Parmalat Case Answers Essay

The auditor¡¦s responsibility is to the client and not the third parties the client plans to distribute the financial statements to. The auditor does however consider the third parties when completing the audit. There is no direct responsibility to the third parties.

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

An important decision for any shareholder is deciding whether or not to do business with that company. When a business is audited, the operations are reviewed to make sure that nothing is being hidden. An auditor will review the company’s financial statement and practices to confirm that each are direct and correct. The financial statements are the business’s way of representing them and showing that they are following the Generally Accepted Accounting Principles. The audit process is an important one because it provides a platform for the auditor’s opinion concerning the financial statements of the company. As part of the audit process the auditor will conduct an audit plan that outlines a number of actions that he or she will be perform while also detailing the reason for those actions. With every audit, the business’s management is in charge of handing over the financial statements that the auditor will review; while the auditor will review the statements for any material or immaterial misstatements.

2. Briefly describe the key requirements included in the professional auditing standards regarding the preparation and retention of audit workpapers. Which party “owns” audit workpapers: the client or the audit firm?

This research paper analyzes the degree of an auditor's liability to clients and third parties under applicable law.

Note: Answer the questions as comprehensively as possible. Reference to Auditing Standards, your textbook, and other relevant authoritative sources is expected where appropriate. Even where some of the questions are quite general, try as much as possible to relate your answer to the case.

3) Do you agree with the assertion that accounting can lead to perceptions of reality? Explain. In deciding whether to adopt a proposed accounting standard, should accounting rule making bodies consider whether that standard might induce socially irresponsible behavior on the part of economic decision makers?

This title consists of 9 sections that instruct in the behavior of auditing firms and establish guidelines for external auditor independence. It also sets restrictions for clients outside of auditing boundaries and requirements for audit partner rotation.

Audit planning details change from client to client, no matter the complications presented. Each evolution of society’s business world prompts rule makers to update authoritative accounting standards in order to allow for changes, auditors are then responsible to certify their client’s financial reports adhere within compliance according to current authoritative standards. Many cite the Sarbanes-Oxley Act (SOX) of 2002 as being legislation that has had the most profound impact on the auditing profession; incidentally, an auditor’s job is to certify financial statements are a fair representation of a company’s financial position, at a given point in time, using current acceptable standards. Society deems auditors as gatekeepers and expects the auditing profession to find and report fraud, prevent fraud, and make certain financial statements are true, fair representation of a company’s financial position. Even though the rules, regulations, and generally accepted accounting principles can sometimes be difficult to find and translate, the public expects auditors to prevent events such as those that sparked SOX. The Financial Accounting Standards Board (FASB) developed the Accounting Standards Codification (ASC) that became the authoritative source July 2009 (FASB, 2009). Perhaps the hardest impact auditors experience with FASB ASC is attempting to ascertain clients’ FASB ASC references in disclosures on financial statements; “management cannot delegate this function to the

The goal of the accounting and audit professions is to provide statements and information on behalf of a firm that are reliable and relevant to users. In order to accomplish this goal, the accounting and audit professions have continuously evolved in order to meet the needs of said users. In this new age of accounting, we feel the need for accountants and auditors to further modify their methodology and process. With the focus of accounting and auditing staying the same, we in the profession must be sure to strive to produce valuable information to the end users.

3. A) If I were put in this situation as an equity investor, I would absolutely pursue legal actions against the auditors. If there was a

13. An auditor reporting on group financial statements decides to take responsibility for the work of a component auditor who audited a 70 percent owned subsidiary and issued an unmodified opinion. The total assets and revenues of the subsidiary are 5 percent and 8 percent, respectively, of the total assets and revenues of the entity being audited.

For nonpublic companies auditing guidance are issued by the American Institute of Certified Public Accountants, AICPA. Prior to PCAOB, AICPA served as the primary governing body of public accounting profession. Since the roles have changed with PCAOB regarding the auditing standards for public companies, the AICPA is still developing standards for the nonpublic companies. The organization has developed four fundamental principles that govern an audit conducted in accordance with GAAP. The principles are:

The auditor’s responsibilities are to audit annual financial statements and internal controls over financial reporting, and reports from the 10-Q quarterly reports. The auditor must also advice on new accounting pronouncements, and consolidating financial statements. (Intel Proxy Statement 2011, 48)

Auditing is one of the most critical fields where the external auditors are always subjected to criticism and legal regulations which are mostly directed against them. Mostly this criticism arises because of lack of sufficient understanding of how the company law and auditing standards work and also due to related misconception about the actual role of an auditor (Porter, 1993). This lack of understanding is called expectation gap where the outcomes of the audit expected and its actual purpose varies. One solution to this fundamental issue is to reduce this expectation gap by providing a clear definition of auditor's role and also the audit function that is required to be performed by him. However, during this defining phase, it is necessary to consider whether an audit rotation would reduce this audit expectation gap.