The auditing is simply expressing an opinion on the prepared financial statements. Many scandals in the past years have made the profession a little bit questioned. Many do not want to trust accountants, auditors since auditors were in the core of these issues. Various regulations are there to give a good stance in the profession.

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Auditing Assignment

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Abstract:
The auditing is simply expressing an opinion on the prepared financial statements. Many
scandals in the past years have made the profession a little bit questioned. Many do not want
to trust accountants, auditors since auditors were in the core of these issues. Various
regulations are there to give a good stance in the profession.

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Table of Contents
Abstract:2
Introduction:4
AnswertoQuestion3:5
i. Mental Independence:5
ii. Independence by Appearance:5
AnswertoQuestion5:7
AnswertoQuestion7:9
AnswertoQuestion8:10
AnswertoQuestion9:12
Conclusion:13
References:14

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Introduction:
The auditing is one of the prestigious professions. But in the recent years, this view has been
changed a bit for many accounting scandals in the big corporations around the world. The
various aspects of auditing, risks, materiality, and expression of opinions –all are part of the
whole auditing procedures (Arens & Loebbecke, 2011). The auditors stated here are the third
parties who are independent and they give an opinion on the audited financial statements.
They are assigned by the shareholders on behalf of them to justify the financial statements
(Hooks, 2009). Auditors have to comply with this objective morally, legally and ethically.

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Answer to Question3:
Audit independence or auditor independence is an essential concept in auditing. To perform a
well-planned and well-designed audit, assurance service to the clients, it is a vital issue to be
addressed. The term audit independence refers to the concept of objectivity, unbiased,
uninfluenced works by them (Iain & Stuart 2007). The audit independence also entails the
concept of audit risk factors to be minimized in respect to fair representation, professional
compliances, ethical standards, and practiced norms (Ismail 2013). This independence has to
be in two forms:
i. Mental Independence:
This indicates the inner independence of the auditor. They have to be independent
from their mind setup. They have to keep in mind, for external auditors, that they have
been assigned by the board of directors, shareholders on behalf of them to give an
opinion regarding the fairness of the representation of the financial statements. They
should not be influenced by other parties, any unethical offers, and such things that
compromise their mental independence (Stefan 2008).
ii. Independence by Appearance:
The independence by appearance refers to the overall independence of the auditor
from which any one can get the idea, by observing auditors, that whether they are
biased, influenced, have compromised or not. This is a vital issue since the
appearance of the auditors gives us the signal of their commitment to the
shareholders. As a result, they should avoid any situations which signals that their
independence have been compromised on the ground of personal benefits (Larry E.,
Karla & Audrey 2009).
In the stated diagram, Jeff took the “Audit Independence Literally”. This implies that, the
auditors have to be independent –have to be uninfluenced, self-directed, self-interest driven,
maintain certain conditions, criteria to be fully independent (Mautz & Sharaf, 2008). The
independence is to be associated with integrity, objectivity, accountability for a proper result.
The diagram shows that to be independent, it does not necessarily indicate to be isolated and
work in isolation. It is best approach to be with other factors surrounded and work on the
basic individual ground as the assurance duties require.

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The assurance service of the auditors is the main function stated in the diagram. When
performing the audit services, the auditors when allowed full independence –mentally and by
appearance –they work better. The audit planning, execution of various auditing steps,
checking regular check lists to detect and minimize audit risks –all requires a certain level of
independence (K. H. Spencer 2006). To give literal independence this stated and prerequisite
independence is the main focus point and Jeff has pointed to this independence. When
management supports are adequate, material misstatements can be easily traced and reported
accordingly for a better and true and fair improved financial reporting.

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Answer to Question5:
The diagram stated depicts some practical notions about auditors and accountants. Basically,
auditing is expressing an opinion on the prepared financial statements by the organization,
management and accountants of the organization. The general views about auditing, shifting
of work people are the main illustrated issues in the diagrams.
The audit functions that is, the external audits are performed by independent audit
practitioners who demand a quite expensive figure (Michael & Marc 2013). As a result, the
corporations have to spend a good amount of money in conducting the auditing requirements
(Bunker, 2004). The other various tasks like –tax consultancy, business consultancy – are also
a part of this huge expenditure. In the recent years, the trend of outsourcing has made it
possible to do many of the tasks done by them to get at a lower rate with good or almost same
quality works. Compliances with various standards also can be maintained through this
outsourcing.
The second picture indicates the various accounting scandals like Enron, Arther Enderson,
WorldCom. The collapse in all these companies started with the dishonesty and personal
gains that is, breaching the independence and ethical codes (Andrew et al. 2000). The auditors’
duties were to find and assess material misstatements, fraudulent efforts. However, in recent
years, a vast awareness about these initiatives has created a negative attitude and notion of the
auditors. This led to the conclusion of the stated quote. Since the organisations’ are paying
huge for the auditing works but in many cases the auditors are not performing as they are
supposed to do. They, in many times, do compromise their professional and business
judgments for personal benefits which also hinders in their ways to perform independently.
The third picture shows a reality just mentioned long ago. The person knows about the
scandals and he assumed that any person who worked in such an organization could repeat
the same incident in any organization. Though this is a wrong concept, it holds true among
the public (K. H. Spencer 2010).
The last picture in the row gives an excellent example of audit works and procedures to
perform it. Any communication from the auditing firm to the other parties or within them
should be clear, written and properly communicated as if no confusion arises. However, in
the sated case, one of the officials of the Arther Anderson instructed to send documents as
evidences, but the instruction was not written. The person receiving the instructions could not

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understand better and heard that what have not been said at all (Knapp & Knapp, 2012). As a
result, the wrong set of instructions helped to accelerate the collapse of the auditing firm as
well.

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Answer to Question7:
The duties of a watchdog are to give signals of suspicious and non-ruled and regulated works.
A watchdog gives warnings of the possible threat if something wrong is seen. However, a
bloodhound’s duty is not like this. It can find out the each possible and actual criminal from
smelling their blood (Arens et al., 2010).
The both pictures illustrate a single concept regarding the works of auditors. The duty of the
auditors is to express an opinion on the basis of their performed engagement in any
organization according to certain standards, rules, norms, laws. In any organization, the
amount and volume of accounting and financial data are to be analysed, checked and cross
checked are huge (Prentice, 2000). Not a single auditing firm can check each and every detail
of the data given to them. As a result, auditing is done by sampling basis. The auditors assess
the risks associated the engagements prior to the acceptance of nay audit engagement.
The checking and testing the data according to the sampling basis is to be done in an orderly
fashioned and well-structured. Thus the question of prioritizing comes in to the discussion.
Collecting data, analyzing them, selecting the order of them –all seems tough if not well-
organised. This aspect has been said in the first picture.
The characteristics of a bloodhound is to analyse each and every data and after that give
decision based on the population. The duty of a watchdog is mild in this aspect. The auditors’
duties are to give opinions on the audited financial statements. Auditors’ works are based on
the sampling statistical tools where some data are ignored. They express a reasonable,
material decision about the organization (Robert 2008). As a result, the qualities of the
auditors match with the qualities of a watchdog. That is the reason the stated statement has
been mentioned.

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Answer to Question8:
The diagrams mentioned are a representation of the audit risks. Audit risk is a risk that an
audit firm will express an inappropriate opinion when the financial statements are basically
materially misstated. This is the aggregate form of a function of inherent risk, control risk and
detection risk (Larry, Karla & Audrey 2011). We can express it as:
Audit Risk = Inherent Risk x Detection Risk x Control Risk
The inherent risk is denoted to be the risks arising from the internal controls of the
organization. When the internal control of any organization does not work well or that is not
well regulated the inherent risk is higher. Because, there lies a great possibility that there
would be intentional material misstatements due to lack of proper corporate governance
practices (Phil 2007).
Detection risk means that the auditors will fail to identify any material misstatement and any
fraudulent activities. The auditor will be unable to detect the risks aforehand. This basically
deals with the procedures that will not be able to detect any risks, this factor is under the
control of the auditing firm.
The control risk is defined as that the internal control system will fail to prevent, detect or
correct the misstatements, any fraudulent activities.
The auditors consider a handful of reasons, risks in determining the audit risks. The risk
factors except these are not considered here in assessing the audit risk. The measures of
subjectivities, objectivity of the study, various possibilities are also to be taken into account.
The business risks, economic risks are also in this discussion. Auditors’ risk elements are a
very few as the diagram shows. Many other threats are not considered. That’s why the stated
notion has been stated.
The audit risk is stated always in number or percentage terms like 2%, 5%. This rate is
imposed on the basis of prior experience and other such tools. To measure the significance of
the audit risks the followings can be maintained (Puttick, Sandy & S. D. Van 2008):
 Determining whether the risk is a case of fraudulent activities.
 Whether the risk is arising from any particular change in the organisation’s strategic
level.
 The level of complexity of the transactions.

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 Is related parties are related in the transactions.
 In the measurement of subjectivity amidst various measurement of uncertainty.
 The significant nature of the transactions which are of unusual nature. These types of
event are to be observed carefully.
The role of the auditor is to express an opinion. The audit risk is to be measured before
accepting the engagement offer. However, it has to be reviewed and reevaluated with the
phase of time.

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Answer to Question9:
The diagrams show the audit firms rotation and the relationships between the auditors and the
management. To maintain a clear and transparent auditing the rotation is a mandatory action
taken by many countries. In Australia, the rotation of audit firm is not required but as per the
regulations of the Corporations Act 2001, the partners are to be rotated. However, in many
other parts of the world, this varies country to country (ICAS 2012).
The rotation is has been added as a step of true and fair view concept. If one person or if only
one auditing firm is doing all the tasks of auditing all the time, it is probable that the audit
team members can collude with the management to gather their personal interests. As if this
cannot happen, the rotation was introduced (United States 2008).
However, the audit firms are hired and paid by the organisation’s management. There exists a
huge possibility that the auditors will obey the objectives of the management. The
management has the authority to change the auditor any time. As a result, the auditors are in a
fear and as there exists a great chance of fraudulent with the management. The management
can make the auditor to work on his favor as if this is not done then the auditing is regulated
by the ethical standards. When the auditors give poor or any other opinions that go against
the management, they change the auditor. As shown in the diagram. This is true that
management always tries to manipulate the data (Chris 2011).
The auditors are doing this kind of malpractice for their fees charged. But if the auditors are
united and want to comply with the legal, and various standards they easily can do that. As an
independent auditor the auditors have responsibilities to be strict and obey the regulations. If
the auditors abide by the regulations, then they can earn more. The proper value of the
auditing is to be gained then. Quality is the thing that holds true in the long run. If the
auditing firms want to survive, they have to protest about the various unethical, illegal
practices prevailing in the market. Also there should be a provision for punishment for the
auditors who do not comply with these requirements at all.
The audit rotation was introduced as an initiative to ensure quality auditing. The introduction
of new partner or contract with new auditors can increase efficiency. However, the audit
firms themselves do not support rotation. The statistics shown clearly outlines this. Many big
companies have a single responsibilities regarding the rotation. They simply do not do this.

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Conclusion:
Regarding the work of auditors many questions arises for the many past events and scandals.
To be sustainable and reliable, resourceful, trustworthy auditors have to be more cautious to
their duties as to they do not let the people through questions to their profession. To ensure
quality works, complying with rules, regulations, and standards are to be maintained
properly.

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Bunker,AS2004, 'Effective Auditing:How toBe a Good Auditor', RSOMagazine,vol 9,no. 3.
Chris,AM2011, Handbookon InternationalCorporateGovernance:Country Analyses,EdwardElgar
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