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auditing international approach
Questions and Answers of
Auditing International Approach
The following sets of questions are designed to encourage you to develop estimates. You may not know the exact value, but try to develop a range, thinking analogously to situations with which you
Explain the general framework for quality control in auditing.
Why are ethical and self-regulatory procedures regarding external auditor performance not sufficient to protect the parties interested in financial information?
What are the fundamental economic determinants of audit quality control systems?
Describe the features of international standards on quality control for audit and assurance services proposed by the IFAC.
In your opinion, what are the main factors in the effectiveness of audit quality control systems in the big financial markets?
How do you evaluate the role of government in overseeing quality control in auditing?
Discuss changes in quality control made in Europe.
What are the characteristics of the quality control system in the UK and the proposed changes in this area?
How do you evaluate the strengths and weaknesses of audit quality control in the current US financial market?
What are the differences between the US and the European approaches to governance of quality control in auditing?
What are the arguments put forth by the SEC in reducing the role of professional bodies in monitoring the external auditors of publicly listed companies?
What are the oversight functions of PCAOB in audit quality control?
To what extent can the involvement of the audit committee contribute to enhancing quality control?
What are the requirements of the US market regulators (SEC, NYSE and NASDAQ) with regard to audit quality control?
To what extent would the changes proposed by the US regulators satisfy users’ expectations of quality control?
Discuss the role of the quality control procedures in enhancing the auditors’ reputation in a capital market economy.
To what extent does the creation of an oversight board contribute to better protection of shareholders and other interested parties concerning audited financial statements? Discuss
Several changes have been made in audit quality control since the corporate financial failures at the beginning of the twenty-first century in developed capital markets. Discuss these changes.
Discuss the characteristics of audit quality control systems in the US before and after the Sarbanes-Oxley Act of 2002.
To what extent do the quality control mechanisms established by market regulators and the audit profession affect the communication process between management and outside users of a company’s
Describe joint and several liability and the arguments for and against it.
Discuss why an increasing number of accounting firms have willingly settled lawsuits out of court.
What are the arguments raised by the accounting profession with regard to proportionate liability among co-defendants?
Discuss mandatory insurance for corporate directors and its effect on auditor liability.
In your opinion, how can the audit profession respond positively to stakeholders’ expectations and reduce liability in auditing?
What are the proposals made by UK professional bodies concerning auditor liability?
Discuss auditor liability in the German context.
What are the safeguards available to auditors when evaluating the threats in assurance services?
How do you evaluate the oversight role of PCAOB in minimizing the likelihood of lawsuits?
What administrative sanctions can the SEC bring against auditors in the US?
Discuss the effect of lawsuits on the auditor’s reputation.
Search for information concerning the monetary size of lawsuits against auditors in your own country in recent years. How does this compare to those in other big capital markets, for example in the
It has been argued that several economic, financial and judicial factors have served to increase the number of lawsuits against auditors in recent years. Identify the factors and the reasons for such
In some countries, a capping system has been introduced to deal with auditor liability.Discuss the characteristics of this system. What are the advantages and disadvantages of such a system from the
The loan decision-making process involves an actual or potential conflict of interest between the commercial bank and the company’s management. The independent auditor’s role has been emphasized
The number of lawsuits against accounting firms has increased in the past decade. Discuss the following questions:(a) How successful might the measures taken by regulatory agencies be in reducing
Assume that accounting firm XYZ has issued an unqualified opinion on the financial statements of Field Company for a particular year, which contained a material misstatement.In the subsequent year,
There are significant differences in economic, political, legal, financial and cultural situations between the EU and the US:(a) What are the features of the legal liability system in auditing in the
What major definitions are provided by the founders of ‘market efficiency’?
What is the importance of Fama’s definitions in capital market research?
Summarize the arguments for and against the market efficiency theory.
What are the characteristics of capital market research in auditing?
What problems occur in research design for ‘event studies’ in auditing?
What are the possible choices for determining the announcement date of audit qualification(s)? To what extent can the accuracy of this choice affect the findings of event studies in auditing?
In your opinion, to what extent does the media disclosure of audit opinions affect stock prices?
What reasons lie behind the differences in findings of studies conducted in Europe and in the US in the area of capital market research in auditing?
Discuss the term ‘concurrent disclosures’ in event studies in accounting and auditing.
In your opinion, why, in spite of the increasing role of the independent auditor in the capital market economy, is the audit opinion not considered as a determinant factor in investing and financing
What factors does a loan officer take into account when granting a loan to a company?
Among the different types of audit reports, which one should most influence loan officers?
In your opinion, why are the external auditor’s opinion and judgement not sufficient in evaluating the financial prospects of a company seeking a loan from a commercial bank?
Discuss the characteristics of ‘event studies’ in auditing research. Describe the test of Efficient Market Hypothesis (EMH) in this area.
Discuss the relationship between the efficiency of the capital market and the quality of financial information and financial statements.
Explain the steps in measuring the information content of qualified audit reports in the context of capital market research.
Discuss the essential findings of research studies in the US (notably Elliott (1982), Dodd et al. (1984), and Dopuch et al. (1986)). How do these results compare with those obtained in your own
In your opinion, to what extent does the information content of the audit report affect the decisions of: the company’s shareholders; the investors in financial market; and commercial bank officers?
Discuss the following:■ Among the different forms of audit opinions, which one should have most effect on stock prices? Discuss the reasons.■ What is and what should be the role of the external
Discuss the role of the external auditor in reducing the information asymmetry between company management and commercial banks. What are the main findings of empirical studies with regard to the
What are the characteristics of fraud and the conditions required for financial fraud to occur?
What are the auditor’s responsibilities for detecting fraud in a financial statement audit?
Why should an independent auditor have an attitude of professional scepticism in performing an audit?
What actions can companies take to prevent, deter and detect fraud?
Discuss briefly the auditor’s communications about possible fraud with various parties inside and outside the company.
Define the fraud risk factors by providing some examples.
What are the main ways in which the management manipulation of earnings may occur?
What does the term ‘big bath behaviour’ mean and how does it affect the auditor’s opinion on financial statements?
With reference to auditing standards, what actions does the auditor take if he/she is unable to continue the audit engagement as a result of a misstatement related to suspected fraud?
Explain the importance of ‘tone at the top’ or ‘control environment’ in reducing the risk of fraud in companies.
Why have external auditors not been entirely successful in reducing managers’ actions in‘making the numbers’?
In your opinion, what could be done to avoid auditor failures?DISCUSSION QUESTIONS
Define the terms ‘earnings management’ and ‘quality of earnings’ with respect to the external auditor’s responsibilities. Discuss the auditors’ responsibilities and how to draw a line
In recent years, there has been an increasing number of legal actions against external auditors particularly with regard to public companies. In your opinion, what are the reasons for this? Discuss.
A series of business scandals in the US (Enron, WorldCom, Tyco, Adelphia, etc.) and in the European financial markets (Royal Ahold in the Netherlands, Vivendi in France, Parmalat in Italy, etc.) have
During the audit process, the auditor performs different risk assessment procedures.(a) Discuss the characteristics of these procedures.(b) With reference to the auditing standards, what actions
Provide some examples of corporate financial failures that occurred in your own country in the past two decades and discuss the auditors’ responsibilities in these events.
Define the term ‘red flags’ of fraud and discuss the auditor’s considerations in this respect.
If the auditor has identified a fraud or has obtained information that indicates that a fraud may exist, the auditor should communicate these matters to interested parties. Discuss the auditor’s
In the context of the Statement on Auditing Standards (SAS 99 AICPA) and/or ISA 240(IFAC), what are the (a) incentives/pressures, (b) opportunities and (c) attitudes/rationalizations with regard to
What are the arguments for and against performing non-assurance services?
What do you think about auditor tenure in relation to audit quality?
Discuss briefly the arguments for and against the mandatory auditor rotation.
To what extent does the implementation of international financial reporting standards (IFRSs)affect the audit of financial statements?
How does the globalization of financial markets affect the audit function and the quality of the audit?
How do you evaluate the influence of audit concentration on audit quality and auditor performance?
What are the features of the pricing of audit services and its impact on audit performance and audit quality?
How do you evaluate the role of the audit committee in future audit services?
Do you agree with the idea that auditing is a multidisciplinary field? Why.
How do you define ‘real-time reporting’ and the changes it brings to auditing?
In your opinion, what challenges face the audit profession in the current capital market economy? What solutions would you propose?
The auditing industry (especially the Big Four firms or their predecessors, the Big Eight or Big Six) was traditionally involved in ‘non-audit services’. This had been a concern for market
Following recent financial failures, there has been more and more institutional involvement in the market economy with respect to audit function, including the regulation of the audit profession. How
Discuss the bubble economy, particularly the way it leads management to adopt increasingly creative and sophisticated accounting practices to produce robust earnings. In your opinion, how does
‘Relative to the size of their clients, smaller accounting firms have higher litigation rates and are the subject of more SEC enforcement actions’ (DeFond and Francis, 2005: 22). Discuss the
‘In calling on academics to “fix” the auditing profession we feel it is important to recognize that there is an inherent threat to our own independence when we investigate the auditing
Discuss the following topics with regard to auditor independence:(a) Auditor objectivity and reliability.(b) Auditor reputation.(c) Auditor expertise and competence.
Consider the following questions:(a) Taking into consideration all deficiencies and constraints in the audit environment, what is your overall assessment of the audit profession?(b) How do you
Discuss the changes affecting assurance services.
discuss the issues of audit research.
List and describe the ethical principles in the audit profession and their importance and impact on auditors’ performance.
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