Auditing Report: Satyam Case Study, Audit Reports, and Stewardship

This report provides a comprehensive analysis of the Satyam (India) case, examining the role and purpose of audit reports, the ethical responsibilities of company management and auditors, and the concept of stewardship in financial reporting. The report begins with an introduction to auditing and the significance of independent opinions on financial statements. It then delves into the Satyam case, discussing the types of audit reports issued, including unqualified, qualified, adverse, and disclaimer opinions, and the extent to which these reports served their intended purpose. The report highlights the misleading financial statements presented by Satyam, the failure of auditors to identify window dressing, and the resulting financial losses. Furthermore, it explores the roles of company management and auditors in fostering ethical behavior, common good, and stewardship, emphasizing the importance of ethical codes, adherence to accounting standards, and the promotion of transparency and accountability. The conclusion summarizes the key findings and underscores the critical role of auditors in ensuring the integrity of financial reporting and the need for ethical practices to prevent future financial crises.

Auditing

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Why do think Mr. Medcraft made the above statement? Discuss..........................................1
Purpose and the audit reports issued for Satyam and extent to which audit report served the
purpose it purports..................................................................................................................2
Role of the company management and auditors fostering ethical behaviour, common good and
stewardship in relation to Satyam...........................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Auditing is the process of examination of an organisation's financial statements, records
and books in order to demonstrate if they are accurate in accordance with any applicable rules
(involving accepted accounting standards), regulations and laws (William, Glover and Prawitt,
2016). The main purpose of statutory auditing of books and accounts is to deliver an independent
opinion to the shareholders on the trust and fairness of the complete financial statements whether
they have been formulated in accordance with the companies act and reports by exception to the
shareholders and other major requirements of company law. Present report is based on analysis
of statements which is provided Mr. Medcraft, retired chairman of ASIC. Further, analysis of
Satyam (India) company case is also accomplished to provide understanding about the purpose
and audit reports issued for organisation. At last, roles of company's management and auditors in
fostering ethical behaviour, stewardship and common good are also discussed by analysing the
case of Satyam.
MAIN BODY
Why do think Mr. Medcraft made the above statement? Discuss.
Auditors play a critical role in ensuring that the Australian investors will be confident and
informed by organisation when making their financial investment decisions. Moreover, high
quality of audit supports the quality of financial statements and enable investors to rely upon the
independent assessment of financial reports (Hayes, Wallage and Gortemaker, 2014). From
several years, there are various deviations have found in that Auditors reports related to some
organisations. Some auditors have assured the misleading financial statements and accounts of
organisations. Huge Window dressing was found in company's financial statements and auditors
have provided their assurance for their financial benefits.
In the above statement, Mr, Medcraft has provided their concern about the level of trust
that shareholders can have in financial statements that are meant to be assured by auditors. They
have point out the risk which community from unethical behaviour of auditors by taking example
of ENRON case. Statement was made to provide information to government about the threat that
Australia could face due to misleading financial statements provided by organisation and assured
by auditors. They need to provide an understanding that the poor auditing of corporate accounts
will lead to financial crisis in the future for country.
1

Purpose and the audit reports issued for Satyam and extent to which audit report served the
purpose it purports
The Auditor's report is considered as a disclaimer which is issued by either internal or an
independent external auditors as an assurance service to enable the users to make investment on
the basis of audit reports. It is considered as an essential tool which is used to report the financial
information to users, particularly in business. According to Simunic, Ye and Zhang, (2017), the
auditors reports are the basis for investors to make appropriate investment decisions and earn
high return on investments. The purpose behind development of audit reports is to identify
whether the financial statements of organisation are prepared in all material respect or in
accordance with the requirements of applicable financial reporting framework as well as laws
and regulations. They are also developed for the purpose of accomplishment of accounting
practices that include management's judgement and decisions. While making reports, auditors are
responsible to ensure the adequacy of financial disclosures and also identify discrepancies in
financial statements. According to Gaynor and et.al., (2015), main purpose of audit report is to
determine whether the company's accounts are adequately described the applicable financial
reporting framework. Conclusion are made on the financial statements by expressing an Audit
opinion. These reports are mainly required by law if the organisation is publicly traded within an
industry required by the Securities and Exchange Commission.
In this context, there are various types of audit reports was issued for the Satyam India by
Auditors such as unqualified, qualified, adverse and disclaimer of opinion. Moreover,
unqualified opinion is also considered as a clean opinion or report which is issued by either
internal or external auditors to determine that whether each of the financial records provided by
business is free of any misrepresentations or not (Doxey and et.al., 2017). It also points out that
organisation has maintained its financial records in accordance with the standards. Qualified
report is provided in the situations when the organisation's financial records have not properly
maintained in accordance with laws but no misrepresentations are identified. Moreover, the
writing of this qualified opinion is as similar to that of an unqualified opinion. Further, adverse
opinion is analysed as the worst type of financial reports which can be issued to a business. It
reflects that financial record of firm is not in accordance with the standards. In addition to this,
statements or records provided by company are grossly misrepresented. In this type of case,
2

auditor needs to assure company to correct its financial statements and have it re audited because
lenders, shareholders and business partners will not accept it.
In some situations, when the auditor is unable to accomplish an accurate audit report is
known as disclaimer of opinion. This will also occur for various reasons such as absence of
appropriate financial records. In this case, auditors are responsible to issue a disclaimer opinion,
stating that an opinion of organisation's financial status could be determined. In case of Satyam
(India), it is analysed that company has provided misleading financial statement in which high
profitability was shown by organisation to attract the investors (AICPA, 2017). While having
information about this, auditors have provided them assurance of unqualified opinion which
stated that company records are maintained in accordance with GAAP accounting principles.
There is no misrepresentation in the financial statements with an aim of getting financial
benefits. Shareholders have made their investments at high prices and after that, company was
suddenly liquidated. Major losses were caused to the community only because of the wrongful
assurance which was provided by auditors to Satyam.
In this case, it was the responsibility of Auditors to identify the window dressing made by
Satyam in their financial records and provide them an adverse opinion to change the financial
statements. Adverse opinion was useful to prevent the users for making investment decision in
organisation. Moreover, in determining the nature and extent to which the Audit report served
the purpose it purports for Satyam (India), there is requirement some important Evidence such as
risk, requires more judgement and critical analysis of Evidence. It is all about corporate
governance and fraudulent auditing practices allegedly in connivance with the auditors and
chartered accountants (Glover, Taylor and Wu, 2016). The Company misrepresented its accounts
both in to its board, stock exchanges, regulators, investors and all other stakeholders. In present
case, Audit report has not served its purpose because risk associated with conducting Audit or
risk of material, Significant deficiency or important findings was mentioned properly mentioned
by Auditors. Assurance was provided on the basis financial benefits which organisation has
provided to its international and external four Audit organisation such as Deloitte, KPMG, PWC
and Ernst.
3

Role of the company management and auditors fostering ethical behaviour, common good and
stewardship in relation to Satyam
According to Anderson and et.al., (2017), management of every business enterprise has
the responsibility to promotion ethical behaviours in organisation by analysing that there is not
misrepresentation in their financial records. Auditors in the organisation is required to comply
with the International Federation Of Accountants (IFAC) Code Ethical for professional
Accountants such as Independence, integrity. Objectivity, Professional competence and due care,
Confidentiality, professional behaviours and technical standards. Ethical behaviours in Auditing
refers to providing freedom to internal auditors by organisation to point out the
misrepresentation, discrepancies and incorrect information and getting independent opinion from
auditors. As per the IFRS, it is essential for auditor of company to follow the accounting
standards which are made by government while conducting Audit and providing their assurance.
For the promotion of ethical behaviours, management needs to ensure that all the accounting
standards and principles must be followed by investors (Arens, Elder and Beasley, 2014). It is
also a misconception of organization that they have not provided their conception on agreement.
Moreover, it is also important for the management to develop its financial statement without any
discrepancies and analyse that they have to improve their business operations. For promotion of
Ethical behaviour is important role committee is to oversight the company's financial statements
reporting procedure and disclosure of its financial information to ensure that the financial
statements is correct, sufficient and credible (William, Glover and Prawitt, 2016). They also need
to provide them recommendation for the appointment, remuneration and terms of appointment of
Auditors of the organisation. Moreover, Auditors also tends to analyse the changes in accounting
policies and practices and reason for the same. Major accounting entries involving estimated
which are based upon the financial statements arising out of audit findings. Common good refers
to the benefits which is achieved by both stakeholders and organisation through ethical auditing
of financial records.
According to Hayes, Wallage and Gortemaker, (2014), management plays an important
role in fostering the common good between organisation and its stakeholders by analysing that
they will provide proper amount of dividends to their shareholders and also provide actual and
correct information about their profitability to their stakeholders. Through this, management will
tend to raise the supports of its stakeholder in making investments in their business operations. It
4

is also essential for organisation to get an effective analysis of financial statements which are
prepared to influence stakeholder for making investment decisions. Management must not
perform window dressing which implies to the action in order to improve the appearance of the
organization's financial statements. In case of Satyam, Window dressing of financial statement
was made by accountants of organisation on the instructions of management and employers. In
their financial statements, they have showed their retained earnings as their current years
profitability to increase the net profits (Kinney Jr, 2015). These major misrepresentation was
wholly conducted with the consent of management, employees and owners which has resulted in
major fraud that was identified by national stock exchanged when the firm was liquidated
immediately. No ethical behaviours was found in the management and Auditors who have
provided them assurance of Unqualified opinion in which they have stated that financial records
of organisations are correct and maintained as per standards of GAAP (Gaynor and et.al., 2015).
Stewardship is the sign of good governance which is analysed as ethics that embodies the
effective and responsible planning and management of company's financial resources. The
concept of stewardship has also been applied to the environment of business and financial
market. For promotion of ethical business operations, management of organisation plays an
important by making their business operations free from any type unethical work culture and
adaptation of ethical principles to carry out business operations (Doxey and et.al., 2017). Further,
Auditors also plays important role in fostering stewardship as they are important parts of
organisation and provide supports in increasing investment from market. As per Simunic, Ye and
Zhang, (2017), it is responsibility of Auditors to carry out an ethical analysis of company's
financial statements and provide correct audit reports without implementation of any unethical
practice. Implementation of ethical business practices in business will help the enterprise to
regulate business operations effectively. It is also important for the management to develop its
financial statement without any discrepancies and analyse that they have to improve their
business operations. Auditors also tends to analyse the changes in accounting policies and
practices and reason for the same.
CONCLUSION
In this report, it is concluded that Auditors plays an important role in fostering the ethical
behaviour, common good and stewardship. Auditing is the process of examination of an
organisation's financial statements, records and books in order to demonstrate if they are accurate
5

in accordance with any applicable rules (involving accepted accounting standards), regulations
and laws. Stewardship is the sign of good governance which is analysed as ethics that embodies
the effective and responsible planning and management of company's financial resources.
Auditors have to follow ethical principles while conducting audit of business enterprise and
deliver correct report that helps the users to make accurate investment decisions.
6

REFERENCES
Books and Journals
AICPA, 2017. Statement on Auditing Standards, Number 126: The Auditor's Consideration of
an Entity's Ability to Continue as a Going Concern (No. 126). John Wiley & Sons.
Anderson and et.al., 2017. "Comments by the Auditing Standards Committee of the Auditing
Section of the American Accounting Association on PCAOB Release No. 2013-009,
Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to
PCAOB Auditing Standards to Provide Disclosure in the Auditor's Report of Certain
Participants in the Audit: Participating Committee Members." Current Issues in
Auditing 8, no. 2 (2014): C1-C7.
Arens, A., Elder, R. and Beasley, M., 2014. Auditing and assurance services–An integrated
approach; includes coverage of international standards and global auditing issues, in
addition to coverage of the AICPA Clarity Project, PCAOB auditing standards, the
Sarbanes-Oxley Act, and Section 404 audits, 15. Aufl., Boston.
Doxey and et.al., 2017. "Comments by the Auditing Standards Committee of the Auditing
Section of the American Accounting Association on PCAOB Release No. 2015-004,
Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit
Participants on a New PCAOB Form: Participating Committee Members." Current Issues
in Auditing 10, no. 1 (2015): C1-C10.
Gaynor and et.al., 2015. Comments of the Auditing Standards Committee of the Auditing
Section of the American Accounting Association on IESBA Consultation Paper:
Improving the Structure of the Code of Ethics for Professional Accountants: Participating
Committee Members. Current Issues in Auditing, 9(1), pp.C12-C17.
Glover, S.M., Taylor, M.H. and Wu, Y.J., 2016. Current practices and challenges in auditing fair
value measurements and complex estimates: Implications for auditing standards and the
academy. Auditing: A Journal of Practice & Theory, 36(1), pp.63-84.
Hayes, R., Wallage, P. and Gortemaker, H., 2014. Principles of auditing: an introduction to
international standards on auditing. Pearson Higher Ed.
7

Kinney Jr, W.R., 2015. GAAS 1963-2012: The Global Foundation of Independent Audits and
Research in Auditing.
Simunic, D.A., Ye, M. and Zhang, P., 2017. The joint effects of multiple legal system
characteristics on auditing standards and auditor behavior. Contemporary Accounting
Research, 34(1), pp.7-38.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.
AICPA, 2017Glover, Taylor and Wu, 2016Anderson and et.al., 2017Arens, Elder and Beasley,
2014Kinney Jr, 2015
8