Audit Quality Is Obtained By A Process Of Identifying And Administering Accounting Essay

Category: Accounting

Audit quality is obtained by a process of identifying and administering at both the level of the audit process and within the system and procedures of those firms to assure the high quality of their work and the resulting products that undertake external audit services. The objective and purpose of the audit quality are crucially depend on the auditor's knowledge and experience in the aspect of external party's unbiased review of the quality and effective of the work reflect the actual condition that supported by evidence. The question still to be answered in the guidance that is expected to enhance audit quality is this: What evidence provides valid, reliable information to give the person responsible for oversight confidence that the audit firm indeed promotes professional responsibilities as all members of the audit team perform their assigned tasks? An inquiry of the leadership of the auditor of the firm's human resources executive is not sufficient for appropriate and sufficient evidence to satisfy that the driver is indeed reflected in the culture of the firm.

During the late 1990s and early 2000s public faith in the external audit function had been dented by the verge of bankruptcy in the audit big firm due to severe lack of audit quality. For example, the high profile collapses of Enron in 2001 and WorldCom's bankruptcy in the following year was attributed as the biggest audit failure. Refer to the announcements by Financial Reporting Council (FRC) in the UK, a discussion paper entitled 'Promoting Audit Quality', a statement introductory paragraph makes clear the impact of the recent auditing scandals: "Following the high profile collapses of Enron and WorldCom and the demise of Andersen, the quality of financial reporting and the effectiveness of the audit process have been the subject of unprecedented analysis, review and reform over recent years." The FRC states explicitly the important role that financial reporting plays in effective operations of capital markets. It also states its belief that "the audit is fundamentally sound and appropriate to achieve its objective-namely a reliable and objective audit opinion." In 2009, several multiple commercial banks collapsed due to the financial crisis also tend to reduce the confidence in audit quality. Sometimes, there are interaction between the audit quality and corporate governance. The improvement of corporate governance can improve the quality of the audit by Certified Public Accountants Auditing (CPA) and to commercial banks. Typically, the poor performance of audit triggers the root cause of the banking risk. Hence, the company failures, banking risk and financial scandals have clearly descripted the current environment and reduced public confidence in audit. As a result, various initiatives emerged to improve the professional oversight and professional work standards. FRC's initiative in issuing 'Promoting Audit Quality' result in many respondents to discuss the current external audit issues in UK. Thus, FRC have a significant role to improve confidence in audit quality.

Within the UK, the audit developments are showing clearly the outline and reflect on the auditing failure in the US. In 2004, at the request of the Secretary of State for Trade and Industry, the Institute of Chartered Accountants in England and Wales (ICAEW) that overseen by the FRC established the Audit Quality Forum for the purpose of improvement in audit quality and maintain the trust and confidence in corporate reporting. Thus, the forum is like the communication medium for discussion to enhance the audit quality that brings together shareholder, investor, auditor, business and regulatory bodies to identify their needs. The professional oversight level and professional work standards in the UK are equivalent to the international level. The International Auditing and Assurance Standards Board (IAASB) is acceptable in the worldwide because it provide international services to govern audit, review and others. IAASB have issued International Standard on Quality Control (ISQC) (UK and Ireland) 1, Quality Controls for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements and International Standard on Auditing (ISA) 220, and Quality Control for an Audit of Financial Statements. ISQC is important for auditors to carefully consider the requirements that apply to firms in respect of all their services under Engagement Standards. ISQC look at the forum of the professional requirement in the four big firm, they are Deloitte Touche Tohmatsu, KPMG, Ernst & Young and PwC. Whereas, ISA written in the context of an audit of financial statements by an independent auditor with the requirement of using the word "shall" and the necessary of the auditor with relevant in the circumstances of the audit. Besides that, the European Union adopted a Directive in 2006 also attempt to improve confidence in capital markets by strengthening the audit quality and independence in the company accounts.

UK regulatory oversight and compliance implementing in international auditing standards is a part of the FCR that known as Professional Oversight Board (POB). POB support FCR to improve the public confidence by providing quality assurance, setting professional work standards and enforcing discipline. The board also operates an Audit Inspection Unit (AIU) that responsible for the monitoring independent framework for the regulation of the audits in UK and identified the needs for other major public to obtain information rather than the audit report which comply with professional and regulatory requirements. The other visible initiative in regulatory oversight is Reports on Standards and Codes (ROSC) which using the key standards and codes to determine the degree of emerging and developing countries. IFAC is one of the regulatory oversights that responsible to increase its focus in the effectives of global compliance issues. From an international perspective, the International Forum of Independent Audit Regulators (IFIAR) is sharing the audit experiences and associated regulatory activities between external auditors in the audit regulatory agencies. However, although there are various initiatives emerged to improve audit quality, but it seems that all is not very good performance in the external auditing. The AIU stated that some audit firms are failing to meet the required standards of audit quality.

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