Saturday, September 30, 2017

Nature Of Auditing And The Public Accounting Profession

Nature of Auditing and the Public Accounting Profession 1 . Auditing neither creates goods nor adds utility to existing goods and therefore does not add value to business. Auditing exists only because it has been legally mandated. Auditing exists because it is needed by the company. It is beneficial to users who need assurance if their financial statements reflect economic conditions that occurred in a period. Without reliable information, companies might make less effective decisions which are risky for the value of business.

It may neither create oods nor add utility to goods but it adds value to business because it is a source of information for a business'' decisions. 2. The failure of the public accounting profession to warn us of the problems that existed in the economy is an example of a profession not adding utility to society. Accounting records, classifies, and summarizes economic events to provide financial information for decision making. It does not study the problems in the economy but it helps management to make effective decisions despite economic problems. That way, accounting profession is an added utility to society. 3.

The only reason I would hire an auditor is with the expectation that the auditor search for and find any fraud that might exist within my company. Searching for fraud should be the primary focus of an audit. Fraud involves deception that can result to material misstatements of financial information and is not good for the users and a company''s future. But auditing does not only find frauds existing in a company but it also gives assurance to intended users whether financial statement are reliable, whether the operations are effective and efficient or whether the entity adheres to government laws and regulations.

These assurances are relevant to the decision makers of a company. 4. Auditors cannot legitimately serve the ''user'' public because they are effectively hired and fired by the management of the company being audited despite the technicality of the shareholder vote. If management does not like the opinion given by an auditor, it can simply recommend the engagement of another auditing firm that would be more amenable to the arguments made by management. from conflict of interest. It legitimately serves the user public when it gives unbiased opinion and information regarding a company''s financial statement that should help or decision making.

If management can find an auditing firm that will be amenable to their arguments, it would be a potential risk to their business. 5. The switch to the reconstituted ALJASB in setting audit standards will enhance the reputation of the profession because it must act in the public''s interest. The profession must act in the public''s interest but they should act in an unbiased way. Auditing will serve as a preventive measure that aids in keeping management honest and motivated. 6. Auditors cannot add significant value to financial statements as long as generally ccepted accounting principles allow such diversity in accounting principles.

How, for example, can the same auditor issue unmodified opinions on identical companies - yet one uses first in and the other weighted average to account for the same set of transactions - recognising that the reported income and balance sheets will be materially different? How can both be fairly presented? That is the very reason why there are generally accepted accounting principles. Without these principles that should be the criteria for auditing, evaluation and measurement of a subject matter on the basis of the practitioner''s own expectations, udgments and individual experience would not constitute suitable criteria. . Auditing is narrow - Just nitpicking and challenging the organisation in an attempt to find mistakes. I would rather pursue a career where I really understand a company''s business and would be in a position to make recommendation that would improve it. The scope of auditing compared to assurance and assertion-based engagements is really narrow. But if you would even Just consider the meaning of auditing you will find that to understand a company''s business, one must also understand its financial tatements.

And what can determine whether a company''s financial statements reflect the economic events occurred which is significant to a company''s improvement? That would be auditing. If users rely in inaccurate financial statements and as a consequence incurs financial loss, then there is no business improvement. 8. Auditing would add greater value if it analysed company performance and presented a report on company performance along with that audited financial report. There are classifications of audits. One is financial statement audits and another is operational audits. Financial statement audits focus on financial statements.

It reports the fairness of the financial information presented and the auditor would Operational audits, it involves report on efficiency and effectiveness of company''s operations. If a company then would want an analysis on both performance and financial report then they should engage with a financial statement auditor and another practitioner for operational audits. After receiving the reports, the part now of the management is to decide and act based on the audited information. 9. If auditors make recommendations to clients based on weaknesses in the company perations, the auditors ought to make those recommendations public.

This would help increase the public trust by providing more accountability by both management and auditors. Intended users of the assurance report include the public. Most of the time, audited financial statements are reported publicly for the sake of interested users. But because practitioners are only hired by companies, when engagements are designed for specific intended users or for a specific purpose, the practitioner considers including a restriction in the assurance report that limits its use to those users or that purpose. 0. Adding reports in the quality of internal control will enhance the value of the audit function to society.

If a company wants regular update of its internal control then they should hire an internal auditor. Internal audit is also a classification of audit which is a function established within an organization to examine and evaluate its activities as a service to the organization. Internal auditors report on efficiency and effectiveness of company''s operations as well as compliance to laws and regulations. 1 1 . The auditor''s report admits that transactions are evaluated only on a test'' basis; hus, the results embodied within an auditor''s report must be treated with a great deal of scepticism.

The auditor has done its Job of obtaining and evaluating evidences of the management''s assertions. The process was done with professional scepticism in the auditor''s part so there should be an assurance that information was not overlooked. Also, auditors use criteria such as the generally accepted accounting principles as standards in expressing an opinion on the assertions of management. The results embodied within and auditor''s report should then already be reliable and must not be treated with scepticism.

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