Buacc3741 auditing Auditing profession is an inseparable part of the current structure of the organizations. Financial statements of the firms have to be assessed to ensure the fairness, and for this reason audit of the statements are necessary. Different conflicts about the auditors have been discussed in this assignment in consideration with various perceptions and reality. The actual role and current scenario is compared to answer the questions. Examples from the practical world are also compared to justify different opinions. The expected role of auditor and actual situation can be determined from this assignment.

1. An assignment on
auditing
[Type the document subtitle]

2. Abstract
Auditing profession is an inseparable part of the current structure of the organizations.
Financial statements of the firms have to be assessed to ensure the fairness, and for this
reason audit of the statements are necessary. Different conflicts about the auditors have been
discussed in this assignment in consideration with various perceptions and reality. The actual
role and current scenario is compared to answer the questions. Examples from the practical
world are also compared to justify different opinions. The expected role of auditor and actual
situation can be determined from this assignment.

3. Contents
Abstract.......................................................................................................................................1
Introduction.................................................................................................................................3
Answer to questions..................................................................................................................... 4
Answer to the question no. 1: “Trust me, I am an accountant” .................................................... 4
Part 1: Suggestion about this statement ................................................................................. 4
Part 2: Lending support to this proposition............................................................................. 4
Answer to the question no. 2: how audit committee can addvalue ............................................. 4
Answer to the question no. 3: Taking auditorindependence literally ...........................................5
Answer to the question no. 4: Whether the auditor only tick boxes or not...................................5
Answer to the question no. 5: Case of Arthur Anderson............................................................... 6
Answer to the question no. 6: consideration of going concern by the auditor............................... 6
Answer to the question no. 7: An auditor is a watchdog, not a bloodhound .................................7
Answer to the question no. 8: considering the potential risks...................................................... 7
Answer to the question no. 9: Rotation of the audit firm............................................................. 8
Conclusion & Recommendation.....................................................................................................9
Bibliography............................................................................................................................... 10

4. Introduction
The current structure of the companies is dependent on the opinion of an independent auditor,
as the management is different from its actual owners. The owners of the companies don’t
participate in the management and management works as an agent to the shareholders. As per
Adam Smith (1776), management has an inherent tendency to manipulate(Arens &
Loebbecke, 2011). Shareholders give the responsibility to manage and run the organization in
order to maximize their profit. But the management tries to maximize own profit. So, there is
an agency conflict between the management and the shareholders. Here, the necessity of the
auditor comes.
Auditing is an independent third party who gives opinion about the financial reports and
statements provided to the shareholders and others(Hooks, 2009). But, there is a huge conflict
about the auditors and accountants in the corporate arena due to various reasons. Different
conflicts about the auditors have been discussed in this assignment in consideration with
various perceptions and reality. The actual role and current scenario is compared to answer
the questions. Examples from the practical world are also compared to justify different
opinions. The expected role of auditor and actual situation can be determined from this
assignment.

5. Answer to questions
Answer to the question no. 1: “Trust me, I am an accountant”
Part 1: Suggestionaboutthisstatement
Accountants are given the responsibility to properly prepare the financial statements and
other books of accounts of the organization. But, there is a common belief that accountants
are dishonest and they engage in preparing the false financial statements and books of
accounts(Lambert & Alexander, 1989). This belief was established due to several fraudulent
activities, where accountants were directly engaged. The example of Enron collapse indicates
that accountants are often engaged in such fraudulent activities(Haldeman, 2006). So, the
people have doubt about the honesty of the accountants. But, in reality, most of the
accountants are honest, though some accountants lack ethics and engage in fraudulent
activities(Humphrey, 2006). So, I suggest increasing the accountability of the accountant in
order to create positive image.
Part 2: Lendingsupportto thisproposition
Any proposition should have some bases. This suggestion about the accountant also should
have some bases. The worldwide activities of the accountants are often creating negative
impression on the stakeholders. If the accountant works with more transparency and the
ethical standards are increased, the positive image will be established. So, positive
performance of accountant can help establishing positive image.
Answer to the question no. 2: how audit committee can add value
A company should have an audit committee as per the requirement of the Company Act,
2001. There are some ways by which the audit committee members can add value to the
organizations. Some of the ways are-
1. Ensuring a proper risk management system in the company
2. Finding the weakness of the internal control and strengthening the internal control
system
3. Ensuring that the company is complying the regulatory requirements of the regulatory
bodies in terms of audit(Colbert, 1996)
4. Provide assistance to the internal audit of the organization
5. Helping the external auditor in conducting the audit operation

6. 6. Managing the required resources and ensuring the independence of the external
auditor in the audit operation
7. Reviewing the governance arrangement of the entity
8. Helping the entity in building and analyzing its performance framework in order to
improve the performance of the organization in internal control and other
systems(Anderson, 2011).
Answer to the question no. 3: Taking auditor independence literally
According to Flint (1988), Auditor independence should have the characteristic of completely
objective, unprejudiced, uncompromised, unbiased and uninfluenced(Mautz & Sharaf, 2008).
This independence of the auditor is one of the major preconditions of an efficient audit
process. Auditor independence is considered by the accountants and auditors as one of the
major requirements of audit beside the integrity, accountability and objectivity.
According to Mautz & Sharaf (2008), there are 2 types of auditor independence. Those are
the independence of practitioner and independence of profession. In any audit engagement,
these 2 types of independence should be ensured(Mautz & Sharaf, 2008). If the auditor
independence is taken literally and given proper facilities as per the legal requirement by the
audit client, then the audit independence can bring the actual result of the audit. If the audit
committee or management of the organization ensures the practitioner independence, the
auditor will enjoy independence in programming, investigation and reporting(Bunker, 2004).
The profession independence is the independence of the audit profession in common terms.
So, when Jeff took the independence literally and provides proper independence to auditor,
there will be a fair audit work and the audit opinion will be also neutral.
Answer to the question no. 4: Whether the auditor only tick boxes or not
Auditing is the profession where the auditor works to find the fairness and comment on the
fairness of the financial statements of the client. The financial statement is prepared by the
accountant of the client where they include all necessary information(Humphrey, 2006). If
the financial statements are misstated materially, stakeholders of the organization will be
deprived and the management will be benefited. So, the auditor checks the financial
statements and gives an opinion. But, due to huge number of transactions and evidences
auditor can’t check all the transactions within a short period of time. So, the auditor works on
a sampling basis to check the transactions. In this process auditor may tick some boxes, but it

7. is not true that auditor only tick some boxes. They check the inventories, match the
transactions, and assess the valuation of assets and liabilities on sampling basis by using their
professional judgment(Taylor, 2003). So, the statement is not true regarding the tick boxes of
auditor.
Answer to the question no. 5: Case of Arthur Anderson
Enron and Arthur Anderson case is one of the biggest collapses in the recent years. The
collapse of Enron helped the way of financial crisis in USA and later the global financial
crisis. The management of the Arthur Anderson misstated the financial statements of the firm
by overstating the asset and understating the liabilities(Bunker, 2004). The audit process was
faulty and the auditor firm Arthur Anderson was also engaged in this process. One of the
partners of Arthur Anderson ordered his secretary to “ship the documents of Enron to feds”
but the secretary misinterpreted the speech as “rip the documents of Enron to feds”. This
mistakes of secretary faster the collapse. This is a violation of proper audit process as there
should be written communication between the audit partners and practitioners. If the audit
process is effective and there are no fraudulent activities, people will stop thinking auditors as
the fraud and image will be positive.
Answer to the question no. 6: consideration of going concern by the auditor
An auditor has to check several issues in the audit process. If the auditor finds any material
risk in the operation of the firm which may affect the going concern assumption of the firm,
then the auditor will include this risk of liquidation in the opinion(Knapp & Knapp, 2012).
Going concern assumption of any firm states that the organization will be able continue its
operation without any significant threat of liquidation in the foreseeable future(Kieso et al.,
2008). Most of the auditor considers this threat of going concern in the firms’ transactions
and mention it in the audit opinion unless the auditor is engaged in any coalition with the
management unethically and illegally.
It is not possible that the auditor will understand the threat of going concern before the audit
process, so the presence of vultures with the auditor is not understandable to the auditor(Ivan,
2009). But, the management can understand it and can try to collude with the auditor.

8. Answer to the question no. 7: An auditor is a watchdog, not a bloodhound
The process of auditing requires drawing the attention of the stakeholders and management
towards the weakness and risks of the organizations. Any kind of material misstatement is
mentioned in the opinion of the auditor, if found. So, the auditor works like a watchdog
which blows the whistle to draw the attention(Arens et al., 2010). On the other hand, a
bloodhound is a sniffer dog which finds the blood or desired things. It is not possible to check
each and every transaction in any firm by the auditor and works like a sniffer dog or
bloodhound(Prentice, 2000). So, the auditor check the transactions on a test basis and
provides standard unqualified, qualified or disclaimer audit opinion based on the result of the
test.
The auditor provides reasonable assurance that the financial statements are presented fairly,
not any kind of absolute assurance. Even, it is not the duty of the auditor to detect the frauds.
They will assure reasonably that the information provided is free from material
misstatements.
Answer to the question no. 8: considering the potential risks
The auditor has to design an audit process where they will determine how to conduct the
audit. In this process, auditor will consider the risky areas by using his professional judgment.
In most of the firms, auditor check the internal control system, inventories, assets market
price or fair values, going concern capacity etc.
Auditor determines the audit risk by multiplying planned detection risk, inherent risk and
control risk. Auditor goes through by a test basis examination of the components of the
financial statements(Taylor, 2003). The use of professional skepticism and professional
judgment is considered important in this stage. So, the risk of avoiding any significant
transactions lies there. But, if the auditor applies his professional skepticism and professional
judgment, the risk of avoiding the fraud and material misstatements is minimized up to a
great extent. So, the auditor checks the risks of material misstatements(Rogo, n.d.). The risk
of avoiding frauds is less if the auditor follows the auditing standards in the audit process.
AR = PDR X IR X CR

9. Graph: Audit Risk
Answer to the question no. 9: Rotation of the audit firm
Assurance service is one of the main earning sources of the audit and accounting firms. With
the rise of the audit firms, there is a competition among the firms to find clients. In this
process, the audit firms are often engaged in unethical activities of negotiating the client by
avoiding the actual audit objectives. Sometimes it is seen that, audit firm tries to satisfy the
management by giving a wrong opinion in favor of the management so that they can get the
audit engagement in the following year. This practice is prohibited by the regulatory bodies
and Corporations Act, 2001 encourages rotating the auditor after 3 to 5 years(Knapp &
Knapp, 2012). In some firms, it is seen that auditors are changed because of not giving the
friendly but wrong audit opinion. The professional point of view of the auditor states that
auditor should not be afraid of this practice; they should conduct the audit opinion properly
and give fair opinion. If quality audit is ensured, there will be plenty of audit engagement for
the auditors.

10. Conclusion& Recommendation
There are some common negative perceptions about the auditors which are established due to
some activities of the auditors. If the auditors are aware about their activities and continue the
audit operations properly by following the standards and requirements, there will be no such
blames and the auditor will be treated with proper honor and respect(Arens et al., 2010).
Quality audit performances will increase the demand of the firm among the clients too.

11. Bibliography
Anderson,K.L.,2011. The EffectsOf HindsightBiasOnAuditors’Confidence InGoing-Concern
JudgmentsAndOnThe AuditOpinionDecision. Journalof Business&EconomicsResearch,9(9).
Arens,A.A.,Elder,J.R.&Beasley,M.S.,2010. Auditing and Assurance services:An intregrated
approach. 13thed.Upper Saddle River:PrenticeHall.
Arens,A.A.&Loebbecke,J.K.,2011. Auditing,An intigrated approach.8thed.McGraw Hill.
Bunker,A.S.,2004. Effective Auditing:How toBe a Good Auditor. RSOMagazine,9(3).
Colbert,J.L.,1996. International andUSStandards - auditriskand materiality. ManagerialAuditing
Journal, ,11(8), pp.31-35.
Haldeman,R.G.,2006. Fact, Fiction,andFair Value Accountingat Enron.
Hooks,K.L.,2009. Auditing and AssuranceServices:UnderstandingtheIntegrated Audit.8thed.
UnitedStatesof America:JohnWiley&Sons.
Humphrey,C.,2006. AuditExpectations. Journalof Auditing.
Ivan,R., 2009. Standardizationof Audit. Annalsof theUniversity of Petroşani, pp.4-9.
Kieso,D.E.,Weygandt,J.J.&Warfield,T.D.,2008. IntermediateAccounting.11thed.JohnWiley&
sons,Inc.
Knapp,M.C. & Knapp,C.A.,2012. Cognitive BiasesinAuditEngagements:ErrorsinJudgementand
StrategiesforPrevention. TheCPA Journal,LXXXII(6),pp.40-45.
Lambert,J.T.R.K.R.&Alexander,E.R.,1989. Experience AndThe QualityOf Managerial Decision
Making:The Case of Auditors'MaterialityJudgments. Journalof ManagerialIssues.
Mautz & Sharaf,2008. Meaning and the importanceof theauditorindependence.
Prentice,R.A.,2000. The SEC andMDP: Implicationsof the Self-ServingBiasforIndependent
Auditing. Ohio StateLawJournal,61,p.1597.
Rogo,N.,n.d. 8 Stepsfor ConductingaMarketingAudit. 2010.
Taylor,G., 2003. AuditJudgment:Risk&Materiality.