As Arthur Levitt, then chairman of the Securities & Exchange Commission, summed up in 2000, well before Enron's failure, "Independence is at the core of the profession, the very essence that gives an auditor's work its value" (2). Auditors can maintain this independence in the face of increasingly close or long-term working relationships with the enterprises they audit; significant research indicates that even accounting firms that generate significant consulting revenue from a company will choose their reputation over their near-term receivables and report errors in its results (DeFond et al
Long-term investors polled about earnings accuracy for companies in 1990 and 2000 indicated that trust in the audit process had slightly eroded, while 34.1% of respondents said auditors had become less independent over that period (Hodge 42, 45)
Since management has a privileged insider's perspective on the company's operations, outside investors looking for a comparable level of transparency into those organizations rely the audit process to assure them that management's claims accurately reflect reality. While management may not misrepresent the truth, the temptation to do so is still too strong to ignore: [Because] those seeking capital want to raise it on the most favorable terms to themselves [and] also have the ability to mislead capital providers about the issuer's prospects for future success, capital providers are inherently disadvantaged in their ability to control, negotiate, or evaluate the terms of offerings and trading prices in public capital markets (Johnstone 1)
1% of respondents said auditors had become less independent over that period (Hodge 42, 45). This, in turn, contributed to the generalized crisis of confidence that accelerated the equity market's declines in the summer of 2002 (Ramirez 68) and eventually drove the adoption of the Sarbanes-Oxley regulatory environment
The independence of an auditor can be classified into two categories as explained below & #8230; Independence of Mind: This kind of independence enables the professional to perform his/her services without any influence that compromise his/her professional judgment. As a result, the independence of mind allows auditors exercise objectivity, professional skepticism, and to act with integrity (Greene, 2008)
Reliability of the audit process is promoted because auditors have the ability to render unbiased audit decisions while clients evaluate the statements freely. The result of such initiatives is promotion of user reliance on the audit process and enhancing the efficiency of the capital market (Lindberg & Beck, 2002)
In addition, the staff should expect auditors to review records regarding the company's bank operations to ensure that internal control procedures are being followed. The third expectation for the staff is for auditors to determine control risk based on a scale from high or weak controls to low or strong controls (Rittenberg, Johnstone & Gramling, 2011, p
The combination of these factors has helped to improve the ability of auditors to maintain a certain degree of independence. (Keuppers, 2010) The Challenges that Auditors will be Facing in the Future The biggest ethical challenges all auditors will face is becoming too close with clients
In most cases, this law will serve as a guideline for monitoring the actions of publically traded corporations and their executives. (Knapp, 2012, pp
This is significant, in showing how auditors helped these activities by not reporting what they knew to regulators. (Markham, 2005, pp
Yet, they also must ensure that they are not directly helping to enable fraudulent activities to occur. (Moyer, 2009, pg
This is when he disclosed to his sons that the entire investment firm was nothing more than a fraud. (Sarna, 2010, pp
This is someone who is working for the company with the intention of ensuring that management is following different accounting procedures. (Palmon, 2011, pp
This is when the transaction must be posted in the ledger and balance sheet simultaneously. (Srivastava, 2008, pp
CONTRAST OF SAS 99 AND PERIOD PRIOR TO SAS 99 It is reported that auditors "will enter a much expanded area of procedures to detect fraud" as SAS 99 is implemented. (Ramos, 2003) The new standard has as its aim to have the consideration of fraud by the auditor seamlessly aligned with the audit process in an ongoing manner updating as the auditor: (1) Gathers information needed to identify risks of material misstatement due to fraud; (2) Assesses these risks after taking into account an evaluation entity's programs and controls; and (3) Responds to the results
The audit is stated to involve an examination in order to make an assessment of whether the "…financial statements and accompanying notes present fairly a company's financial position, results of operations and cash flows in accordance with the generally accepted accounting principles." (Apostolou and Crumbley, 2008) The responsibilities of the auditor is to give an opinion and according to the Public Company Accounting Oversight Board (PCAOZB), AU section 110
The company made a decision that is would "hedge against currency fluctuations by engaging in forward purchased of foreign currency against contracts for imported goods." (Flynt, 1997) It is reported that the dealings of Koval has resulted in the company incurring losses that were approximately $50 million and these losses were kept concealed by Koval
Stockholders, financing companies and banks provide finance to the companies against certain terms and conditions. The stockholder get ownership of the company against the finance but the decision-making power remains with the executives (Cangemi & Singleton, 2003)
Therefore, the retail business should keep this in mind before selecting the products for sale. It means that those products should not be selling in those areas where they are prohibited due to religion or culture (D'Souza, 2009)
The interviewer discuss and important issue and observe everyone's opinion about it. The focus is on the group discussion and the outcome of that discussion (Foxall, 1981)