Audit Quality

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AUDIT QUALITY
A BRIEF DISCUSSION REGARDING THE QUALITY OF ASSURANCE AND AUDIT Student ID: 1204335 Xiaoyu ZHENG

AUDIT QUALITY
A BR IEF D ISC US SI ON R EGAR D IN G THE QUAL IT Y OF A S SUR A N CE AN D A UD IT

A

INTRODUCTION

uditing has inevitably become one of the essential activities in the current business world. It may be attributable to the fact that financial reports still remain the major criteria in evaluating the performance of

the business. Audit quality refers to different denotations in various business sectors; hence in this paper deliberations of audit quality are limited to professional audit firms within the scheme of Australian Securities and Investments Commission (hereinafter ASIC). Due to the complexity of auditing processes, it is reasonable to expect a complicated infrastructure in assessing the quality of the auditing process. To cope with the words limit, two main factors affecting the audit quality most will be investigated in this paper. First factor is the regulation of current auditing practices involving legal frame work, ethical codes applicable to professional accounting bodies, and the regulators of audit review procedures. Subsequently the other factor, intrinsic drivers within the audit firms, will be analysed through the discussions surrounding the practices adopted by the audit firms. A final conclusion and recommendation will be presented to assist future explorations on audit quality topic.

University of Adelaide | AUDITING ASSIGNMENT SEMESTER 1 2012

AUDIT QUALITY

R EGULATIONS OF C URRENT A UDITING P RACTICES
Audit quality cannot and should not be assessed via one simple factor; conversely, many factors which are correlated jointly affect such quality. Three main substances involved in the regulations of current auditing practices are: legal framework, code of ethics and the level of due care and performances from audit firms as well as their regulator. Each of the three substances will be discussed with their current practices in regard to the quality of auditing processes.

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LEGAL FRAMEWORK
There are principally two major parts in the audit regulatory legal framework according to Treasury review (2010):  Company auditor registration system. Such system is articulated as a system that “enables accountants with necessary skills and knowledge to demonstrate their audit competency” (Institute of Chartered Accountants 2011). This system is to address the requirements listed in the Corporations Act section 1280. Quality audit can be assured via standardised competency with ongoing assessment such as logbooks.  Auditor independence regime. Corporations Act 2001 and other accounting and auditing standards include quite a few sections in regard to the independence of auditors; unfortunately there is no general statement that enforces auditors’ independence in the auditing practices. On the other hand, although impartial and objective judgement could be assumed if auditors act as per

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AUDIT QUALITY
described in Corporations Act 2001 at the time of engagement, there is no mechanics provided in the Corporations Act 2001 to assure the maintenance of such independence throughout the whole auditing process. Legal framework provides enforced conduct to auditing processes, however, if solely, its efficiency would be greatly limited. Other supporting aspects, especially ethical standards are necessary to ensure the audit quality.

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CODE OF ETHICS
Ethical issues have never failed to be an essential part of quality insurance in auditing process. The Accounting Professional and Ethical Standards Board (hereinafter APESB) establishes general code of ethics and other correlated standards. Ethical standards (APESB Standards & Guidance 2012) that must be abided by all three (CPA Australia, Institute of Chartered Accountants in Australia and National Institute of Accountants) major accounting bodies include public interest orientation, integrity, objectivity,...
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