Friday, 9 November 2012

Experience of auditing brain in real life

Through my working experience and studying life of auditing nowadays, I found that people who have worked as the auditor got the habit of keeping evidence, even in non-auditing work area, for instance, he/she have a brain of making copy of each document, email cc boss for everything he/she did, idea of "maintain the original site", etc.

I do think this a kind of sophisticated behaviour in work and it does help and protect you in some bad situation you may come across, but what I want to mention is, for example, the habit of cc boss everything you did, in my opinion you have to judge by yourself whether this email or business really need to inform him/her, besides, it is preferable if you can know his/her character or attitude about information, because some bosses prefer to know everything in the business, but some, especially higher level bosses don't want to know that they think "teeny-tiny thing", or  they actually don't have the time to read your email. Just imagine, a busy higher level boss has a whole day meeting and he/she didn't do anything he/she supposed do in that day, when he/she opened the email box, a list of mails are from you, and all about the "teeny-tiny thing" which maybe your intention is to tell him/her that you did this, it is probable this will drive him/her nuts and this is the adverse impact of your auditing brain.

Friday, 2 November 2012

Critically evaluate the extent to which contemporary audit practice contributes to achieving the objective of corporate audit


The main purpose of the audit is to determine and judge the reliability of the financial statement and the supporting accounting records of a particular financial period, in order to make sure the information of the FS is true and fair, and there is also some expectations that the auditor should detect main fraud and error of the financial statement. But in contemporary audit, there exists some flaws in audit practice, such as the threat of independence of audit; commercialisation of audit firms which denote they chase the profit and market share maximisation; in-transparency in how the auditors are appointed and how they operate the audit, etc.

Independence is a vital character in auditing, but in reality, the audit model is flawed since it makes auditors financially dependent on their clients. The independence can be destroyed by three ways:

by auditors having a financial interest in the company, namely the self-interest threat, advocacy threat, etc. which defined in the IFAC. It is quite common that audit firms also provide non-audit services, such as tax service, and they dependent on companies and their directors for fees and profits. For instance, the case of Enron.
by the auditors being controlled in the broadest sense by the company, such as self-interest threat, familiarity threat, management threat, etc.
if the work which is being done in fact work which has been done previously by the auditors themselves acting as accountants. mainly this refers to the self-review threat, which questions whether the auditor would find it easy to criticise a system they have put in themselves.
The commercialisation of the audits imply the audit firms to maximise their market share, which results in the auditors dependent on the fees of clients, and may not be able to retain sufficient distance to deliver independent audits.

It is easy to explain why we need audit due to agency theory, but it didn't explain how auditors might be appointed, and in theory, the auditors should be appointed by shareholders, but in reality, individual shareholders are rarely  have the time and inclination to directly recruit auditors, and this is done by directors which leads to the problem of auditor appointment.

An examination of the social and organisational context of auditing should be a key element of any exploration of audit quality, but this is rarely the case. The audit quality goes down as a result of:
more junior auditors involved in auditing which for cost saving by firm
inadequate time budgets by premature sign-off and other forms of audit quality reduction behaviour
diluted stringent liability
There are also some changes in environment, such as appearance of complex financial instruments, transformations in capitalism where tangible things are increasingly replaced by intellectual property. Traditionally auditors have tended to verify financial statements by referring to a variety of evidence ranging from invoices, contract notes, market value etc., but these practices are increasingly problematised by the above reasons.

So in summary, there are some flaws in contemporary audit practice, such as independence of auditing, commercialism of audit firm, the way to appoint auditors, inadequate time and more junior auditors for saving cost which result to the low audit quality, and some challenge of new complex financial instruments etc. to have impacts of the auditing. For some possible solutions for the problems may government appoints auditors, and training the auditors in order they have the up to date knowledge and skill for investigating the companies to show the true and fair view of their financial information.