The Future Directions of the Auditing Profession

BFA303

AUDITING

THE FUTURE DIRECTIONS OF THE AUDIT PROFESSION

Word Count: 1995

Executive Summary

This report discusses the historical and current practices required by audit professionals. This is broken down into three main subject areas, being:-

1 The Monitoring of the Profession’s Quality Issue;

2 The Skills and Auditor Needs To Posses; and,

3 The Structure of an Audit and Non Audit Service Engagement.

It is found from a comprehensive review of various literature available and previous studies that have been conducted on the topic that there have been extensive efforts to maintain an acceptable level of quality and monitoring within the audit profession with new and amended processes being put in place. However the success of such will depend on the ability of professional accounting bodies and the federal government to continuously raise the quality of the financial reporting standards whilst maintaining rigorous oversight, being constantly on the watch for loopholes and legislative flaws, of the business sector.

TABLE OF CONTENTS

1 Introduction - 1 -

2 The Monitoring of the Profession’s Quality - 1 -

2.1 SARBANES-OXLEY ACT - 2 -

2.2 CLERP 9 ACT - 2 -

2.3 AUDIT-PARTNER ROTATION - 2 -

3 The Skills and Auditor Needs to Posses - 3 -

4 The Structure of Audit and Non Audit Service Engagements - 5 -

5 Conclusion - 6 -

6 Recommendations - 6 -

7 References 8

1 Introduction

The role of an auditor is extremely important to the successful continuance of the entire corporate sector. This role is becoming increasingly complex and more rigorously standardised as the professional environment is subject to a seemingly never-ending cycle of fraud and scandal, and the occurrence of large corporate failures.

In answer to this changing environment, many new reforms, legislation and standard amendments have been being introduced and strictly enforced by both the major professional accounting bodies and the federal government in order to ensure that the profession maintains some degree of quality. These include the Sarbanes Oxley Act in the US, and CLERP 9 in Australia.

Some of the notable requirements of companies include the detailing of specific codes of ethics and the unquestionable maintenance of professional independence. Along with following these new guidelines, auditors must also posses a high level of skill and expertise. This being necessary as their role is, as mentioned above, extremely important in a company’s financial stakes.

2 The Monitoring of the Profession’s Quality

There has been a growing increase in the perception that the business sector is becoming known for its continuous cycle of regulatory failures and reform due to recent substantial and unexpected corporate failures (Cooper, Deo, 2005). There are continuing attempts to prevent this from constantly occurring and reoccurring with the introduction of various monitoring and control mechanisms in the form of more rigorous standards and legislation.

2.1 SARBANES-OXLEY ACT

The US Government’s response to the recent collapse of various seemingly significant corporations due to accounting scandals, was the enactment of the Sarbanes Oxley Act (2002) (SOX) on 30 June 2002 in an effort to raise and monitor the quality of corporate governance. Lavelle (2002, p 50) describes these changes as “the most sweeping structural changes in governance that have ever occurred.”

Some of the changes included to monitor quality were the requirement of certification by management and disclosure of internal control systems (S302), the provision of certain types of non-audit services being prohibited (S201), and the requirement that all members’s on a firm’s audit committee must be independent, with at least one member being financial expert (S311) (Salmon &Carson, 2008).

2.2 CLERP 9 ACT

Australia’s