The Financial Audit Of The World 's Financial Audits

In order “to offer high-quality accounting services”, Arthur Andersen (AA), a Northwestern accounting professor started a business to offer services to clients promoting “integrity and sound audit opinions over higher short-run profits”. The company’s “four cornerstones” was good service, quality audits, well-managed staff, and profits for the firm. Their strategy was to focus on quality and high standards of audits rather than profits, a very successful strategy that led to consistent growth over the years.

However, the application of SOX has brought on regulations that public companies must put in place and follow to prohibit these unethical occurrences. One major advantage for associated with SOX is that more thorough audits are being conducted by auditing firms. Audits being conducted more thoroughly will provide accuracy and an increased reliability of financial data. This will affect taxes in a positive way and provide firms with an advantage. Causholli, Chambers, and Payne (2014) suggest that prior to the implementation of SOX in 2002, “an auditor’s opportunity to sell additional non-audit services in the subsequent year, coupled with the client’s willingness to buy services, intensified the economic bond between auditor and client, in turn reducing auditor independence and the quality of financial reporting” (p.681). The regulation of auditor provided non-audit tax services has increased the reliability of tax and financial reporting within companies. Seetharaman, Sun, and Wang (2011) explain that “in a post-Sarbanes-Oxley environment, the benefits of auditor-provided non-audit tax services (NATS) seem to manifest themselves in higher quality tax-related financial statement management assertions” (p. 677).

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

In the United States, the 1934 establishment of the Securities and Exchange Commission (SEC) ensures that reliable and complete financial information is available to investors (Hoyle, Schaefer, & Doupnik, 2013). Since its formation, “the SEC has administrated rules and regulations created by a number of different congressional actions” (Hoyle et al., 2013, p. 552). Nonetheless, external auditors were not regulated and conducted both audit and non-audit (i.e., consulting) services for the same organization; thus, creating a conflict of interest. Moreover, board of directors were not

The Sarbanes Oxley Act of 2002 marked a significant change in the world of business with relation to auditors and public companies. In this paper, I will discuss the causes that led to the creation of the Sarbanes Oxley Act as well as key sections of the act that impact auditors and their effect on public companies and investors. I will also address the impact of the auditing standard no. 5 and how it pertain to auditors and public accounting firms.

The Auditing Standards Board has launched the Clarity Project (Lindberg & Seifert, 2011) which is an effort to make the U.S. Generally Accepted Auditing Standards (U.S. GAAS) easier to comprehend in the eyes of non-public businesses. “The Clarity Project will result in the first complete redrafting and recodification of U.S. GAAS since 1972” (Morris & Thomas, 2011, para. 2). Four of the most significant changes are: changing the format of the standards so they are more consistent and readable, the wording in the auditor’s report, group audit standards, and the authoritative status on the 10 generally accepted auditing standards (Morris & Thomas, 2011). The Clarity Project also includes the process of integrating the U.S. GAAS with International Standards on Auditing (ISA).

The purpose of Part 1 is to perform preliminary analytical procedures. You have been asked to focus your attention on two purposes of analytical procedures:

In 2009, the research done by Ghosh and Palewicz designnd for analyzing the auditing cost from 2000 through 2005. They collected 23,273 firm’s year observation (Ghosh and Palewicz 181) and the results indicates that the sample’s average audit fees in pre-SOX is $533,360 but after SOX it went up to $1,185,322 over two years, The increase in audit fees is $651,962 which is approximate 122 percent.(Ghosh and Palewicz 185).

When looking at the total assets, there is an inverse relationship between the amount of assets and the audit fees paid. Apple Inc. had the largest amount of total assets but paid the least amount in audit fees. On the other hand, Microsoft had the least amount of total assets but paid the most in audit fees. Finally, Walmart had the median amount of total assets and paid the median amount in fees. Comparing the fees by revenue did not produce any clear patterns, but comparing them by assets showed a clear inverse relationship.

control is not effective, the problem can be catastrophic as it was for Arthur Anderson in

As the wide-ranging business environment goes down, the rate of auditor litigation has increased. Lawsuits are a continuous threat to the auditing line of work. In this paper, we present evidence on lawsuits having a positive effect on auditors audit liabilities. It is the auditors’ responsibility to plan and complete the audit to obtain practical guarantee about if the financial statements are free of material misstatement or if they are caused by error or fraud. A mixture of court decisions and economic state of affairs has shaped the legal setting for the auditing line of work and the resulting lawsuits. Even though auditors are potentially legally responsible for both criminal and civil offenses; lawsuits have encouraged auditors to reduce their risks of legal action by instituting sound quality control and look at procedures. The majority of the time, for litigation to arise, the auditor must have given an unqualified audit opinion to a set of financial statements that are afterward revealed to have material misstatements or material omissions. According to the ACCA an auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market.

PricewaterhouseCoopers is one of the largest auditing firms in the world. The largest auditing firms’ collectively has been called the Big 4 since 2002. The list of the largest auditing firms have been cut in half since the 1980’s due to mergers with other large auditing firms. To call the Big 4 auditing firms is misleading. They each are a professional services network. Each firm in the network is owned and managed independently. The current PricewaterhouseCoopers came into being in 1998 when Coopers & Lybrand and Price Waterhouse merged into one. Both Coopers & Lybrand and Price Waterhouse, are auditing firms that were started in London in the 1840s. Soon, both firms starting to merge with other firms to create larger ones with more stake on the global market. Coopers & Lybrand quickly spread to Canada and the United States while Price Waterhouse went for a more global take over (Boys, 2005).

Lindberg and Beck (2002) claim that auditor independence is hailed as the “cornerstone” in the accounting profession as it is the core reason as to why the public trusts their professional opinion. However, since 2000, many accounting fraud scandals have negatively impacted public opinion on the legitimacy of the audit profession and, if in fact, its independence is uninfluenced by other parties. One of the scandals being the sudden collapse of Enron, given that a few months prior its bankruptcy its auditors Arthur Andersen, which was one of the five largest audit and accounting firms, claimed that Enron was financially healthy, but in fact they were paid off

The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.