Case Review Of Auditing In China

The audit profession is a relative new comer to the accounting world. The Industrial Revolution, with the growing business sector, was the spark that resulted in auditing techniques being sought out and utilized. Initially, audit techniques and methods were adopted by companies to control costs and detect fraud, which is more closely aligned with internal auditing. However, the need for mandatory oversight of public companies was recognized after the great stock market crash of 1929 (Byrnes, et al., 2012). This brought about the Securities and Exchange Act of 1934 creating the Securities and Exchange Commission (SEC). At that point, the SEC was tasked with

Audits here in America scare some people but in less developed countries its just another obstacle in the way from getting a shipment shipped quickly and cheap. The first reason audits are becoming less effective is because of fraud. Auditors have to going into a factory and try to find out whether or not that factory is using child labor and hiding it or by falsifying paper work that says they are old enough to work. A lot of the time workers lie about conditions for fear of being

In the Enron case, The Securities and Exchange Commission (SEC) and Congress conducted an investigation into Enron's collapse. The authorities re-examined the roles of corporate watchdogs, including corporate boards of directors, auditors, investment banks, credit rating agencies and lawyers. It could be that the watchdogs had too tight relations with the company's executives. That is why no one questioned the Enron's aggressive accounting strategies. To prevent such collapses, someone needs to look into the possible conflict of interest. The dilemma is that auditors should perform in the interests of the investors, but they are paid by the audited company, which makes it more difficult for them to exercise tough decisions. The auditors should not perform some particular consulting services for the firms that they audit. Another belief is that there should be more severe consequences for those committing financial crimes and causing fall of the companies.

“Outside auditors play a crucial role in our nation’s financial system. As the watchdogs of corporate accounting, they are supposed to protect investors” (Hilzenrath, 2010). The question is how effective are these outside auditors in protecting investors? When you think about the failures that have occurred: Enron, WorldCom, Adelphia, Tyco, and Global crossing to name a few, one would really question the effectiveness of these outside auditors. As a result of these failures, Congress pass the Sarbanes Oxley Act of 2002. This act in turn created the Public Company Accounting Oversight Board (PCAOB) to police the outside auditors and ensures they are protecting the investors.

The SEC has a strong case against Goodbread for violating his independence because as it is stated on the AICPA’s website, “Independence shall be considered to be impaired if: During the period of the professional engagement a covered member was committed to acquire any direct or material indirect financial interest in the client.” (aicpa.org 101-1). In Goodbread’s case this refers to the fact that he had shares of stock (direct financial interest) in his possession when he was the audit engagement partner who oversaw the audit of Koger Properties, Inc.

In the United States, the 1934 establishment of the Securities and Exchange Commission (SEC) ensures that reliable and complete financial information is available to investors (Hoyle, Schaefer, & Doupnik, 2013). Since its formation, “the SEC has administrated rules and regulations created by a number of different congressional actions” (Hoyle et al., 2013, p. 552). Nonetheless, external auditors were not regulated and conducted both audit and non-audit (i.e., consulting) services for the same organization; thus, creating a conflict of interest. Moreover, board of directors were not

In the year 2002, the US reached a land mark decision when the Sarbanes Oxley act was finally affected into law which principally changed the way auditing and financial reporting was being conducted. This act was prompted by high level frauds that public companies engaged in with regard to financial reporting and auditing practices. The act therefore recommended the setting up of a Public accounting Oversight board which was mainly to conduct regulatory and supervisory roles in auditing public audit firms and individual auditors. This was done through establishment of proper quality control measures on the work of auditors to minimize the audit risks that firms could face while conducting their work. The Ligand Pharmaceuticals case

The Sarbanes Oxley Act of 2002 enacted many new legislations including the creation of the Public Company Accounting Oversight Board, which inspects audits of public companies, increased regulations on auditor independence, prohibiting certain non-audit activities, increased corporate responsibility of company executives and management for financial reports, timely and accurate disclosure requirements, and management’s responsibility to design and test the effectiveness of internal controls. These legislations are just a few of the key sections of the Sarbanes Oxley Act among many others and have has a great impact on public auditors and the audit process of public companies. Although many of these new requirements and regulations require more detail, time, and money to implement, they help to protect the public interest of investors and restore the public’s trust in auditors and the financial reports of corporations and business that must follow the policies the forth in the Sarbanes Oxley Act.

The rules regarding auditing can be viewed as a double-edged sword. Firms have to cannot be audited by the same auditors after 5 years of being audited by any particular firm. (SARBANES-OXLEY , 2006)This is intended to have the auditing firms be more independent of the firm it is auditing. In addition, provisions have been put in place regarding when and how an individual who worked at an auditing firm could work at a firm at which they participated in an external audit. This can lead to a significant cost increase at some

Investigation and discipline of registered public accounting firms for violations of relevant laws or professional standards.

UK’s Combined Code on Corporate Governance only recommends that audit committees develop policies to govern the future provision of non-audit services, but does not require a pre-approval of non-audit services by audit committees. No specific enforcement mechanism ensures that management does not become involved, directly or indirectly, in selecting auditors or determining audit fees and the scope of audit. Ethical code requirements should focus to a greater extent on the issue of to what extent client management may still be able to influence the audit fee and the scope of audit engagement.

Since the enactment of the Sarbanes-Oxley Act and the economic downfall following the financial scandals of Enron, Tyco and WorldCom, there has been a heightened expectation fallen upon auditors. The public relies on the auditing profession to detect fraud and material misstatement and potentially prevent economic disasters, similar to what occurred in the early 2000’s. As auditors are required to provide due diligent care to the users/shareholders it is now being suggested by multiple publications that identifying fraud risks during an audit engagement could increase auditors’ liability. Scholars and practitioners have expressed concerns suggesting that the United States legal system in cases of undetected fraud, penalize auditors for investigating fraud risks. And if this to be true, why are auditors’ being scrutinized for simply following auditing standards? SAS no.99 (Statements on Auditing Standards) provides standards and guidance auditors’ are required to follow while considering fraud during a financial statement audit. This includes identifying fraud risks, assessing, evaluating and responding to the identified risks and lastly documenting the considerations of fraud. The article written by Andrew B. Reffett, “Can Identifying and Investigating Fraud Risks Increase Auditor Liability?” examines these liability issues by conducting an experiment that tests whether or not an auditor is liable after

Abstract:The purpose of this research paper is to discuss the proper level of segregation between audit and non-audit services, to ensure independence and instill public confidence. In the wake of numerous accounting scandals of Enron, WorldCom, etc, the importance of auditor independence has been brought to the forefront of the accounting profession. The U.S. Public Company Accounting Oversight Board (PCAOB) has taken a strict stance on auditor independence, which signifies that an auditor cannot provide business advisory services without impeding their autonomy. However, an analysis of the current auditor-client relationship reveals contradictions to the interpretation of absolute auditor independence. In recent developments,

Auditors provide a key investigation function in the business world. The law in relation to the liability of auditors changed significantly with the introduction of Companies Act 2006. It is now possible for audit firms to limit their liability towards clients through contractual agreements. The current auditing liability regime has proven to be controversial. This essay will first present the relevant liability rules and examine the underlying problems, then evaluating the significance of these rules with regard to auditing reforming.

The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.