Background Of Auditing In Kingdom Bahrain Accounting Essay

Category: Accounting

Audit quality and fees is one of the important talk and improved alongside with the economic development. A Google research found hundreds of news citations in two weeks. Most Academic and Professional Auditor would agree that audit is inspection and investigation of a company's books, ledger and records by a adequate accountant with expression of their opinion.

audit is check and inspection of record by auditor outside audit company to ensure client statements regarding the circulation figures of a publication. Auditing is done on an annual basis. The more circulation, will be increase in cost of advertising. www.allbusiness.co

Furthermore Audit Quality is review of any material change in financial statement and must be conformity with generally accepted accounting principles (GAAP).

The objective of a review differs significantly from the objective of an audit of financial statements in accordance with generally accepted auditing standards (GAAS). The goal of an audit is to provide opinion regarding the financial statements. RAFFA Company, level of service 2003

review may get auditor attention of important factor affect financial statement but may not provide aware of all significant matters in audit.

Audit quality have different views, First must be under regulatory requirement. Second audit firm must have deep understanding of companies operation and business environment. Third auditor experience use to identify and resolve earlier issues.

Continues with audit quality there is standards of Financial report .

The auditor in the financial report must be identify the circumstance in current period in relation to the preceding period. If auditor discover that information disclosure are not logically adequate, Auditor must stated in the auditor report. Financial statement must be express with auditor opinion but if auditor cannot state the opinion, auditor must says the reason in the report .Financial statement should be associated with auditor name with clarify auditor's work and the degree of responsibility on auditor.

Auditor tenure is important factor influence audit quality, First time auditing take long time to understand client business which may raise risk of omission material and statement. Shockley (1981) and Deis and Giroux (1992) debate that lengthy tenure cause more relaxed audit process, great dependence on management, In other hand less doubt and less of gathering evidence.

Cost of auditing is the process of ensure the production, marketing, sales and other aspect of business, accordingly to be organized in the most cost efficient and effective way. Auditing is tool of optimizing management in business. In other hand audit fees is limited to the costs paid to the external auditor by client.

determination of audit fees is by time, disbursements and subject of company records. for example, Audit company are not permit to charge lower commission than competitive company, unless audit firm display by professional employee, resource and will not affect quality. wiki.answers.com

Audit fees must be disclose in the note of the consolidated financial statement of each company and group. www.deloitte.com

Background of auditing in Kingdom Bahrain:

Kingdom of Bahrain have twenty four accounting firm, Five of these audit firm considered local and four of them are operating as foreign branches and the remaining are linked to international firms. The big four are Ernst & Young (E&Y), Deloitte & Touche (D&T), KPMG, and PricewaterhouseCoopers (PWC) .

Audit companies must work and operate with consideration of the ministry of Industry and Commerce's regulation and polices.

Moreover there are some conditions that an auditor must follow in order to be register in Bahrain ministry of Industry and Commerce, these settings include;

Must be Bahraini citizen (with the exception of members of internationally recognized accounting/auditing societies and holders of CA, CPA, or ACCA qualifications recognized by the relevant authorities).

Must be a Full eligibility of good behavior and reputation and there is no final court judgment passed against him influence his professional ethics, honor, integrity or public morals, unless he has since been reinstated.

To hold a Bachelor's degree in accounting or business administration with accounting from specialization university or institute and duration of study not less than 3 years.

To be have experience not less than seven years in auditing inside or outside Bahrain.

Under ministry of commerce audit firm must register as a partnership company "Branch of foreign company" or individual establishment.

Partnership company must be fulfill all requirement of auditor registration and All partner must be practiced auditing in licensed firm not less than Five years.

In other hand individual establishment must be register auditor and fulfill all requirement under ministry of industry and commerce, Must be practiced auditing for minimum five years. A license is valid for one year.

www.moic.gov.bh

In 2007 Labor Fund of Bahrain awarded two contracts to BDO Jawad Habib and Earnest & Yong to train 7200 Bahrainis to get the American and British accounting qualifications for 14.1 million Bahraini Dinar.

(www.lf.com)

To add to that, here is a brief description about some auditing firms in the Kingdom of Bahrain:

KPMG from the oldest audit firm in kingdom Bahrain established in 1968. KPMG provide audit, tax, and advisory services and offer clients a broad array of services complemented by significant in-depth technical and industry experience.

KPMG learn and develop their staff to turn the knowledge into benefit for their clients. KPMG is international company around the world.

KPMG deal with big company and Banks same: Bapco, almoayyed Batelco and HSBC Bank.

In 2006 KPMG state that audit committees are supervised of company's financial reporting process, related risk and control internal, external auditors of companies. www.kpmg.com

PKF Bahrain" Accountant and Business advisory" is member of the PKF International Ltd Network establish in 1995 spread in 119 countries.PKF provide range of services: Audit and Management Assurance, Management Consulting, Corporate Governance, Corporate Finance and Entry strategy. The partners of the PKF Bahrain are members of the American Institute of Certified Public Accountants and Institute of Chartered Accountants U.K.

PKF Bahrain perform high level of standard, independence and objectivity. Their goal to ensure client financial condition, assess risk exposure. PKF focus on the communication with client in timely, accurate, and cost-effective reporting.

PKF deal with small, medium companies and few of large companies same: Maki restaurant

pkfbahrain.net

In 1973 establish International Accounting Standards Committee (IASC), In 1st January 2004 found 34 applicable standards on different subjects of accounting.

Such as:

IAS 1 Presentation of Financial Statements

IAS 2 Inventories

IAS 7 Cash Flow Statements

IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes

in Accounting Policies

IAS 10 Events After the Balance Sheet Date

Based on Law of Commerce article 25 mandatory Businesses to remain all commercial book and notice for ten years from the date of closing books.

Under commercial companies law in 2001 each registered entity to produce its profit and loss account, balance sheet and managers' (directors') report for every financial year.

IFRSs is the most relevant acceptable standard in the business community with clear understanding presentation of financial information.

Doug Tait, Accounting, Auditing and Taxation in Bahrain

CBB imposed regulatory regime on the financial sector and supervision and licensing based on international standard. CBB required to increase the transparency of financial position for incorporated banks and required them to announce financial statements on a quarterly basis.

Moreover CBB obliged to protect financial sector from money laundering, financing of terrorism and risk of financial crime such as fraud on CBB.

http://www.moic.gov.bh/MoIC/En/MoIC+Centers/BahrainInvestorsCenter/BusinessEnv/FinancialRegulations/

The Central Bank of Bahrain (CBB) requires financial institutions to

be audited by one of the big audit firms, Also audit firms got two licenses, one to practice auditing and the second specifically to offer auditing services to financial institutions.

In 2002, Three of Big audit firm approved to audit for incorporated banks and the Fourth audit firm failed in the statement of incorporated retail banks. Central Bank of Bahrain have to specify guidelines experience of auditor, firm and number of partner

Companies in Kingdom of Bahrain should be comply with international financial reporting standards (IFRS), While accounting firms must comply with the international standards on auditing (ISA) also comply with financial accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Kingdom of Bahrain show low number of audit failures reports and not ensured that all listed audit firms are provide good quality, so client of audit firm may not complacent of quality of audit.

Eichenseher and Shields (1983) chief financial officers think that audit quality is consist of 11 items. These are ethical standards, audit fees, audit-team expertise, technical qualifications, meeting deadlines, reputation, geographical coverage, accessibility of the audit firm, industry expertise, working relationships and range of services offered.

Based on result the Big four audit firm have better quality because they have good implement of 14 factors, which is specialization, Independence, Industry Expertise, Technical competence in applying, Wide range of skills (GAAP & GAAS/IFRS & ISA), Real value for fees, Proactive, Takes initiative, Due care, Quality commitment, Professional audit expertise, Reputation, Ethical standards and Accounting & auditing Knowledge.

policy of CBB not allow the Non big four firm to for audit retail and wholesale banks and large investment companies

Bahrain Stock Exchange in 2007 shows that 82.5% of the companies are

audited by one of the Big Four.

Jasim Al-Ajmi,2009

Research Aim:

Our analysis aim to investigation between relation of audit fees and audit quality, In from service business prospection{ Audit Company in Kingdom Bahrain} and view the reason behind introducing this analysis and will show the effectiveness of the relation between audit fees and quality in everyday business activity and performance.

Moreover we will conduct a questionnaire survey and interview in order to analyze the management, employee and client view on the relation of audit fees and quality undertake by audit firm.

Research Objective:

Clarify the relationship between the audit fees and quality.

Factors that influence audit quality and fees in audit firm.

Explore how audit firm placed fees to client in different audit company in Kingdom Bahrain.

Effect of audit fees on Client in Kingdom Bahrain.

Competition between audit firm influence the Audit fees and quality.

Research Questions:

The Paper will try to look into the relationship between audit fees and quality in sample of ……… audit firm, and will try to answer following questions through qualitative case study research:

How does audit firm charges it customer on service?

If auditor increase their quality they will increase the audit fees.

How long does it take for a financial report to be ready?

How can audit company increase the quality?

Does the salary of auditor effect quality and fees of auditing?

What's satisfy Client?

Do competition between audit firms effect audit fees?

Significance of the Study:

We are trying to conduct the research which explores the advantage of understand concept of the relationship between audit fees and audit quality in kingdom Bahrain in domain service business. we developed our interest in audit firm, their use importance and therefore to study them further through this research study. Bahrain is very successful place for audit firm and business advice in service sector like other big international countries.

Today many companies, restaurant, shops and pharmacy needs to deal with audit firm, To help them to prepare financial statement and to check the validity and effectiveness of the internal controls in their company. Audit firm is part of today successful business so we need to look through relation of audit fees and audit quality.

Data collection method

In this project will use qualitative research which is use different appropriate collecting date or it's typically following method of gathering information.

Moreover Data will be obtained from two sources. Primary data is collection information by electronic storage information, documents, prior studies, archival records, Literature review and audit company website. Secondary data will be from survey" Auditor experts, consultant in auditing and Manger", direct observation, interviews and experiment treatment.

Finally The aim of research to gain culture's practices, motivations and be able to understand the culture of research experience.

Survey Methodology:

The survey target local and international audit company in Kingdom Bahrain. The questionnaire designed to collect large amount of information from large number of people in short period of time.

Questionnaire is analyzed scientifically and objectively than other method in research. Data discover from questionnaire used to compare and measure changes with similar research, Also it can help to create new theories or test existing hypotheses.

Moreover Questionnaire is initially designed to target managers, supervisor, accountant, internal and external auditor in audit company to measure the opinion and performance of audit. Questionnaire will be distributed in hard copies to sample of audit companies or will be send through emails.

Limitation of research:

The purpose of this study is examines the relationship between audit fees and audit quality, information regards this study is available in internet by documents, prior studies and commerce and industry ministry websites. But the problems that audit companies not shows all client name or the process of fees because it is secure information.

in other hand not all employees respond to my question because they might think that they will not benefit from responding perhaps even be penalized by giving their real opinion also there is difficulties to show their client financial report.

The output of our research would be based on the big and small audit companies, and I will try my best to depict the whole picture of audit in kingdom Bahrain.