...BUSINESS & ACCOUNTING Towards Reducing the Audit Expectation Gap Possible Mission? Teck Heang Lee, Dr. Azham Md. Ali & Shamini Kandasamy 18 ACCOUNTANTS TODAY • February 2008 Towards Reducing the Audit Expectation Gap: Possible Mission? The auditing profession believes that the increase in litigation and criticism against auditors may be due to the audit expectation gap. The audit expectation gap is defined as the difference between what the public expects from an audit and what the audit profession accepts the audit objective to be. The audit expectation gap is critical to the auditing profession because the greater the unfulfilled expectations of the public, the lower the credibility, earning potential and prestige associated with the work of auditors. The objective of this paper is to review and evaluate some of the possible solutions that can be taken to narrow the gap. The study found the proposed solutions in the literature are unlikely to be implemented in view of the practical issues identified. Hence, the proposed solutions are only likely to be effective on theoretical grounds. It is hoped that this paper will provide some insights into proposed solutions which will enable the audit expectation gap to be reduced in a comprehensive and effective manner. E xternal auditing plays an important role in contributing to the effectiveness and efficient functioning of business operations, the capital markets, and the economy by adding...
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...An accountant is a practitioner of accountancy or accounting, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources. Auditor is the person appointed to conduct an examination of the records, to form an opinion about the authenticity and correctness of such records, by verifying the correctness and reliability of the recorded transactions from the evidences available, opinion and inference reachable based on his expertise 1 . Duties and responsibilities of accountant 1. Prepare profit and loss statements and monthly or yearly closing and cost accounting reports. 2. Compile and analyze financial information to prepare entries to accounts, such as general ledger accounts, and document business transactions. 3. Establish, maintain, and coordinate the implementation of accounting and accounting control procedures. 4. Analyze and review budgets and expenditures for local, state, federal, and private funding, contracts, and grants. 5. Monitor and review accounting and related system reports for accuracy and completeness. 6. Prepare and review budget, revenue, expense, payroll entries, invoices, and other accounting documents. 7. Analyze revenue and expenditure trends and recommend appropriate budget levels, and ensure expenditure control. 8. Explain billing invoices and accounting policies to staff, vendors and...
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...The purpose of an independent auditors’ report is to communicate the opinions of the independent auditors about the financial statements of the company they audited to the public. However, there have been an issue on the communication of the independent auditors’ report as the message intended to be brought forward by the preparers are misinterpreted or confused by the users (Asare and Wright, 2009). The reason for such misinterpretation and confusion by the users of the independent auditors’ report is mainly the use of technical language. For example, from the independent auditors’ report in the annual report of SP Setia Berhad 2012, it was mentioned that the audit was carried according to approved auditing standards in Malaysia. However, it does not clarify which standards are being applied during the course of auditing. The misinterpretation arose from the use of technical language also lead to an expectation gap in the nature and responsibilities of the independent auditors and the public’s expectation of them (Enyi, Ifurueze and Enyi, 2012). Again, example can be obtained in the annual report of SP Setia Berhad 2012. In the independent auditors’ report, it was stated that the auditors perform the audit to get “reasonable assurance” that the financial statements do not contain material misstatement. However, the word “reasonable assurance” may hold different meanings for different individuals. By utilising these words in a report, people will have different perception of...
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...Flat Cargo Berhad Presented by: ABDUL RAHMAN BIN YAACOB AFIFAH BINTI HALIM MAZIAH BINTI MOKHTAR MOHAMMAD AZWAN BIN BASHIRUN MOHD ZUBAIR BIN NOR AZMAN AC088467 AC088398 AC088445 AC088323 AC086470 Presented to: SIR AZWAN ABD RASHID NABILAH BINTI SAAD AC088349 INTEGRATED CASE STUDY ACSB 413 INTRODUCTION Company Background 1997 Started operations with 2 aircraft - Boeing 737-200F - Cessna Grand Caravan Operating Primarily -Air cargo carrier Principal activities of FCB Subsidiaries -Air Freight Service and Aircraft Ground handling service 15 September 2001 -Obtained listing in Bursa Malaysia Auditor -Kenyans & Associates In 2001 to 2004 -the have a fast growing at intra- Asian air express market -demand for express transportation Services increased. -give best delivering quality services and satisfying customer demand. FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board...
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...PCAOB Proposes a New Auditing Standard to Enhance the Auditor... http://pcaobus.org/News/Releases/Pages/08132013_OpenMeeting.aspx Stay Connected: PCAOB Proposes a New Auditing Standard to Enhance the Auditor's Reporting Model Also Proposes a New Related Auditing Standard on the Auditor’s Responsibilities for Other Information in an Annual Report Washington, DC, Aug. 13, 2013 The Public Company Accounting Oversight Board today proposed for public comment a new auditing standard and related amendments to enhance the auditor's reporting model. The proposed standard would retain the pass/fail model in the existing auditor's report, but would provide additional information to investors and other financial statement users about the audit and the auditor. "These proposed changes will make the auditor's report more relevant to investors," said James R. Doty, PCAOB Chairman. "More robust audit reports that demonstrate the strength and value of the audit also should lead to better public awareness of, and appreciation for, auditors' skill and insight." In 2010 and 2011, PCAOB staff conducted outreach to investors, auditors, preparers of financial statements, audit committee members, and other interested parties to seek their views on potential changes to the auditor's report. The staff presented its findings to the Board at an open meeting in March 2011. In June 2011, the Board issued a Concept Release to seek public comment on potential changes to the auditor's reporting model...
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...GUIDANCE IN DEALING WITH “TENTATIVE FINANCIAL STATEMENTS” PHILIPPINE AUDITING PRACTICE STATEMENT 1001Ph GUIDANCE IN DEALING WITH “TENTATIVE FINANCIAL STATEMENTS” CONTENTS Paragraphs Introduction…………………………………………………………………. BIR Requirements for Filing of Audited Financial Statements…………….. Incomplete or Unaudited Financial Statements……………………………. Responsibility over Financial Statements………………………………….. Handling of Incomplete or Unaudited Financial Statements………………. Other Considerations……………………………………………………….. Effective Date………………………………………………………………. 1-3 4-5 6-8 9-11 12-18 19 20 Philippine Auditing Practice Statements (PAPS or Statements) are issued by the Auditing Standards and Assurance Council (AASC) 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 to develop good practice, by providing guidance on the application of the PSAs when conducting an audit of financial statements. 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. -2- PAPS 1001Ph The Public Sector Perspective (PSP) is set out at the end of PAPS. Where no PSP is added, the...
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...opinion by the independent auditor on whether the financial statements are prepared, in all material respects in accordance with the applicable financial reporting framework. Putra, in his article entitled Understanding Audit Reports and Auditor’s Opinion, foremost conferred about the significance of the auditor’s report. Basically, designing an accounting information system that will capture all of its business transactions and compile the financial statements is the management’s responsibility. However, third parties, such as a current or potential investor or creditor, may be concerned about whether management has put the financial statements together without bias. This is where the work of an independent auditor comes to place. In his article he stated that an independent auditor’s report is designed to alleviate that concern and give the public assurance that the financial statements can be relied on. He also thinks that assurance is a key word: In fact, it is common in the accounting profession to refer to auditing as an assurance service or attest service because the auditors are providing assurance or attesting (vouching for) to the fairness of the presentation of the information on the financial statements. In his article he also discussed each of the important part of the audit report. He also pointed out that the audit report makes it clear that the financial statements, including the footnotes, are management’s responsibility. The auditors are not responsible for preparing...
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...external/internal auditors be responsible for detecting client fraud? In 2001 Enron, the seventh largest energy company in 2001, filed for bankruptcy. The event named “Enron Scandal” is considered to be the most shocking incident in American economic history. Bring the country to the edge of disaster, the scandal was basically caused by securities fraud which Enron was charge with. The irrationality of accounting and auditing system encouraged U.S. legislative to respond the scandal, enacting Sarbanes-Oxley Act 2002. SOX Act carried out comprehensive reform of accounting procedures required for publicly held companies, such as promoting and improving the quality and transparency of financial reporting by internal and external auditors. However, there is a controversial issue of whether auditors should be responsible for detecting client fraud. AU Section 110(Responsibilities and Functions of the Independent Auditor) indicates that “the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.” In other words, auditors are not expected to provide absolute assurance financial statements because auditors do not examine every transaction and event. The public, however, expect auditor to guarantee all material misstatements. While users who use the reported financial statements expect all illegal issues such as fraud to be detected, auditors are more...
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...Course: AC 557 Unit: Six Professor: Bunney Schmidt Student: Saad Panja Company and Situation: Created by the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board or PCAOB requires auditors of U.S. public companies be subject to external and independent oversight. As well as a “provision requiring auditors to evaluate the effectiveness of companies’ audit committees” (Sharp Paine & Eric Bettcher, 2006). On October 2002 there were four appointed members and two of them were Goelzer and Charles D. Niemeier who were both accountants that had served at the SEC (Sharp Paine & Eric Bettcher, 2006). Other two were Bill Gradison who was a former congressman, mayor, and businessman; and Gillan who was general counsel at California Public Employees’ Retirement System (CalPERS). All four of these new members have had extensive law experience. Identify Strengths and Weaknesses and Alternatives: The first thing that the board needed to do was set up offices and recruiting staff. Since there was no staff at first the board members took it among themselves to identify, interview, and hire new staff. A few of these new staff members included a director of registration and inspection as well as a director of human resources. In April of 2003 PCAOB received an official certification from SEC at which time there were about 30 employees with this organization. PCAOB was established by Congress in order to protect investors and the public interest by promoting...
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...Identification and Client Commitment Uniquely Influence Auditor Objectivity David N. Herda and James J. Lavelle SUMMARY: This article summarizes our recent study, ‘‘Client Identification and Client Commitment in a Privately Held Client Setting: Unique Constructs with Opposite Effects on Auditor Objectivity’’ (Herda and Lavelle 2015), which examines how individual auditors’ identification with, and commitment to, privately held audit clients affects their objectivity. Based on a survey of 102 external auditors, we find that client identification is distinct from client commitment. This distinction is important because identification as a construct is easily and often confused with commitment, and the terms are often used interchangeably. Client identification entails auditors perceiving themselves as one with the client. In contrast, client commitment reflects a responsibility for and dedication to the client, but the auditor and client remain separate psychological entities. Consistent with prior research, we find that client identification impairs auditor objectivity. Conversely, we find that client commitment enhances auditor objectivity. Keywords: organizational identification; organizational commitment; social identity theory; social exchange theory; auditor objectivity. INTRODUCTION This paper summarizes the findings, conclusions, and practical implications of our recent study (Herda and Lavelle 2015) concerning auditors’ identification with, and commitment to, clients ...
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...PAPER AND WHAT IS HIS POSITION (GIVE DESCRIPTION OF RESPONSIBILITIES) WITH THE PCAOB AT THE TIME OF THIS ARTICLE. The author of this paper is Douglas R. Carmichael. On April of 2003, Mr. Carmichael was appointed the first Chief Auditor and Director of Professional Standards for the Public Company Accounting Oversight Board. As such he was the primary advisor to the PCAOB on policy and technical issues relating to the auditing of public companies, including but not limited to auditing standards, registration, inspection, and thus enforcement of any mandates that are part of the Sarbanes-Oxley Act. QUESTION 2) WHAT DOES CARMICHAEL SEE AS THE UNDERLYING MISSION OF THE PCAOB? Carmichael views the underlying mission of the PCAOB to be the restoration of the public’s confidence in the auditor’s reports and findings. Accounting scandals, involving companies like Enron and WorldCom, prompted Congress to adopt the Sarbanes-Oxley Act as a means to establish control over accounting and auditing functions. A main focus of Sarbanes-Oxley was the establishment of the PCAOB. The PCAOB is a nongovernmental body, fully funded by fees collected by public and investment companies that benefit from independent audits. They are charged with overseeing the audit of public companies that are subject to SEC laws and related matters of the kind. Carmichael states that the confidence is not only to be earned by the accountants and auditors producing and reviewing the information, but also...
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...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 companies • To improve economic efficiency...
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...Case Study 2: A Practical Guide to the New PCAOB Reporting Requirements Forensic Accounting: ACC-571 January 28, 2012 A Practical Guide to the New PCAOB Reporting Requirements Created by the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board or PCAOB requires auditors of U.S. public companies be subject to external and independent oversight. Congress established the PCAOB in order to protect investors and the public interest by promoting accurate, informative, and independent audit reports. The PCAOB aims to improve audit quality, reduce the risks of auditing failures in the U.S. public securities market and promote public trust in both the financial reporting process and auditing profession. (PCAOB, 2012). During this case study I will justify how the reporting requirements of the PCAOB reduce the chance of financial fraud, illustrate the responsibilities of an auditing firm to detect fraud during the audit process, recommend alternatives to the PCAOB, and lastly prepare a sample timeline for PCAOB reporting. How the reporting requirements of the PCAOB reduce the chance of financial fraud: PCAOB necessitate senior financial managers to enforce a code of conduct (Advisory Report, 2003). The purpose of the code of conduct is to encourage honesty and ethical conduct, compliance to relevant regulations, and also promote full, accurate and timely disclosure in financial reports. As a result, the PCAOB reduces chances of financial fraud by ensuring...
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...Among the ten generally accepted auditing standards is the standard that requires an auditor to have independence in mental attitude. As with so many rules and guidelines set forth by the government and numerous other organizations, the interpretations of many of these rules can be vastly subjective. During the case against Health Management’s founder Clifford Hotte, his co conspirators and the auditors at BDO Seidman the defendant’s attorney Michael Young brought forth the idea that according to the generally accepted auditing standards that requires an independence of mental attitude it never formally states that a friendship between an auditor and the client is be completely prohibited. The dilemma with deciphering the interpretation of the standard is determining where the line should be drawn between these relationships and the auditor’s ability to maintain these relationships and the independence considered necessary to give an unbiased opinion when it comes time to write a report that is unprejudiced and reliable to the public and investors at large. Let us begin with Health Management’s CEO Clifford Hotte and CFO Drew Bergman’s 1995 inventory fraud scandal by which author Michael C. Knapp’s assertion could be considered as one of the least ingenious corporate fraud scams to date. The objective was to increase inventory as well as make minor adjustments to a small number of other accounts in order to reach the companies target earnings as reported by analysts previously...
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...privileges are granted to users in accordance with their legitimate needs. Audit procedures for testing data access controls are: Responsibility for authority tables and subschemas. The auditor should verify that database administration personnel retain exclusive responsibility for creating authority tables and designing user views. Evidence may come from three sources: (1) by reviewing company policy and job descriptions, which specify these technical responsibilities; (2) by examining programmer authority tables for access privileges to data definition language commands; and (3) through personal interviews with programmers and DBA personnel. Appropriate access authority. The auditor can select a sample of users and verify that their access privileges stored in the authority table are consistent with their job descriptions organizational levels. Biometric controls. The auditor should evaluate the costs and benefits of biometric controls. Generally, these would be most appropriate where highly sensitive data are accessed by a very limited number of users. Inference controls. The auditor should verify that database query controls exist to prevent unauthorized access via inference. The auditor can test controls by simulating access by a sample of users and attempting to retrieve unauthorized data via inference queries. Encryption controls. The auditor should verify that sensitive data, such as passwords, are properly encrypted. Printing the file contents to hard copy can do this...
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