standards of Australian auditing model, it becomes possible
for the auditors to interpret the relevant ethical requirements of audit operations so that the
correct audit decision can be made (auasb.gov.au, 2018). By complying with the standards of
Australian auditing model, the auditors can assess the materiality and audit risk related to the
financial statements of the entities. Most importantly, auditors can do the evaluation about the
fact whether sufficient audit evidence is obtained or not Knechel & Salterio, 2016). Evaluation of
the judgment of the management is another major contribution of the Australian auditing model
as it provides the auditors with the techniques of evaluating the judgment of the management
related to the applicable financial reporting framework. On the overall basis, it can be said that

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ASA 200 helps the auditors to make informed and reasonable judgment (Knechel & Salterio,
2016).
It needs to be mentioned that the Australian auditing model provides the opportunity to
the auditors to conduct the audit operations of both the private and public corporations. However,
in this aspect, it needs to be mentioned that the auditors are required to comply with some
additional rules and regulation while conducting the audit of the public sector companies. For
this reason, the auditors get broader scope for the application of their auditing knowledge while
conducting the audit of the large business entities. Lastly, it needs to be mentioned that
compliance with the Australian auditing model puts the obligation on the auditors to be ethical as
well as independent at the time of conducting the audit. In this regard, the obligation on the
auditors is to comply with the standards and principles of APES 110 for ethics. Hence, these are
the main opportunities that the auditors get for the auditing profession under the Australian
auditing model (apesb.org.au, 2018).
The introduction of Artificial Intelligence (AI) can be considered as one of the major
benefits that the auditors can avail under the Australian auditing model. AI technology is referred
as cognitive technology that leads to the extension of the information technology power in order
to perform the auditing operations (Tennyson, 2013). The use of this technology in auditing
makes the auditors able in performing audit tasks that are performed manually; like the counting
the inventories, processing of confirmation responses, analysis of accounting data from big
samples and others. Most importantly, AI technology makes the auditors beneficial in the
process of reviewing documentation. For example, the name of PwC can be taken into
consideration for the wide adoption of AI in their auditing operations. PwC favors the use of

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‘sprint’ an agile AI software development model that is used to define the working model of the
clients for gaining higher accuracy (forbes.com, 2018).
Challenges for Auditing Profession under Australian Auditing Model
The above discussion sheds light on the major opportunities that the auditors can get from
the Australian auditing model. However, it needs to be mentioned that the auditors also has to
face certain challenges from the Australian auditing model. It is mentioned in the above
discussion that the auditors have to comply with the ethical principles and standards while
conducting the audit under Australian auditing model and for this reason, the auditors have to
face some major ethical challenges.
From the provided scenario, it can be seen that there are many instances where the
auditors have been restricted from making the right audit judgment due to the pressure from the
management of the client and the senior audit members. The pressure from the management of
the client organization on the senior members of the audit firms is the main reason for this as the
payment of the audit fees by the clients largely depends on the favorable outcome of the audit
(Helliar & Bebbington, 2004). It needs to be mentioned that this particular situation involves the
violation of the independence of the auditors under the Australian auditing model. According to
APES 110, Section 100.12, there will be threat of auditor’s independence in case any audit
member is deterred from acting objectively due to the presence of actual or perceived pressure
(apesb.org.au, 2018). Thus, by applying this regulation in the present situation, it can be said that
the management of the audit client companies is creating pressure on the auditors not to act
objectively that is to take the correct audit decision by relating this to the audit fees. This aspect
leads to the development of Intimidation Threat of audit independence. For this reason, it can

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be said that the auditors are facing the challenge related to violation of audit independence under
the Australian auditing model (Pennington, Schafer & Pinsker, 2017).
In this case, the case of ABC Learning can be presented. Simon Andrew Peter Green, an
auditor of Pitcher partner, was responsible for the audit of ABC Learning. He was accused for
the adoption of illegal accounting policy for the treatment of revenue and earnings that was the
main reason for the collapse of the company. In this case, Mr. Green violated the principle of
audit objectivity by not complying with the required audit standards for his own interest
(smh.com.au, 2018).
In another part of the provided situation, it has been mentioned that the auditing firms are
the capitalists enterprises that largely depends on the client companies to generate income; and
this particular aspect leads to the violation of auditing principles along with developing the threat
of audit independence (Sikka, 2009). According to APES 110, Section 20, Objectivity, it is the
obligation on the auditors not to compromise the business or professional judgment due to the
presence of any bias, conflict of interest or any other influence as this can lead to the violation of
the objectivity principle of auditing (apesb.org.au, 2018). In the provided situation, it is
mentioned that the audit clients have the capacity to make the auditors silence that is to restrict
them from providing the actual audit opinion about their organizations by providing them with
huge amount of fees. This aspect indicates towards the violation of the auditing principle of
objectivity. This aspect also puts question about the independence of the auditors. It needs to be
mentioned that there will be occurrence of the threat of Self-interest Threat of audit
independence in case the auditors have financial interest in the audit client that can influence the
appreciate audit judgment (Ojo, 2013). Thus, as per the provided situation, in case the auditors

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compromise the professional judgment by coming under the influence of the audit client, there
will be development of the self-interest threat of audit independence.
The collapse of HIH Insurance can be referred in this context. It can be observed that the
auditor of HIH Insurance, Arthur Anderson provide the company with ‘all clear’ permit in the
financial accounting when those accounts involved major financial frauds. In this context, it
needs to be mentioned that Arthur Anderson did this deliberately for the fulfillment of his own
financial interest. Thus, this action of the auditor created self-interest threat of audit
independence (abc.net.au, 2018).
From the above discussion, it can be observed that the auditors of Australians have to
face some major challenges under the Australian auditing model while compiling with the ethical
standards of the audit profession. The above discussion indicate towards the fact that there are
certain loopholes in the Australian auditing standard that provides the opportunity to the audit
clients to trade off the ethics and independence of the auditors with the audit fees (Everett &
Tremblay, 2014). As the auditing firms are capitalists in nature, sometimes they have to
compromise their professional and business judgment in order to gain higher audit fees so that
they can ensure their survival. At the same time, it can also be observed that the auditors
compromise their professional opinion and judgment in order to fulfill their own interest that
leads to the creation of the threat of audit independence (Pitt, 2014). Hence, it can be observed
that these are the major challenges that the auditors face under Australian auditing model.
Apart from the advantage of AI, the auditors also have to face some major challenges
related to the application and use of AI. It is the responsibility of the auditors to consider both the
strengths and reliability of the audit evidences along with the fact that whether they are relevant

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to the issues or not. Only the humans can think about these aspects like certain issues, relevant
disclosure of the financial statements by complying with the required accounting standards, the
presence of fraud, errors and manipulation in the financial statements, the underlying accounting
assumptions and others. It needs to be mentioned that AI software will not be able to venture into
this aspects. For this reason, the auditors face major challenges while using the AI in the audit
process (Tennyson, 2013).
Recent Regulatory Attempts in Australia to Improve Audit Quality
The following discussion shows the recent regulatory attempts in Australia that have been
taken to improve the audit quality:
Australian Securities and Investment Commission (ASIC) is considered as a key
regulator under the Corporations Act that has the responsibility for the surveillance, investigation
and enforcement of the requirement of the financial reporting for the Corporations Act and the
regulations of registered company auditors (RCA) (frc.gov.au, 2018). This aspect also includes
the enhancement requirements of auditor’s independence and audit quality. For this reason,
ASIC has taken the initiative of inspecting the audit firms in order to conduct surveillance on the
audit projects covering all RCAs (frc.gov.au, 2018). It needs to be mentioned that this
surveillance program of ASIC helps in the promotion of high quality external audit of the
financial statements of the Australian Security Exchange (ASX) listed companies. Under this
process, ASIC provides the audit entities with a confidential inspection report and the firms are
required to respond to this report about how they will deal with the issues identified related to
audit quality (frc.gov.au, 2018).

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Apart from this, ASIC also publishes another report by stating all the issue related to the
quality of audit in the companies and the audit quality inspection program (frc.gov.au, 2018). In
this context, the result of ASIC’s most recent public report can be mentioned that was published
in 30 June 2012 and this inspection program included 20 Australian audit firms. The results of
the inspection show the fact that 18% of the auditors did not perform all the necessary processes;
in order to obtain reasonable assurance about the fact that the financial statement are not
materially misstated (frc.gov.au, 2018). After obtaining the results from the inspection, ASIC
takes the necessary steps so that the quality of the audit operations can be maximized. Thus, this
is a major regulatory attempt to improve the audit quality (frc.gov.au, 2018).
Another major regulatory attempt can be seen from the side of the Australian Auditing
and Accounting Public Policy Committee (APPC). As per APPC, the audit firms can increase
the audit quality by providing the right audit opinion; and for this reason, both input and output
factors play an integral part (frc.gov.au, 2018). Thus, in order to ensure the improvement in the
audit quality, APPC is cooperatively working with FRC to address the issue related to the audit
quality of the outcome-based audit that includes exploration of the views of the company
directors and investors on the audit quality issues (frc.gov.au, 2018).
Apart from this, APPC is holding discussion with the stakeholders of the business
organizations on the fact that whether the companies are required to include more forward
looking financial statements so that they can provide the auditors with more specific information
for conducting the audit of the companies (frc.gov.au, 2018). At the same time, intuitive from
IAASB can also be seen. It needs to be mentioned that IAASB is consulting for the proposal of
enhancing the reporting of auditors globally. For this reason, IAASB has proposed a draft
seeking the view of the shareholders on how to improve the quality of auditing in the auditing

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firms (frc.gov.au, 2018). Some of the major components included in this exposure draft of
IAASB for increasing the audit quality are ISA 70, Communicating Key Audit Matters in the
Independent Auditor’s Report along with the number of proposed revised of audit regulations
including ISA 700, Forming an Opinion and Reporting on Financial Statements (frc.gov.au,
2018).
Conclusion
From the above discussion, it can be observed that the auditors of Australia face both
opportunity as well as challenges while complying with the regulations of Australian auditing
model. It can be observed from the above discussion that the auditors get the chance to select the
appropriate audit procedure based on the nature of the audit engagement and it can only be
possible while complying with the Australian auditing model. At the same time, the auditors
become able to maintain professional skepticism as well as delivery of correct professional
judgment with the help of Australian auditing model. The above discussing indicates towards the
fact that the auditors have to face major ethical challenges while complying with the Australian
auditing standard. For this reason, the auditors have to face the violation of objectivity principle,
occurrence of self-interest threat, intimidation threat of audit independence and others. The
above discussion shows that has been the introduction of some major regulatory attempts from
the regulatory bodies like ASIC, FRC, IAASB, APPC and others to increase the audit quality.