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auditing international approach
Auditing An International Approach 1st Edition Bahram Soltani - Solutions
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 UK and the US?
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 factors.
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 viewpoint of investors and auditors?
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 in the risk assessment of loan decisions. Assume that an auditor issued an unqualified opinion on
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 lawsuits in auditing?(b) What steps, in your opinion, should be taken by accounting firms to ease the
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, the company sustained significant operating losses, and the stock price went down by 60 percent
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 EU?(b) What are the differences between the European and the US approaches to auditor liability?(c)
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 decisions?
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 country?
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 auditor with regard to the protection of the public interest in terms of their investment decisions
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 relation between audit report and lending decisions?
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 between ‘earnings management’ and fraud.
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 shaken the world capital markets. The auditors have been publicly criticized by market regulators.
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 should be taken by external auditors to minimize the risks of material misstatement due to fraud?
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 responsibility with regard to:(a) Communications with management and those charged with governance.(b)
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 the risk factors (misstatements) arising from misappropriation of assets?Discuss.
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 regulatory agencies who decided to ban audit firms from performing some of these activities for their
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 do you evaluate this intervention? Do you believe that the auditing profession is unable to
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 earnings quality affect audit quality?
‘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 importance of a firm’s size for audit of financial statements and audit quality.
‘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 profession. This threat arises because the auditing industry hires our students, makes donations to our
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 evaluate the future of the audit profession? Do you believe it will be able to overcome the current
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.
Discuss the importance of ethical values such as integrity, objectivity and independence of auditors in terms of enhancing public confidence and the better functioning of capital markets.
How can auditor independence best be defined?
What are the reasons for auditor independence in a capital market economy?
What are the threats affecting auditor objectivity and independence, and the possible safeguards to eliminate such threats or reduce them to an acceptable level?
In the context of compliance with ethical standards in auditing, define the policies and procedures that should be established by audit firms to promote a strong control environment.
What are the features of the economics of auditor independence?
To what extent can auditor independence affect the quality and credibility of corporate financial statements?
What are the reasons affecting the change in attitude of regulators to ethics and the independence of external auditors?
In your opinion, to what extent can non-audit services fees compromise auditor independence?
What definitions of auditor independence are provided by different capital market regulators and professional bodies (European, US, international)? What are the recent developments in defining auditor independence?
Discuss the effect of the corporate failures of recent years on public confidence in terms of ethics and auditor independence.
What are the steps that have been taken by the European Commission, and why have they been taken, to reinforce auditor independence in recent years?
What are the objectives and elements discussed in the IFAC Code of Ethics?
In your opinion, to what extent can the presence of an audit committee affect auditor independence?
Discuss the US regulators’ position on (a) non-audit services provided by external auditors of publicly listed companies and (b) partner rotation within audit firms.
Explain the differences between US and EU approaches towards auditor independence.
What are the responses of the audit profession in the EU and the US to regulatory measures in the area of auditing? Discuss these.
In your opinion, what are the important issues affecting auditor independence in a capital market economy? Why is the inquiry into auditor independence becoming increasingly important?
What are the characteristics of the rules adopted in the EU environment governing auditor independence? Discuss this question with reference to (a) the Sarbanes-Oxley Act of 2002 and (b) the SEC Final Rules of 2003.
‘The relationship of “management-auditor-shareholder” is potentially conflicting and in today’s society the independence of auditors is considered a major issue. In addition to the problems associated with this relationship, auditors are themselves acting as economic agents who maximize
‘The audit committee is usually responsible for supervising the relationship between the auditors and the company and of the conduct of the audit process. As the shareholders’representatives, the audit committee has ultimate authority for selecting, evaluating, and, if needed, replacing the
Auditor independence and non-audit services The following statement relates to some of the potential conflicts that impair auditor independence when auditors perform audit and non-audit services for the same client. Read and discuss the statement. Provide your opinion on each individual question
What is the relationship between materiality and the phrase obtain reasonable assurance used in the auditor’s report?
Define the control risk and the basis of its assessment.
Define auditors’ responses to material misstatements and assessed risk.
Define the ‘occurrence risk’ in the context of the audit risk model.
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