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04/17/2012

Audit of Financial Statements


Audit of Financial Statements

 

Introduction

Due to the call created by the intense competition in the market, it is very timely that a control in the internal affairs is settled. However, the complexity in the environment of the business, the quality on the purposely made control is in the peril. With this same idea, the creation of the standards are emphasized that can change and deliver the organizations’ needs. Although there are still challenges, the role of the audit and its practice remains strong.

Scope of the Audit Practices

The main concern of the audit activities is to determine the level of the professionalism in the internal functions. In addition, to determine the risks, such as fraudulent actions, that might plague the organization. If the risks are not recognized early, the organization’s performance and effectiveness in the industry might saturate until completely dissolve. And this is the other face of hunch on why do some organization fail to exist in the market for a long time. Auditing practice and related activities should consider and discuss the applicability or inapplicability of the issues involved in auditing. The support of the audits and the third party are indeed vital in the creation of the reports. Subsequently, the assessment of risks is determined through understanding the scope, depth, and status of the environment all for the pursuance of the quality reports and reliability of the information (IRS, 2003).

The audit practice lies in the hands of the people and therefore, they should manage well the internal practice without any hesitation and influence from the other people. It is suggested that the independence of the people is indeed necessary and can be manifested in the management of the entire organization. Independence of the people reflects in the fulfillment of the employee on to their appropriate responsibilities. With this emphasis on the role of the people in the workplace, the role of the auditors can be free from the various interferences which might affect the complexity of the internal auditing.

Through the responsive action of the personnel, the performance can be delivered and then, communicated through the presence of a sound financial report. The scope of the standardized auditing can help build the proficiency among the internal controls and managers. The broadened standards can cover the engagements with the clients and consultancy services. The assistance of the auditors is essential, most especially if the people worming in the internal controls have the knowledge, skills, and competencies in facing the challenges and the process of engagement. It is advised that an auditor should possess all of the ideal characteristics in order to perform well on the auditing and the other related performances (Franzel, 2008).

Major Challenges

One of the greatest and hard to defeat challenge in internal controls are composed of three factors. The accountability and reliability of the reports, the consistency of the information, and proficiency of the people engaged in the internal controls. There are also problems regarding the completeness of the financial reports and the involvement of the erroneous or inaccurate data collecting. In the world were the challenges hinder the development and progress of the organization, it is a great opportunity to address those challenges and create a room to solve them. These challenges are the way for the business leaders to bring back the competency in the internal auditing.

Through the past experiences and assessment of the senior managers, there is a positive way to create a standard that can bring the honor and trust in auditing and minimize the impact of the challenges in the service. Furthermore, most of the past researches regarding on the effectiveness of the auditing, identified that the responsibility of the auditor towards his work can be the either the challenge or the benefit in the internal auditing (ANAO, 2004). If the issue of performance is not fully resolves then there is a train of other consequences and emerging challenges. To minimize the impact of the challenges which appeared in the audit practices, there should also be changes in the accounting and auditing education. If there is an increase change in the nature of the auditing, then the education should provide additional pedagogical intervention that is centered in the audit practices (Johnson, et al., 2003).

Impact of New Regulation

The new standards are difficult to analyze, especially when there are current standards that are still under the development. But successfully, the changes are addressed which leads to the recognition of impacts (Coetzee and du Bruyn, 2001). The continuing process development is also part of the standards set in the internal auditing. The progress that might takes place in the internal auditing can achieve the objective of professionalism. In addition, tailing the addressed issue of professionalism is the establishment of the quality assurance and improvement in the procedures of auditing processes. The standardization, once again, valued the importance of the people and their role in the organization. In the quality control system, it includes the leadership responsibilities for quality within the audit in the organization.

The independence of the people regarding their role in the organization is somewhat subjected in the legality and ethical requirements. The weakness in the procedure that might include in auditing scopes the initiation, acceptance, and the continuity of the audit and attestation engagements can be effectively addressed and resolve through the use of the various approaches. With the help of the quality auditing, the knowledge can be passed through the next batch of the people and carry the same principle in auditing, engagement performance, documentation, reporting, and even in terms of monitoring (Franzel, 2008).

The new regulation has an impact most especially in the large and medium sized business. In prior to the difficulty of the nature of their respected businesses, the administration of the audit might be incorporated with the use of the timeline. In that case, the expanding efforts of the people and critical roles in analyzing the risks that might involved in the management (IRS, 2003). The auditors have a responsibility in requiring the significant resources that might potentially affect the process of the business. Although the information might come from the past records of the organization, still it is expected to affect the entire performance of the business. Through the examination of the related information, it may contribute in the future growth or delivering of the decisions in the organization.

Audit Quality and Importance

The need for the high quality financial reports can address the issues relating the internal controls. The management in internal control can have the ability to develop and understand the influential factors in the business environment. Managing the internal control and its related activity can be equaled to the idea of ensuring that the internal affairs are handled effectively, without causing too much problem in the entire organization. Management is also believed to begin with the use of the appropriate communication. In all aspects of business interactions and facilitating the progress, the communication cannot be set aside.

Communication is valued most in delivering the information to the leaders that can address the issues and fulfill the accountability. More important, the communication is highly suggested to minimize the revolving pressure within the organization, and at the same time, emphasize the importance of auditing (Franzel, 2008). In the deliberation of the leaders through the broadened view of internal auditing, there is one thing wherein they find very important and considered as the benefit of the internal auditing. The identification of the risks in the management may heighten the alert level of the people and the leaders are compelled to manage it well. Through the massive communication and placing the quality in it, the requirements that set in the standardized auditing can be fulfilled and the application of the risk management can be also set.

Monitoring is one of the common actions involved in the quality of internal control and performance in the system. For over time, it is a big dilemma for the propellers and managers to deal with the internal problems and taking part in the necessary corrective actions. The process of monitoring can be in the ways of comparison the actual results to the other reports already made in the areas such as budgeting, and can assure the effectiveness of the internal audit function. In the financial investigation of the auditors, the process of financial reporting and managing the risks can be the most important results. The responsibility of the management to collect and report the information can be the start of a complete, accurate, and reliable financial statements (McGladrey & Pullen, LLP, 2008).

Internal Auditing Standards vs. Professional and Ethical Standards and Guidance

The standards in the nature of internal auditing are characterized through the cooperation of the parties in the internal audit activities. Through the application of these standards, the development can be expected. Firstly, there is a need for the approval by the audit committee regarding the purpose, authority, and the responsibility of the internal audit activity. Under the internal auditing, the issue of independence and the internal auditors are emphasized which will be the main objective of the performance of their work. With this value on the independence of the people, the proficiency and improvement in the nature of their work can be assured.

The responsibility of the auditors is to maintain the quality of the auditing that can add value to the internal audit within the organization and assessment of the risks. In addition, the internal auditing is expected to evaluate and contribute to the improvement of the internal control, risk management, development of the long-term plan of the organization, disciplinary approach, and follow the process of monitoring to achieve the objectives of the organization (IIA, 2005). All of the applied procedures under the standards of internal auditing are purposely made to ensure that there is an effective management control.

On the other hand, the code of ethics is entirely made to promote the internal audit profession. This guidance establishes the trust and provides a strong foundation in the reliance of the auditor’s judgment. The integrity among the auditors is built by observing the law, while contributing in the legitimate and ethical objectives of the organization.  In addition, the internal auditors are expected to exhibit the highest level of professionalism and objectivity in terms collecting the necessary data, evaluating the information, and communication. To foster the reliability of the information, the auditors avoid unnecessary actions, activities, or relationships that might affect their credibility and objectivity.  

In the boundaries of ethics, there should remain a respect in the ownership of the information. Meaning, the auditors themselves are not allowed to use the information for their own benefit and it is under the legal supervision that all the information should be addressed under the appropriate authority. Under the ethical standards, the clients are also protected with the support to their right in confidentialities, which suppresses the action of the auditor if the client did not allow the use of information in the purpose of engagement (Meredith, 2009). Through the knowledge, skills, and experience of the internal auditors, their roles in the organization is emphasized towards the continuing professional development (IIA, 2005). Moreover, the fundamental responsibility of the practice in auditing is to pay attention in the public interest, professional competence and due care for judgment, professional independence, and the confidentiality in which emphasized in the ethical guidelines (Meredith, 2009).

Discussion

The approval of International Auditing Standards in New Zealand is applicable to audits of financial reports. With the compliance of the accounting principles on the standard assurance engagements and is intended to deliver the quality in auditing. In the international financial structure were changed because of the global financial environment. There is an increase financial integration and expansion can be the rapid problem in every country and can contribute various effects. The developing and emerging markets are under in the global economy. The shortcomings of the financial regulations and supervision can reflect in the national economic and financial policies. In the attempt to develop an international rules-based system should be linked between the national and international regulatory arrangements and be under on a single standard to align the institutions (Schneider and Silva, 2002).

The major benefit of the auditing standard is to maintain the public confidence with the integrity and quality of audits and the assurance of the engagements being performed by the accounting profession. The idea of the public confidence in the auditing and the assurance engagements can be only maximized if there is an application on the national standards that reflects on the international best practices. The ethical standards and guidance plays an important role in developing the professional standards in New Zealand. In the nature of public interest, services are provided by the members who recognize the importance of achieving the quality in audit and upholding the public interest. In this way, the standard can be the center of the audit’s best practice. In the consideration of the evaluation of information and its disclosure, the report can possess the credibility which is the main subject in reporting and assuring that information are reliable for the significant purpose. The assurance of the audit practices is relevant from the time obtained in the audit engagements. However, the size of the country as well as its complexity is in the matter of the entity of the reports provided. The nature of audit work can help in achieving the objective and assurance of the results. In this way, the objective of the existing Auditing Standards in New Zealand is reflected (NICA, 2005).

References:

ANAO, (2004) “Control Structures as Part of the Audit of Financial Statements of major Australian Government Entities for the Year Ending 30 June 2004”, Australian National Audit Office, Accessed 27 March 2010, from http://www.anao.gov.au/uploads/documents/2003-04_Audit_Report_58.pdf

Coetzee, G.P., & du Bruyn, R., (2001) “The relationship Between the New IIA Standards and the Internal Auditing Profession”, Meditari Accountancy Research, Vol. 9, Accessed 27 March 2010, from http://www.meditari.org.za/docs/2001/Coetzee%20&%20Du%20Bruyn%20-%20Meditari%202001%20_17_.pdf

Franzel, J., (2008) “Exposure Draft of Proposed Changes to the International Standards for the Professional Practice of Internal Auditing”, United States Government Accountability Office, Accessed 27 March 2010, from http://www.gao.gov/govaud/cl_iia080331.pdf

IIA, (2005) “Audit Committee Briefing: Internal Auditing Standards – Why They Matter?”, Accessed 27 March 2010, from www.theiia.org/download.cfm?file=83632

IRS, (2003) “The Joint Audit Planning Process: A Cooperative Effort of the Large and Mid-Size Business Division of the Internal Revenue Service and the Tax Executives Institute”, Internal Revenue Service, Accessed 27 March 2010, from http://www.irs.gov/pub/irs-utl/09-17-03_joint_audit_planning_process_with_cover.pdf

Johnson, E., Baird, J., Caster, P., Dilla, W., Early, C.E., & Louwers, T.J., (2003) “Challenges to Audit Education for the 21st Century: A Survey of Curricula, Course Content, and Delivery Methods The 2000-2001 Auditing Section Education Committee American Accounting Association”, Issues in Accounting Education, Vol. 18, No. 3.

McGladrey & Pullen, LLP, (2008) “Audit Committee Guide fro Financial Institutions”, Accessed 27 March 2010, from http://www.mcgladrey.com/Audit%20Committee%20Guide%20for%20Financial%20Institutions%202008.pdf

Meredith, P., (2009) “APES 315 Compilation of Financial Information”, Accounting Professional & Ethical Standards Board, Accessed 27 March 2010, from http://www.apesb.org.au/Document/Misc/Revised%20APES%20315%20%5BNov-2009%5D.pdf

NICA, (2005) “Adoption of International Standards of the International Auditing and Assurance Standards Board in New Zealand”, New Zealand Institute of Chartered Accountants, Accessed 05 April 2010, from http://www.iasplus.com/nz/0512ppbaudit.pdf

Schneider, B., & Silva, S., (2002) “Conference Report on International Standards and Codes: The Developing Country Perspective”, Commonwealth Secretariat, Accessed 05 April 2010, from http://www.odi.org.uk/events/codes_and_standards/report.pdf

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