Question:
Discuss about the Comparison of Audit Regulatory Regimes.
All over the world, Auditing is considered as one of the major professions. The auditing profession involves in the conduction of official financial inspection of the business organizations accounting and financial statements (Arens, Elder & Mark, 2012). In more precise words, it is the responsibility of the auditors to conduct a thorough inspection of the accounting and financial statements of the organizations in order to ensure that they ate free from any kind of material misstatement and fraudulent. At the time of conducting the audit operations, the auditors need to remind the fact that they are the agents of common public and the investors (William Jr, Glover & Prawitt, 2016). It has been noticed that the auditors of Australia have to face some major challenges under the Australian auditing model. Along with the challenges, the auditors of Australia also have to face some of the major opportunities. The major aim of this repost is analyze and evaluate the auditors’ opportunities and challenges under the Australian auditing model (Basu, 2016). After that, another major part of this study is to discuss about the recent regulatory steps taken by Australian audit authority in order to maintain the audit quality. This essay starts with an introduction. The next part of this essay includes the analysis and evaluation of opportunities and challenges faced by the audit professions under Australian auditing standards. The next step involves the discussion of regulatory steps taken to improve audit quality. Based on the whole study, a suitable conclusion is drawn lastly.
In Australia, auditing is considered as one of the major professions and people of Australia consider auditing as a noble profession. In this context, it needs to be mentioned that the auditors have to face with some of the major opportunities in the auditing profession. It can be seen that the world financial crisis has a huge effect on the economy of all the countries all over the world and Australia was included in that list. This financial crisis had some major effects on the auditing profession of Australia and this aspects leads to the development of a renewed interest in the roles and importance of the auditors in Australia. This particular aspect provides a strong signal about the strong growth of the auditing industry of Australia. Due to the effects of world financial crisis, the business organizations of Australia have become prompt to take actions so that the further effects of world financial crisis can be avoided (Knechel & Salterio, 2016). In this context, the auditors of the companies play a crucial part as they help the companies to develop a strong and effective internal control system within the organizations. Due to the effects of world financial crisis, the companies of Australia are realizing the importance of audit and assurance service for their companies. It has been observed that many Australian organizations did not conduct any audit operations previously, but now they are planning to undertake the audit operations for their organizations. They are realizing the need for the basis management principles for the identification of problematic areas in their business operations so they can get the chance to rectify them (Louwers et al., 2015).
This understanding of the Australian companies has been creating opportunities for auditing profession in Australia. This is because only the auditors play a crucial role in these organizations and they are able to conduct true and effective audit programs in order to detect major accounting and financial fraud in the companies; in addition, the auditors take part in the risk management process of the companies (Bell & Griffin, 2012). For all of these reasons, the Australian companies are hiring internal audit staffs or they are outsoaring the audit services in order to meet the audit requirements of the companies. This particular aspect leads to the employment of many audit employees in Australia. Due to this factor, the audit companies of Australia get good business opportunities. In the recent years, it has been seen that the business world all over the world is changing in a fast pace. These continuous changes bring complexities for the companies of Australia while handing the financial statements of the companies. This reason leads to the increased importance of audit operations for the companies. Greater amount of risks of the companies increase the role of the auditors. Out of this situation, the auditors get the opportunities to earn more and due to this fact, the companies are able to maintain sustainable growth for their companies (Houghton & Campbell, 2013). Due to the increased demand of auditing profession in Australia, the fees for the auditors become reasonable and it creates opportunities for the auditors.
Thus, from the above discussion, it can be said that there is a fare opportunities for the growth of the auditing profession in Australia. In this context, it needs to be mentioned that the increased opportunities of auditing profession in Australia has increased the role of the auditors in the companies and this aspect creates pressure on the audit professionals to main high level of audit quality. Three major factors that the auditors need to maintain at the time of conducting the audit operations for the companies; they are Quality, Transparency and Independence (Hope, Langli & Thomas, 2012). Apart from the above-discussed opportunities, some other opportunities are there for auditing profession in Australia. The process of IT Audit is creating large amount of opportunities for the auditing profession in Australia. With the help of IT audit, the auditors of the companies have become able to conduct the audit operations with the assistance of automated processes. In this context, the example of KPMG can be considered. It has been seen that KPMG has been collaborating with IBM for the adoption of artificial intelligence in the process of auditing. In addition, the expected future growth of both internal and external audit will create major opportunities for auditing profession in Australia. Thus, from the whole discussion, on aspect is clear that the auditing profession in Australia is growing with a good pace and this process has been developing opportunities for the Australian auditing profession (Christensen, Glover & Wood, 2013).
From the above discussion, it can be seen that there are major business opportunities for audit profession in Australia. However, it needs to be mentioned that there is not only opportunities, the audit profession has to confront with some of the major challenges in Australia. Some of these major problems are discussed below:
One of the major challenges for audit profession in Australia is the failure of audit due to fraudulent financial reporting. In Australia, there are many major corporate collapses due to the effects of fraudulent financial reporting of the companies. Due to the effect of fraudulent financial reporting, the creditors and the investors of the companies had to face with significant amount of losses (Lenz & Sarens, 2012). In some of the cases, the major reason contributed towards the collapse of large corporate houses was the failure of audit in those organizations. This is the major challenge for the audit profession as they are bound to produce the correct audit report. The auditors of the companies have to face with great difficulties in case they fail to produce the correct audit report for the companies. The auditors of Australia have to face with this issue on a regular basis.
Another major issue for audit profession in Australia is the inclusion of new legislations, regulations and auditing standards. It can be observed in the audit industry of Australia that the Australian audit authorities often come up with different kinds of new auditing regulations, legislations and standards. As per the instructions of the Australian auditing authorities, it is the responsibility of the auditing firms to completely comply with these new auditing standards, regulations and legislations. However, at the time of complying with these new regulations and standards, the audit professionals have to face great difficulties. In this context, it needs to be mentioned that based on the auditing standards and regulations, the auditors develop the audit plans. Each time there is an inclusion of new audit regulations and standards, the auditors have to change the whole audit plan. This is very much difficult for the auditors as it affects the audit operations of the companies (Hurtt et al., 2013). In addition, the inclusion new standards and regulations make the audit process more complex for the companies and the complex audit process requires more knowledge and skills from the auditors. Thus, it can be said that this is a major challenge for audit profession in Australia.
The next major challenge for audit profession in Australia is the increased audit costs and audit fees. In the recent years in Australia, massive rise in the audit costs and audit fees can be seen. This is a major challenge for the audit profession, as they have to deal with these costs. Due to the rise of audit costs, the auditors are bound to increase the audit fees. For this reason, the auditors have to incur large costs regarding staff salaries, the use of advanced technologies, insurance and others. All these reasons make it a big challenge for audit profession in Australia (Cannon & Bedard, 2016).
The next challenge for audit profession in Australia is to comply with the regulations of auditor’s independence and the provisions of non-audit services. The provision of non-audit services is creating major pressure on the auditors. On the other hand, non-audit services lead to the development of the threat of auditor’s independence (Bell & Griffin, 2012). It has been seen that non-audit services are strictly prohibited in the audit profession of Australia. It is the responsibility of the auditors to comply with the regulations regarding the provision of non-audit services. Thus, it can be seen that this is a major challenge for audit profession in Australia.
Another major challenge for audit profession in Australia is the audit expectation gap and the litigation of the auditors. Audit expectation gap is the difference between auditor’s opinion and client’s expectations. Earlier discussion shows that the business world has been changing in a fast pace; for this reason, the auditors of the companies have to comply with different kinds of regulations and auditing standards. Audit expectation gap contributes to the development of misunderstanding between the auditors and audit clients (Power & Gendron, 2015). This misunderstanding leads to the loss of confidence of the audit clients on the audit firms. It can be seen that sometime, audit expectation gap leads to the rise of lawsuits against the audit firms. Dealing with the audit expectation gap is a challenging task for the auditors. For this reason, audit expectation gap is considered as one of the major challenges for audit profession in Australia.
From the above discussion, it can be seen that there are some major challenges faced by the audit profession in Australia. In order to diminish these challenges and to bring quality in audit operations, the Australia audit authority has developed some major regulatory measures. Some of them are discussed below:
The Australian audit authority has introduced the mandatory publication of annual transparency reports. As per this regulation, an audit firm is bound to publish this transparency report in case the company conducts the annual audit of ten or more than ten companies (frc.gov.au, 2017).
The Australian audit authority has introduced the provision of Auditor’s Independence Function. This particular act combines the auditor’s independence work done by ASIC and FRC and it helps to develop new independence regulations with the help of this rules. The new revised functions help the companies in the making of auditing strategies (Chalmers, Godfrey & Lynch, 2012).
Another major regulatory step of Australian audit authority to maintain audit quality is the introduction of Audit Deficiency Notification and Report. ASIC has the power to issue audit deficiency report based on certain conditions in case of specific failure of the audit firms (Arruñada, 2013).
The next step taken by Australian audit authority to maintain the audit quality is to bridge the audit expectation gap. It has been seen that audit expectation gap is one of the major issues in the audit profession of Australia. Australian audit authority has implemented some specific measures in order to bridge the audit expectation gap. The Australian audit authority states the fact that the bridging of audit expectation gap is the shares responsibility of the auditors. Thus, as per Australian audit authority, the auditors of the companies need to be responsible in bridging the audit expectation gap between auditors and audit clients (Kleinman, Lin & Palmon, 2014).
Financial Reporting Initiatives is another major regulatory step taken by Australian audit authority. As per the initiatives of APCC, the authority is holding talks with the stakeholders of the companies regarding the inclusion of more forward-looking financial statements in the annual reports. On a more precise note, it can be said that the stakeholders of the companies will be able to better understand the financial position of the companies with the help of forward-looking financial information. In addition, this particular aspect will make it easier for the auditors in the preparation of audit reports (Davies & Green, 2013). Thus, it can be said that it is a major regulatory initiative to control the audit quality.
Apart from the above-mentioned measures, Australian audit authorities have also taken some other regulatory steps in order to maintain the audit quality. The auditing authorizes have stated the fact that there is a need for enhancing the regulatory and self-regulatory initiatives in order to maintain the high quality of audit reports of the companies. Apart from the above, ASIC has also provided the audit firms with some major recommendations for the development of audit works in Australia. Some of them are the introduction of annual transparency report, the inclusion of auditor’s independence functions, the supply of audit deficiency notification and others. In addition, ASIC has suggested the audit companies to focus on the improvements of consistency in the execution of audit works. In this process, ASIC has invited the response of the companies so that these measures can be further improved (Clout, Chapple & Gandhi, 2013).
Conclusion
From the above discussion, it can be seen that the audit profession is one of the major professions of Australia. The above discussion shows the fact that the audit profession in Australia has to face some of the major challenges along with opportunities at the time of their audit operations. Some of the major challenges faced by the audit profession in Australia are the presence of fraudulent financial reporting and audit failures; the introduction of new legislation, regulations and standards; the continuously increasing audit cost and audit fees; the presence of audit expectation gap and issues regarding auditor’s independence. As per the above discussion, it can be seen that due to the effects of world financial crisis, the Australian companies have become eager to conduct audit operations. This process is helpful for the growth of audit profession in Australia as the companies are appointing more audit employees and they are outsourcing their audit operations from external auditors. The above discussion also states that the Australian audit authorities have taken some regulatory steps to maintain the quality of audit profession; they are the introduction of annual transparency report, the inclusion of auditor’s independence functions, the supply of audit deficiency notification and others.
References
Arens, A. A., Elder, R. J., & Mark, B. (2012). Auditing and assurance services: an integrated approach. Boston: Prentice Hall.
Arruñada, B. (2013). The economics of audit quality: Private incentives and the regulation of audit and non-audit services. Springer Science & Business Media.
Audit Quality in Australia – A Brief Overview of Recent Regulatory and Professional Developments. (2017). frc.gov.au. Retrieved 5 October 2017, from https://www.frc.gov.au/files/2014/02/APPC_Audit_Quality_in_Australia.pdf
Basu, S. K. (2016). Auditing & Assurance. Pearson Education India.
Bell, T. B., & Griffin, J. B. (2012). Commentary on auditing high-uncertainty fair value estimates. Auditing: A Journal of Practice & Theory, 31(1), 147-155.
Cannon, N. H., & Bedard, J. C. (2016). Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92(4), 81-114.
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Davies, H., & Green, D. (2013). Global Financial Regulation: The Essential Guide (Now with a Revised Introduction). John Wiley & Sons.
Dowling, C., Knechel, W. R., & Moroney, R. (2015). Public oversight of audit firms: the slippery-slope of enforcing regulation.
Hope, O. K., Langli, J. C., & Thomas, W. B. (2012). Agency conflicts and auditing in private firms. Accounting, Organizations and Society, 37(7), 500-517.
Houghton, K., & Campbell, T. (2013). Ethics and auditing (p. 354). ANU Press.
Hurtt, R. K., Brown-Liburd, H., Earley, C. E., & Krishnamoorthy, G. (2013). Research on auditor professional skepticism: Literature synthesis and opportunities for future research. Auditing: A Journal of Practice & Theory, 32(sp1), 45-97.
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Kleinman, G., Lin, B. B., & Palmon, D. (2014). Audit quality: A cross-national comparison of audit regulatory regimes. Journal of Accounting, Auditing & Finance, 29(1), 61-87.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
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