International Auditing Standards

Discuss about the International Auditing Standards.

Introduction:

In order to reduce an audit risk, an auditor is required by companies to attain reasonable assurance. The question that arises is how low is a low level. Therefore, an audit gap is created by the difference between the eyes of the auditor and the end users of the financial statements (Anandarajan and Kleinman, n.d.). In this paper, we shall analayze how an expectation gap arises and how it can be reduced in auditing. However, in audit, there is unprofessionalism as evidenced by the case of Enron in America which was one of the biggest scandals. We shall analyze all aspects of expectation gap in the U.S. In this paper, we shall look at the expectectations of financial end users versus what the auditor has provided.

Promoting common rule

Auditing promotes common rule by inculcating a code of ethics and a standarndrd way of reporting that are prescribed by the IAS (International Auditing Standards). In the U.S, this standards are also applied when auditors are doing their work and reduce the expectation gap.The objective of this paper is to show which areas the auditing gap falls and how this issues can be solved. In a highly complex and globalized business environment, as well as events of global financial turmoil have marked the critical need for credible financial reporting and high quality (Hayes, 2005). External audit in the U.S  plays a significant role in ensuring that there is quality of financial reporting, whether in the capital markets, public or private sector role. Notably, the audit reporting process is only one element of the broader process of financial and corporate reporting; however, it is very important for communication with users of the financial statements. Reducing the gap in expectations is one of the challenges of the process of audit reports, this can be reduced  by improving communication in the report.

Link with management and public

The auditor should take into account all the areas that have little or no strong internal control and recommend these areas to be strengthened. Therefore , an auditors’ main work is to do  audit based on what the management and the shareholders want to know regarding  these areas or departments. The expectation gap should be decreased to enable the management and the public in the U.S comprehend what the auditors report addresses.

Environment audit

Auditing these key areas in any business should be comprehensive and the auditor should explain how this should be improved by providing more information in his report for the management to improve the internal controls (International standards on auditing, 2003).This information gap can be reduced from a combination of provision of additional information of the entity issued by management and those charged with governance or, where appropriate, by the auditor,Through the auditor's report, the views of this on some aspects of the entity; eg key businesses, audit risk and operational that the auditor believes exist, the adequacy of accounting policies, changes in accounting policies, methods and judgments made in the valuation of assets and liabilities, unusual large transactions, entity estimates, among others.

Ethical issues in auditing comparison of auditor and management

Auditors who have strong links or economical ties with the company may be compromised because the need to retain the client sometimes affects auditors judgement. Therefore, they may present compromised reports to the shareholders. Also, the failure to follow auditing standards and lack of education with regards to cooperation of the management with the auditors leads to compromised reports.  Other unethical behaviors include denying the auditor access to premises and intimidation by the management.

Role of Auditor In reducing expectations in audit report

International Standards on Auditing (ISA 720) require the auditor to review  information in documents containing audited financial statements to identify possible inconsistencies; however, there are views on the possibility that the auditor include a demonstration of their responsibility in this connection even present a conclusion on this other information. Role of the auditor is to provide comments on important issues for understanding of users of financial statements audited or business audit (Lehman, 2006).
Also, some suggest possible changes in the standard auditor's report, additional paragraphs to report in more detail on the work and the audit process; in the same way, some users suggest that the auditor  should include comments and perceptions about the entity, such as the quality of internal control systems and financial reporting process, qualitative aspects of accounting policies, the assessment by the auditor estimates and critical judgments of the entity, among others.

Link with management and public

There are a variety of models of interaction between charged with governance and auditors, depending on each jurisdiction today. It has been suggested by some users, the need for communication between auditors and those charged with governance are publicly disseminated to users of financial statements, in order to reduce the information gap there. Also, possible improvements to the role that those charged with governance, could be taken by Firstly, the issuance of reports by these shareholders or other stakeholders and Secondly, the issuance of reports in more detail by the auditor on the reports issued by those charged with governance.

Some users believe that the expectations and information gaps persist until the auditor involvement is required on some issues that today are not part of the scope of an audit of financial statements, such as corporate governance arrangements, including business model sustainability-risk management throughout the organization, key performance indicators, and so on (Millichamp, 2002).

Link with auditing standards

The IAASB continues in its quest to identify the views of users about possible effects and implications of the options for the changes in the expectation gap; also it is of particular interest to know what their influence on the information gap and related costs, and see if there is any positive or negative effect in relation to the following matters:  The roles, responsibilities and obligations relating to management, corporate governance, auditors and users in relation to the financial reporting process should be linked anchored by international standards such as the IAS(Pickett, 2004). The attitude of these parties to perform these roles or responsibilities, as well as their interactions with each of the other parties is dependent on these standards. The ability of users to understand the process of corporate reports is very important.

Findings

The findings of the articles show that there are issues with the auditors not following the set standards in the U.K (Hayes, 2005).. Guidelines such as the IFRS, IAS  must be followed by the auditor to give objective reports to the shareholders. Therefore, an audit committee should be formed to oversee the process of reporting as well as financial reporting. The audit committee also monitors the policies and principles used by the auditors. They ensure independence of the auditors which is very important to the shareholders. It is important  to explore the views of users of audited financial statements, on the usefulness, quality, expectations and weaknesses of the process of audit reports. This is because these users are the ones who require the auditor's work for the purpose of supporting their decision making on  financial investment entities.

Conclusion

To summarize there are ways and means to improve the communicative value of the auditor so as to reduce the expectation gap . Firstly , consider putting or presentating  more valuable standard paragraphs that make clear the respective responsibilities of management as well as the auditor . Secondly , resolve the lack of an accepted comprehension of some technical terms used in the auditor's report , lastly , be aware of the adjustments in the  auditor's opinion on the financial statements to give greater emphasis to it (Saxena et al., 2010) .

Possible changes in the process of audit reports allow us to analyze and interpret the future of work audit financial statements and reports in the medium term and, subsequently, be aware of what the stakeholders  are looking for the in key audited financial statements to analyze or consult the user auditor's report (Soltani, 2007). All these are ways to reduce the expectation gap in auditing.

References

Anandarajan, A. and Kleinman, G. (n.d.). International auditing standards in the United States.

Hayes, R. (2005). Principles of auditing. Harlow, England: Prentice Hall/Financial Times.

International standards on auditing. (2003). Stuttgart: Scha?ffer-Poeschel.

Lehman, C. (2006). Independent Accounts, Volume 12. Burlington: Emerald Group Pub.

Millichamp, A. (2002). Auditing. London: Continuum.

Pickett, K. (2004). The internal auditor at work. Hoboken, NJ: John Wiley & Sons.

Saxena, R., Srinivas, K., Rai, U. and Rai, S. (2010). Auditing. Mumbai [India]: Himalaya Pub. House.

Soltani, B. (2007). Auditing. Harlow: Financial Times Prentice Hall.

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