While professional standards require auditors keep objectivity, integrity and not knowingly make false statements (American Institute of Certified Public Accountants [AICPA]1998)), research suggests that auditors can be affected in various ways by occupational, chronic, and other pressures (DeZoort 1997; Lord 1997).
Many of the research that has been done (e.g. Hackenbrack 1996; Ng 2003; Hatfield Jackson, Vandervelde 2011), has focused on client influence. This suggests that clients can bias auditors so that they will usually justify client-preferred practices.
There are two types: implicit and explicit client pressure.
Client pressure is when a client articulates clearly his or her position, and the desired outcome. This is common in audit client negotiation contexts (e.g. Bennett Hatfield and Stefaniak 2015.
Implicit pressures on clients are pressures that are implied but not stated.Required.
Please explain what implicit and explicit client pressures are in relation the auditor / client relationship.2.
Get some help by reading the following:
The Future and Current Status of the Audit Profession.
Miklos A. Vazarhelyi, Rebecca Bloch, Danielle R. Lombardi (2015) Current Topics in Auditing, Spring 2015. Vol. 9, No. 1, pp. P10-P16.
The Evolution of Auditors- How skillsets changehttp://www.pwc.com/us/en/cfodirect/assets/pdf/auditing-evolution-technology-driven-skillsets.pdf
Consider these next:
Accountants are T.Rex-like.
Accountants are some of the loudest dinosaurs.
They are fierce and can easily tear apart an auditor’s Zara, Van Heusen or coat with their terrifying teeth.
On the other side, auditors are like Argentinosauruses.
Yes, those big ones.
With their necks sticking out the clouds.
They can see the whole world from up high.
Describe the process of auditing and the role of its auditor.3.
You can reconcile the top 2 pictures and the bottom 2 pictures when auditing.
Answer to Question: BUACC3741 Auditing
Introduction This study is about evaluating various aspects and assessing their importance in the current commercial era.
Three questions are asked to split the study into two parts: how do auditors feel about changing roles and responsibilities, and what their opinion is based upon analysis. 1.
Every auditor must deal with pressure, whether they are academically or professionally.
A client’s management, as well as within an organisation, can cause pressure on an auditor.
The pressure from clients’ management is called explicit pressure. Pressure from within the organisation is known implicit pressures.
In the following discussion we will attempt to analyze the interaction between two types of pressures which influence the judgments of novice and expert auditors as regards the acceptability of a client’s recommended financial policy.
Explicit pressure: Client’s management will express their position and expectations.
Client’s Management put pressure upon auditors by intimidating them.
Threatening them with the end of their existing relationship. We know this is not part the negotiations between audit partner, client’s management.
The client’s management may also exert pressure, but not be intimidating.
They can be more permissive in the interpretation of GAAP for the particular period and offer higher fees for it if they are lenient in reporting it (Asare, Cianci, 2009).
Auditors who feel challenged by client management can trust professional standards for their protection and independence.
Client’s Management could also influence auditors by facilitating him to concentrate on how both parties’ interests can be aligned.
The auditor can shift his focus to this mutually beneficial win-win situation.
A decrease in quality audit services is caused by the presence of pressures.
Auditors who feel that their professional judgement is being challenged by the client can rely upon professional and ethics standards for guidance. These standards will provide guidelines on how to protect and maintain their autonomy as well as how to ensure adequate professional scepticism.
It is also well known that audit firms face increased fees because of increased competition.
They are now moving to practice management systems that put explicit and increasing pressure on the auditors to retain profitable clients (McCracken Salterio, Schmidt, 2011).
Implicit Pressure, or Within Audit Firm pressure: Audit firms have experienced increasing fee pressure over the past 30 years due to increased revenues in rival firms. Audit managers have also changed their approach and put pressure on audit partners for profitable clients.
Audit firms now insist on relying on the relationship market to reach their growth and profitability goals, despite being skeptical of some experts in this area.
Relationship marketing can be described as building, maintaining and developing customer relationships through providing service that keeps customers loyal.
Bazerman and Moore (2011) found that there are some factors that can trigger the motivations of an auditor. Based on their motivated reasoning assessment, they concluded that both commercial and personal motivations may be active and that auditors will instinctively analyze the situation in relation to the dominant motivation.
The auditor automatically conforms to the dominant logic of the business when a client implicitly communicates his preferences with respect to the mutual interest of the client management, and not challenging the professional self-identity of the auditor.
The commercial motivations of the client.
The auditor may interpret the facts as best he can in conformity with the client’s preferred accounting methods.
Furthermore, negotiations with the client about the same will likely include strategies that are more accommodating and conceding than the initial position of an auditor (Fu Tan and Zhang (2011)).
Understated implicit pressure from the client is meant to increase awareness of their shared interest and encourage acceptance by the auditor of the directional objective. This will help the client management achieve their desired business outcomes. 2.
Auditing Auditing involves independent review of financial information, regardless of size.
Simply speaking, auditing refers to the examination of books of accounts.
Auditing doesn’t just cover financial statements. It also covers non-financial items.
Audited financial records are expected be useful and timely in decision-making.
Auditing must be flexible in order to continue being a valuable service.
It is essential to clarify why auditing exists. To obtain a loan. To comply legally with investor requirements. The primary objective of auditing to the owners is to determine if the financial statements present a fair, true and complete picture of the company’s financial condition. The income statement shows the true profit and loss of the year.
Auditing also has the secondary objective of detecting frauds or preventing them from happening.
This secondary objective follows the primary goal, which is to verify that the financial books are correct (Andenas-Chiu, 2013).
Future of audited finance statements Technology is changing quickly.
The auditing process to prepare audited financial statements should be automated in order for stakeholders to understand.
Every company has its financial statement. This was before the internet.
Stakeholders are not informed about losses until they are published.
Now, companies can update their statement instantly through technology (Houghton (2010)
Auditors need to be all-rounders in terms of both knowledge and technological advancement.
Undergraduate and graduate courses are required to provide the basis for certain skills and abilities that auditors will require in a digitally driven market.
Auditors must adapt to the changing world of business and the influence of data is driving a shift in the skills required to succeed.
Experts predict that the profession will undergo significant changes in the next ten to keep it relevant and competitive.
Technology will make it easier to conduct more audits, and allow financial records to be audited continuously.
Some of this technology will be driven by an increased dependence on an external auditor.
Accordingly, there will be technological protections to ensure corporate safety and privacy (Worrell Gangi & Bush, 2013).
Even though audit judgment is still a key element in an audit’s effectiveness, electronic decision systems can help auditors make better and more consistent judgements.
Auditing is a vital and relevant field. It cannot be defeated by technological advances that may increase the effectiveness and efficacy. If it ceases to be worthwhile, it will become obsolete.
However, the importance of annual financial statements is decreasing.
Ten years ago, the possibility of a bookstore being a viable model was not possible.
There is less print these days, despite the increased use of smart devices.
PWC (2015). The auditors profession will not be happy to find themselves in the same situation.
Technology has a profound impact on all industries. The auditing profession is no different.
As technology is increasingly used in the market, it is important that auditing professionals are able to harness technology to analyse and capture more data.
Many audit companies are centralized their routine audit functions.
This allows the main auditor team to devote more time to non-regular area audits that require more evaluation and professional scepticism.
Experienced auditors should have the ability to think critically and be business-savvy (Lombardi Bloch & Vasarhelyi, 2015).
It is important to be able to combine technology and auditing earlier in a career. 3.
The third and first pictures of this illustration clearly demonstrate the relationship between the research done by the auditors and their opinions on financial as well as non-financial issues of the company.
A large organisation must have its financial statements audited annually by an auditor to comply with all legal requirements.
It allows stakeholders to assess the financial situation of the business and make a sound decision about the business entity.
Audit reports can be used to help improve brand image and attract investors.
After reviewing companies’ financial statements and evaluating any material misstatements, an auditor gives his opinion.
Auditors need to follow specific rules and procedures in order to prepare the audit report.
Four types of auditors opinions are common.
A clean opinion: This is also known as an unqualified opinion. This is when the financial statements of the company are free from any defects.
This refers to the fact that the financial statements were prepared in accordance with generally accepted accounting procedures (GAAP).
This report is the best and most requested by auditors.
Opposition: It is the worst kind of audit report an auditor gives to any company.
It can cause a loss of goodwill for the company (Andenas & Chiu 2011).
It is issued when accounting guidelines and principles have not been followed or misrepresentations in financial statements are made.
It can also be a sign of fraud.
Company must reevaluate its financial statements in this instance and make improvements to them. Otherwise, stakeholders won’t accept it.
This report is issued when auditors are unable to prepare reports due either to missing material financial information, poor cooperation from the management, or conflicts of interest between the boards of directors.
The second and fourth photographs clearly show how auditors review every aspect of a financial transaction that has a material affect on the financial statement.
The company is an artificial individual and investors don’t have direct access, so the auditors appointed a board (McCracken Salterio & Schmidt (2011)).
To guard against frauds, the law requires that accounts must be verified by external auditors. The auditors then gave their opinion on the reports.
Auditors must give details to the investor and lender that they do not have right now.
For an auditor to arrive at a conclusion, he must first evaluate the documents.
Audit evidence refers the information the auditor requires to make a decision on the basis of their audit report.
Auditors must demonstrate whether there is a true and fair business position.
Audit evidence supports auditor opinions and audit reports.
Audit evidence is information that auditors gather about financial factors.
Audit evidence can be obtained by following these steps: Auditor reviews the initial accounting entries and cash memos. He also checks journal, ledger, journal and other financial adjustments. The auditor may also use minutes from meetings to support his decision (Fu Tan & Zhang (2011)).
Auditor might interview employees of company to confirm internal control. Auditor also gets confirmation by third party electronically or in writing.
Auditors may also request the terms of the agreement. External confirmation can go beyond the account balance.
Conclusion The study has shown that the role and responsibilities for auditors are constantly increasing due to growing requirements of governance and control.
Auditors have to make sure all aspects are covered. Before providing opinions on financial reports, they must carefully consider the material aspects.
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