The SEC considers the auditor as the key factor or the gatekeeper in protecting public interest through strictly follow the professional standards to perform the audit job. However‚ under SEC’s investigation‚ there are many cases in which many auditors and audit firms‚ especially the big four accounting firms‚ did not follow the professional standards in doing the audit job. That led SEC to concern about the violation of the accounting profession. Independence is the first common issue considered
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not allow for a company’s auditors to also provide tax services and still retain their independence. The SEC and the PCAOB have put restrictions on the nonaudit services that a company’s auditors can provide. These restrictions really limit the company’s auditors to the extent that if a firm provides auditing services for a company they cannot really provide any other types of services. This limitation was put into place in order to maintain the independence of auditors and the companies that they
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classes of audit firms (now Big 4 vs. non-Big 4) has been a very productive research hypothesis since early 1980’s: * audit quality = level of assurance (probability that financial statements are fairly stated when an unqualified opinion is given) * “product differentiation hypothesis” in auditing traces back to work of Dopuch & Simunic (“Competition in Auditing: An Assessment”‚ 1980 U of Illinois Auditing Research Symposium) and DeAngelo (“Auditor Size & Audit Quality”‚ JAE
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information from its auditors.
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different thoughts and judgments about the case when Arthur Anderson failed its tasks to detect fraudulent financial activities on Enron and several different companies. The Enron Company filed bankruptcy in December of 2001.Being well known as a big energy company which headquarters is located in Houston‚ the bankruptcy of the company drew lots off attentions from business world. Questions were asked and lots of financial misstatements were revealed and Arthur Andersen – Enron’s external auditing
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certifying their financial statements as true & fair‚ and therefore failing miserably in their duty as an auditor which ultimately led to their decline. This scandal made way for many changes including the Sarbanes-Oxley Act which requires companies to re-evaluate its internal audit procedures and make sure that everything is running up to or exceeding the expectations of the auditors. Introduction – Arthur Andersen and Enron - two names that will forever live in infamy because of the events
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Summarize these developments in a bullet format. 2. Suppose that a large investment firm had approximately 10 percent of its total assets invested in funds managed by Madoff Securities. What audit procedures should the investment firm’s independent auditors have applied to those assets? 3. Describe the nature and purpose of a “peer review.” Would peer reviews of Friehling & Horowitz have likely resulted in the discovery of the Madoff fraud? Why or why not? 4. Professional auditing standards discuss
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confidence in financial reporting and auditing spread to other countries. The Accountancy Foundation Review Board which was at the time responsible for the independent oversight of the UK accountancy professional bodies took the leading role in the auditor independence review in the UK. In the US the Sarbanes-Oxley Act for passed in 2002 to restore confident in the US financial market and further regulations were passed around the world including the European commission review (Green Paper). INTRODUCTION
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recognized the retention of audit clients as imperative and a loss of a client would be detrimental to an auditor’s career. This is where the issue in regards to auditors standing up to management and the client became unclear. AA was the only firm to allow the partner in charge of the audit to override a ruling of the quality control partner. The auditor had a fiduciary duty to the shareholders of the company being audited not to the company itself. Another major contributing factor was AA’s approval of
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manipulations of accruals. Journal of Accounting and Economics 17 (1-2): 145-176. ‚ and J. R. Francis‚ and T. J. Wong‚ 2000. Auditor industry specialization and market segmentation: Evidence from Hong Kong. Auditing: A Journal of Practice and Theory 19 (1): 4966. ‚ and D. J. Stokes. 2002. Brand name audit pricing‚ industry specialization and leadership premiums post-Big 8 and Big 6 Mergers. Contemporary Accounting Research 19 (1): 77-110. Francis‚ J. 2004. What do we know about audit quality? The British
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