Audit Firm Size and Going-Concern Reporting Accuracy

However, the author argues that these audits have become increasingly ineffective. Identify and discuss at least three reasons why these audits are becoming less effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate (Louwers & Reynolds, 2007). We believe that the audit evidence obtained is sufficient and appropriate to provide a reasonable basis for our opinions.

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users (Boynton & Johnson, 2006). In auditing there are many attributes that describes the auditor’s work. Elements of the Generally Accepted Auditing Standards are followed by auditors. The Generally Accepted Auditing Standards apply to financial, operational, and compliance audits. Auditing public traded companies has been effected by the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board. Auditors have additional responsibilities because of

This research paper is being submitted on March 10, 2013, for Tiffany Krogman, A340/ACG3085 Section 03, Advanced Auditing Concepts & Standards.

Carcello, Hollingsworth and Mastrolia tested whether PCAOB annual inspections result in higher quality financial reporting (Carcello, Mastrolia, & Hollingsworth, 2011). They compare abnormal accruals reported by audit clients before and after initial inspections by PCAOB (Carcello, Mastrolia, & Hollingsworth, 2011). If the inspections result in improved auditing, they expect to see less earnings management after the initial inspection (Carcello, Mastrolia, & Hollingsworth, 2011). For comparison purposes, they make the same observations before and after AICPA peer review inspections made prior to SOX (Carcello, Mastrolia, & Hollingsworth, 2011). They find a significant decrease in income-increasing abnormal accruals in the first and second years

A review and an audit report are both a form of an attestation engagement. A Review, however, is less in scope so it provides a moderate level of assurance on the financial statements. It is considered a “sniff” of an audit, which comparatively provides reasonable assurance that no material misstatements occurred. Since a review deals with a limited scope, it does not provide the basis for expressing an opinion on the presentation of the

The Sarbanes Oxley Act of 2002 marked a significant change in the world of business with relation to auditors and public companies. In this paper, I will discuss the causes that led to the creation of the Sarbanes Oxley Act as well as key sections of the act that impact auditors and their effect on public companies and investors. I will also address the impact of the auditing standard no. 5 and how it pertain to auditors and public accounting firms.

7. a. The audit provides reasonable assurance that financial statement information is free of material misstatements. Decision makers can uses financial information to anticipate business opportunities and to make business decisions based with reasonable assurance that the information set used to make decisions is reliable.

Regardless of the amount of regulation, the study (as cited in Gibson, 2011) indicates the profession has not been fully restricted to a point where ethics and precision are not open to interpretation by its members, especially with regard to earnings management. Even with the enactment of the Sarbanes-Oxley Act of 2002 in response to several cases of financial fraud which increased the regulation of the industry and the attention the profession receives, the principles with which the professionals are given provide room for short term results to be manipulated (Gibson, 2011). Within the framework provided under the SEC’s regulation, those within the profession must be

This paper shows the analysis of the strengths and weaknesses of different discretionary accruals models in identifying earnings manipulation. The first paragraph defines earnings management and discretionary accruals as well as non-discretionary accruals. The following paragraphs after that will explain the different models that exist and how they work as well as their strengths and weaknesses. And the final paragraph will show a summary of the key findings and possible recommendations.

Audit quality is crucial for financial statements users and efficient capital markets. However, how to measure audit quality properly has been a controversial issue, because quality is not observable. With no uniform definition of audit quality, prior researchers developed various audit quality proxies. Earning quality is one of the most commonly used measure for audit quality. Client discretionary accruals, meet or beat earnings target, and likelihood of restatement are all under this category. Among those, discretionary accruals are the most widely used, because it is positively related to earnings management, which reflects audit quality. The purpose of this review is to summarize the most commonly used models to measure discretionary accruals by previous literature, and to help future studies to choose from these models when they are used as audit quality proxies.

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide

These days, people all over the world are facing difficulties in believing external audit services because of current drawbacks such as failure in corporation, current financial crisis as well as banking crisis. On the other hand, the professions in every country is trying their best to remove the doubts of the customers in every way to maintain their self - regulatory status. Likewise, the professions in UK also are endeavoring with might and main to reform to improve their audit and audit quality to make people reinforce their confidence in the financial markets and to win the public interest and the public acceptance.

Although the existing evidence on the impact of mandatory audit-firm rotation on audit quality and auditor independence is scarce, conclusions may be drawn from the arguments provided. Advocates of mandatory audit-firm rotation suggest that there is a negative relationship between the auditing objectivity and passage of time, resulting in an increased likelihood of fraud and material misstatements. Contrastively, opponents of mandatory rotation underline the higher costs and risk of material misstatements in the first years of audit tenure. Motivating that a lack of client specific knowledge may be associated with lower financial-reporting quality, opponents suggest that mandatory rotation results in an increased likelihood of audit failure and audit costs. To conclude, it is uncertain whether mandatory audit-firm rotation enhances auditor independence. In order to assess the advantages and disadvantages of mandatory rotation further research must be