Management Integrity And Audit Essay

Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.

This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

The nature and extent of the audit work to be performed on a particular engagement depend largely upon the effectiveness of the client’s internal control in preventing or detecting material misstatements in the financial statements. Before the auditors can evaluate the effectiveness of internal control, they need a knowledge and understanding of how it works,what control exist and who perfoms them, how various types of transactions are processed and recorded, and what accounting records and supporting documentation exist. The auditors must have a sufficient understanding of the design and implimentation of internal control to plan the audit.

Independence is a very important element in auditing. Because of the Enron Corporation and other scandals, independence of auditors becomes a vital issue in the audit industry. It is difficult to achieve ‘independent’ for auditors as there is the fact that the client pays the audit fee. In this essay, we will focus on the independence of internal audit.

We present a summary of these implications in Table 1. The literature review primarily features research published in academic accounting and auditing journals. In an effort to capture the latest research available—as well as research on emerging topics, such as many of those precipitated by the passage of SOX—we also include working papers submitted to major archiving services. We searched electronic databases such as Ingenta, ABI/Inform, and American Accounting Association (AAA) Electronic Publications using keywords or combinations of keywords related to the various topics and subtopics discussed in this paper. We also searched Social Science Research Network (SSRN) and scholar.google.com to identify relevant working papers. Working papers were included on the basis of the relevance of the research to the audit communication process and on the assessed reliability of the results and implications. The overall objective is to ensure that the information provided is as relevant, complete, and reliable as possible.

Business organizations are now being challenged to review, alter, and appraise their undivided business to satisfy the established needed misdate of compliance for monetary coverage. As a result, internal auditing and also the company management setting are retained exaggerated attention and resources necessary to adjust to the vigorously enacted legislation. Government Management and Boards of Administrator’s are trying to internal audit these days with a way of urgency to supply them with tier of trust on the general company management setting. Before their external auditors provide any evidence of an ineffective administration setting.

Researches about audit pricing started in the 1980s with the publishing of Simunic (1980)’s The pricing of audit services: Theory and evidence. He set out the multiple regression model of audit pricing and run the regression analysis using data from 397 listed companies in USA. Simunic took the position that “audit fees are determined by the loss exposure of the client comlany, the apportionment rate of loss between the audit firm and the client company, and the production function and characteristics of the audit firm”. The results of his study demonstrate that the scale of an auditee is the most significant factor determining its audit fees, despite other factors, such as the ratio of receivables to total assets of the client company and

This prevents irresponsiveness thus making leverage and opportunity actualization possible. In case the officers concerned in fraudulent activities are caught, they should be subjected to face law accordingly. Accounting does not advocate for any unclear means of growth and penetration within the organization. Each player requires being given fair platform of expressing its issues and they should not be dominated by single party. People ought to free themselves from corrupt deals as they eventually result in tarnishing an organization’s ability to perform as well meet its long term actualization. Proper assessment of organization’s financial statements with the exercise being conducted by external auditors encourages clarity and limits possible instances of fraudulent activities from taking place.

Oftentimes, firms fail to put into place efficient internal controls that may unfortunately lead to corporate loss and even corporate failure. Under the authority of the Sarbanes-Oxley Act of 2002 (SOX), congress mandated that all public companies must establish and enforce a system of internal controls over its financial reporting. The role of an auditor is to evaluate these controls and issue an opinion with the goal of assuring that management

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.

ISA 315 Identifying and assessing the risk of material misstatement through understanding the entity and its environment stated that ‘Obtaining an understanding of the entity and its environment, including the entity’s internal control (referred to hereafter as an ‘understanding of the entity’), is a continuous, dynamic process of gathering, updating and analysing information throughout the audit. The understanding establishes a frame of reference within which the auditor plans the audit and exercises professional judgment throughout the audit.’[1]

On an ongoing basis Auditors perform methodical and independent reviews of paperwork, financial records, documents and receipts. Due to the complexity and difficulty nature of assessing judgment on audit reports, the necessity to determine if misstatements are material enough to be mentioned in the audit report and if the existing accounting position of the business or industry can be warranted is essential (Sun, 2016). With this information auditors are able to document and determine if the information presented can be verified and if it represents a true and fair standing of the company’s financial statement at that given point in time. Internal control deficiencies occurs in situations where the manner in which financial information that is reported is hindered by restrictions placed upon management and employees. Additionally, these boundaries hinders them from efficiently and accurately identifying misstatements while performing their daily tasks (Graham & Bedard, 2015). Based on established internal controls auditors are able to perform different procedures that are required to follow while performing an audit and also at the conclusion of an audit to detect Internal control deficiencies.

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.

The first factor is internal control system. As we know, the level of internal control system will significantly influence the inhere risk in auditing. Under the good internal control system, the quality of accounting figures is more accurate and acceptable. Hence, the level of auditing risk become lower and the auditor may reduce relative substantive test under his/her professional judgment. On the contrary, poor internal control will sharply increase the risk of auditing. To avoid auditing failure, auditors have to depend on their professional judgment and take large amount of substantive test. On the other hand, the level of an enterprise’s internal control depends on its management’s business judgment and their