...& Rama, D.V. (2006). Audit Firm Size and Going-Concern Reporting Accuracy. Accounting Horizons, 20(1), 1-17. Additional articles: Carcello, J.V. & Neal, T.L. (2000). Audit Committee Composition and Auditor Reporting. The Accounting Review, 75(4), 453-467. Geiger, M.A. & Raghunandan, K. (2002). Auditor Tenure and Audit Reporting Failures. Auditing: A Journal of Practice & Theory, 21(1), 67-78. Name: Karlijn Dirks Student number: 10674837 Tutorial Group: 2 fulltime Lecturer: drs. Francesco Campisi RA Date: 10 February 2016 Paper: 8 * Summary The papers that will be discussed in this essay all revolve around auditor reporting. Especially about issuing going-concern modified reports in relationship with different variables. The variable discussed in the first paper is audit firm size. For the second paper auditor tenure is the variable and for the final paper audit committee composition is the variable that will be looked at. The rest of this section will provide summaries of the three articles. Paper 1. Geiger & Rama (2006) investigate whether audit firm size affects the accuracy of going-concern reporting. They look at two different type of errors, type I errors occur when a going-concern modified report is issued but the client does not go bankrupt. A type II error occurs when a client does go bankrupt but prior audit reports are without going-concern modifications. The authors identify three different audit firm sizes: big 4, national...
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...focus of this study is to test whether the market-perceived audit quality captures actual audit quality. It also investigates the relationships among actual audit quality measured by a post hoc identification of auditor failures and earnings management as well as financial analysts’ forecast errors. Prior literature in audit quality, earnings management and financial analysts’ forecast errors are reviewed in this section. AUDIT QUALITY AND ACTUAL AUDIT QUALITY Audit quality has been a topic of significant interest in accounting research. In order to improve the understanding of audit quality, numerous studies have tried to detect the association between audit...
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...THE RELATIONSHIP BETWEEN INTERNAL AND EXTERNAL AUDIT Professor PhD Atanasiu Pop, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: apop@econ.ubblcuj.ro PhD Student Cristina Boţa-Avram, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: botaavram@gmail.com PhD Student Florin Boţa-Avram, „Babeş Bolyai” University of Cluj-Napoca, e-mail: botaavramflorin@yahoo.com ABSTRACT: Analyzing the evolution process of internal audit, from its beginnings and so far, we can easily notice that internal audit function was born through detaching of some activities from external audit, the result being that there some situations when these two functions could be easily confused. The reality is that internal audit and external audit are two distinctive functions; net differenced, but which are also characterized through some complementary relationships. In this paper, we try to give our contribution at the clarification of the similarities and differences between these two functions, making a literature review that allowed us to identify some very interesting studies that permitted us to emphasize the main criterions that influenced the relationship between internal audit and external audit. Keywords: internal audit, external audit, objectivity, competence JEL Codes: M42 1. Introduction The coordination of internal audit activity with external audit activity is very important from both points of view: from external audit’s point of view is important because, in this way, external ...
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...on computer assisted audit tools and techniques (CAATTs) for the audit process and documentation of Kudler Fine Foods (KFF). The purpose of the CAATTs is to facilitate and quicken the audit process for KFF’s accounts receivable, payable, inventory, and payroll systems. Preface KFF has implemented internal controls on its accounting and information systems. It has also targeted four areas of the business system for audit purposes – accounts receivable (AR), accounts payable (AP), inventory, and payroll. Considering the fact that KFF’s business is run on computers, it would be ideal to run the audit process using computer assisted audit tools and techniques (CAATTs). This would increase the efficiency of the audit process. In today’s world of advancing technology and corporate accounting scandals, I think the best technique for auditing KFF would be in the form of continuous auditing. An example is the embedded audit module. This is a procedure where the audit data is collected at the same time as when the client is performing its business operations. The audit module will give the auditor online access to KFF’s data whenever needed. This technique reduces the time spent to collect data for audit. Granted, the embedded audit module may not be compatible with the client application. This is why it is important to obtain the system modules from the same vendor. Running Head: System Integration and Validation Audit Productivity Software Audit productivity software...
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...An HR audit is like an annual health check, says EJ Sarma. It plays a vital role in instilling a sense of confidence in the management and the HR functions of an organisation A healthy HR function in an organisation is as important as the physical and mental well being of a human body. Typically the basic reason why organisations prefer to conduct an HR audit is to get a clear judgement about the overall status of the organisation and also to find out whether certain systems put in place are yielding any results. HR audit also helps companies to figure out any gaps or lapses and the reason for the same. Since every company plans certain systems and targets, an HR audit compares the plans to actual implementation. The concept of HR audit has emerged from the practice of yearly finance and accounting audit, which is mandatory for every company, to be done by external statutory auditors. This audit serves as an examination on a sample basis of practices and systems for identifying problems and ensuring that sound accounting principles are followed. Similarly, an HR audit serves as a means through which an organisation can measure the health of its human resource function. Organisations undertake HR audits for many reasons: 1 To ensure effective utilisation of human resources. 2 To review compliance with tons of laws and regulations. 3 To instill a sense of confidence in the human resource department that it is well-managed and prepared to meet potential challenges and opportunities...
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...SKILLS AUDITS “A key piece of information an organisation needs to improve is to know what skills and knowledge the organisation requires and what skills and knowledge the organisation currently has’ (www.cognology.biz/sawhatis.htm). 1. Introduction What is a Skills Audit? A skills audit is essentially a process for measuring and recording the skills of an individual or group. The main purpose for conducting a skills audit in an organisation is to identify the skills and knowledge that the organisation requires, as well as the skills and knowledge that the organisation currently has. Skills audits are also usually done to determine training needs so an organisation can improve its skills and knowledge. However skills audits are also completed for other reasons such as restructuring and deployment. A skills audit gathers more information than simply your current qualifications level. It firstly identifies the skills matrices for the organisation and then delves into what the current competencies are of each individual against this predefined set of skills required to fulfill a specific role. The outcome of the skills audit process is a skills gap analysis. This information will enable the organisation to improve by providing the appropriate training and development to individuals to cater for the identified skill gaps. The skills audit process will also provide information which can be used for purposes such as internal employee selection and to ensure...
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...statement of listed companies, auditing become more and more important in the society. The people cannot know more the situation about listed companies, so they use auditors’ report to think their investment. However, with more and more scandals about auditing, many people think whether external auditors’ reports provide information to investor that serves the public interest under the current regulatory environment. The public interest First, it is important to know what the public interest is. In order to know the public interest better, we can understand it separately. The public represents social that is abstract concept. It conflicts the private that is specific and certainly. Social is universality and uncertainty. Its function is adjective interest. The International Federation of Accountants (IFAC) defines the public interest as ” The net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any action, decision or policy.” It means that everyone in the society may obtain the interest from all society in relation to any action, decision or policy. The auditing profession is relation to the benefit to the society. The public interest from auditing profession is like the responsibility of this profession. This interest is not direct interest, but the auditors will use their behavior to show their responsibility for society. The responsibility is • To keep the fair and equitable of financial law • To improve management of...
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... Philippine Auditing Practice Statement 1009 COMPUTER-ASSISTED AUDIT TECHNIQUES PAPS 1009 PHILIPPINE AUDITING PRACTICE STATEMENT 1009 COMPUTER-ASSISTED AUDIT TECHNIQUES CONTENTS Paragraphs Introduction Description of Computer Assisted Audit Techniques (CAATs) Considerations in the Use of CAATs Using CAATs Using CAATs in Small Entity IT Environments Effective Date Acknowledgment 1-3 4-6 7-16 17-25 26 27 28-29 The Auditing Standards and Practices Council (ASPC) issues Philippine Auditing Practices Statements (PAPS or Statements) to provide practical assistance to auditors in implementing the Philippine Standards on Auditing (PSAs) or to promote good practice. Statements do not have the authority of PSAs. This Statement does not establish any new basic principles or essential procedures; its purpose is to assist auditors, and the development of good practice, by providing guidance on the application of the PSAs regarding the use of Computer Assisted Audit Techniques as an audit tool. This Statement applies to all uses of CAATs involving a computer of any type or size. The auditor exercises professional judgment to determine the extent to which any of the audit procedures described in this Statement may be appropriate in the light of the requirements of the PSAs and the entity’s particular circumstances. PAPS 1009 Introduction 1. The overall objectives and scope of an audit do not change when an audit is conducted in a computer information technology (IT) environment...
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...THE RELATIONSHIP BETWEEN INTERNAL AND EXTERNAL AUDIT Professor PhD Atanasiu Pop, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: apop@econ.ubblcuj.ro PhD Student Cristina Boţa-Avram, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: botaavram@gmail.com PhD Student Florin Boţa-Avram, „Babeş Bolyai” University of Cluj-Napoca, e-mail: botaavramflorin@yahoo.com ABSTRACT: Analyzing the evolution process of internal audit, from its beginnings and so far, we can easily notice that internal audit function was born through detaching of some activities from external audit, the result being that there some situations when these two functions could be easily confused. The reality is that internal audit and external audit are two distinctive functions; net differenced, but which are also characterized through some complementary relationships. In this paper, we try to give our contribution at the clarification of the similarities and differences between these two functions, making a literature review that allowed us to identify some very interesting studies that permitted us to emphasize the main criterions that influenced the relationship between internal audit and external audit. Keywords: internal audit, external audit, objectivity, competence JEL Codes: M42 1. Introduction The coordination of internal audit activity with external audit activity is very important from both points of view: from external audit’s point of view is important because, in this way, external ...
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...The Impact of Non-audit Services on Capital Markets Seunghan Nam Ph.D. Candidate Stern School of Business New York University New York, NY 10012 snam@stern.nyu.edu Preliminary Draft 7 January 2005 Abstract The framers of the Sarbanes–Oxley Act (SOA) presume that non-audit services lower the quality of financial statements, so they have prohibited auditors from offering most non-audit services. In addition, regulators believe that non-audit services (NAS) may cause the auditor to be perceived as “dependent” in appearance, thus increasing information risk, even if they have no impact on the quality of financial statements. I investigate two hypotheses using pre-SOA data. First, I ask whether the proportion of non-audit services fees to total fees has a positive or negative association with the ability of financial statements to predict a firm’s future cash flows, which can be considered a measure of the quality of the statements. Second, I ask whether the proportion has a negative or positive association with the cost of capital and the bid/ask spread, controlling for the predictive ability. The cost of capital and the bid/ask spread serve as proxies of information risk. Contrary to the proponents of prohibiting NAS, I find that the proportion of non-audit services fees to total fees has a positive association with the predictive ability. If we control for the quality of financial statements, non-audit services still have a negative association...
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...AUDITING: A JOURNAL OF PRACTICE & THEORY Vol. 24, No. 1 May 2005 pp. 21ñ35 Recent Changes in the Association between Bankruptcies and Prior Audit Opinions Marshall A. Geiger, K. Raghunandan, and Dasaratha V. Rama SUMMARY: The intense legislative and media scrutiny after a series of high-profile corporate failures, coupled with the paradigm shift in the regulation of the auditing profession brought forth by the Sarbanes-Oxley Act, suggests that auditorsí decisions would be more conservative in the period after December 2001. Based on analyses of 226 financially stressed companies that entered bankruptcy during the period from 2000 to 2003, we find that auditors are more likely to issue going-concern modified audit opinions in the period after December 2001. Since the post-December 2001 period coincides with recovery from a recession in the U.S., we also examine prior audit opinions for 93 companies entering bankruptcy in 1991 and 1992. We find that auditors were also more likely to issue prior going-concern modified audit opinions in 2002ñ03 than in the earlier recession recovery period. Following the technique used in Francis and Krishnan (2002), we document that the increase in going-concern modification rates for bankrupt companies after December 2001 is due to changes in auditor reporting decisions and not solely due to differences in client characteristics between the time periods studied. Keywords: bankruptcy; going-concern reports. Data Availability: Contact the authors...
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...SYSTEMS SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 9.1 Since most organizations make extensive use of computer-based systems in processing accounting data, it is essential that computer expertise be available in the organization's audit group. Such expertise should include: * Extensive knowledge of computer hardware, software, and accounting applications * A detailed understanding of appropriate control policies and procedures in computer systems * An ability to read and understand system documentation * Experience in planning computer audits and in using modern computer auditing techniques. All internal auditors may not possess expertise in all of these areas. However, there is certainly some minimum level of computer expertise that is appropriate for all auditors. This would include: * An understanding of computer hardware, software, accounting applications, and controls. * The ability to examine all elements of the computerized AIS * The ability to use the computer as a tool to accomplish these auditing objectives. 9.2 Many authorities have suggested in...
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...How the Sarbanes Oxley act affected the audit industry The government change in policy that has the biggest influence on my career choice has to be the Sarbanes Oley act of 2002. This act is what influenced my decision not be an auditor in a big six firm or smaller accounting firm, this change in law is why I choose to go into the private company accounting route. First let me start off by informing you want the Sarbanes – Oxley act is, it is a government act that changed the old SAS no. 59 as a result of the Enron and World Com financial collapses (Ryu 2009). The law was enacted to enhance the standards for all US based public companies financial reporting, this happened as a result of the Enron and World Com financial collapses (Elson 2008). This law was designed to help create auditor independence, so financial reports that are relied upon from prospective shareholders and lenders are accurate.(Li-ying 2011). The law, as I have said was enacted as a knee jerk reaction to the Enron collapse, it was discovered that Arthur Anderson the accounting firm for Enron was both their internal and external auditors. The two companies were so comingled it was hard to differentiate which employee worked for who, both the CEO and CFO both had previously worked for Arthur Anderson (Ryu, 2009). The law which is known as SOX changed how responsible auditors were for the opinions they gave on the financial reports they audited. The outside public depended on these reports to make financial...
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...Ideals and Postulates The key principle of audit is that it should be a professional and objective process. An approach that has been assumed by Flint, (1971), and a theme that is strongly supported by the majority of the literature written on this subject. This idea is supported by Mautz and Sharaf (1961), who created an outline of standards that auditors should work, to in order to achieve the highest level of professionalism. To be able to achieve this level of professionalism it can be seen that a conceptual framework must be in place, it was for this reason Mautz and Sharaf created eight postulates as a foundation for a framework. They created their postulates based on a ‘...careful study of the nature and activities of auditing...’,(Mautz and Sharaf, 1961, pg 41, ).It was this study which allowed them to create the postulates that are the underlying assumptions of modern audit theory and practice. Flint in 1988 developed this idea but rather than eight postulates he suggests seven very different basic postulates. The postulates Flint created are based upon the idea that audit has a much broader effect on society, this basis can be seen within the postulates. When we look at the first postulate Flint states, ‘... Auditing can be said to act as an element of social control within the process of corporate or public accountability...’ (Flint, 1971) This suggests that Flint felt that audit was not only affected by society but also that audit is actually one of the key controls that...
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...Example of Audit Plan ID 1 2 3 4 5 6 7 8 9 10 11 12 Task Name Preliminary discussion March Start Wed 17/04/06 April May June July August September October November December B M E B M E B M E B M E B M E B M E B M E B M E B M E Audit planning meeting Mon 29/04/06 Audit tool development Audit analysis tool development Implement data collection Mon 06/05/06 Wed 15/05/06 Thu 01/08/06 Data analysis Mon 02/09/06 Result reporting Mon 09/09/06 Action plan development Mon 16/09/06 Dissemination of Results Mon 30/09/06 Action plan implementation Reaudit area marked for improvement Report on reaudit Tue 01/10/06 Wed 11/12/06 Tue 17/12/06 Key: AF = Audit Facilitator AA = Audit Assistant B = Beginning M = Middle NB. The notes on the following pages give details of the various components of the plan. From NHS Lothian ‘Clinical Audit Study Guide’ CD rom (West Lothian 2004) E = End Example of Audit Plan notes 1. Preliminary Discussion Should establish · Why? · What? · Where? · When? · Who? · Does this audit fit in with Trust priorities? · Will it identify need for change (improve patient care) · Will it provide appropriate evidence to satisfy regulatory requirements (i.e. CSBS) . 2. Audit Planning Meeting This meeting should identify · Resources for audit · Establish who the audit team will be. · Timetable the audit process ...
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