Chap 1
Chap 1
Chap 1
Chapter 2
LEARNING OBJECTIVES
Communications to Stakeholders
– the Financial Statement
THEORIES ON
THE DEMAND AND
SUPPLY
OF AUDIT SERVICES
Policeman Theory
An auditor’s job is to focus on arithmetical accuracy and on the prevention and
detection of fraud.
Lending Credibility Theory
Audited financial statements are used by management to enhance the
stakeholders’ faith in management’s stewardship.
Agency Theory
A company is viewed as the result of more or less formal contracts, in which
several groups make some kind of contribution to the company, given a certain
price. A reputable auditor is appointed not only in the interest of third parties,
but also in the interest of management.
AUDIT REGULATION :
INTERNATIONAL
PERSPECTIVE
US Sarbanes-Oxley Act
Comprehensive and well defined accounting and auditing principles and standards that are
generally accepted
Legal requirements for the preparation and publication of financial statements according to
those principles and standards
Liability to Clients
Ultramares
Caparo
German Liability
Civil Liability under Statutory Law
Nearly all national audit professions have some sort of diciplinary court.
In most countries, anyone can lodge a complaint against an auditor,
regardless of one’s involvement with the auditor. The disciplinary court
typically consists of representatives of the audit and legal professions,
and sometimes representatives of the general public.
Having heard the arguments of the plaintiff and the defendant, the court
makes its judgment and determines the sanction – if any – against the
auditor. The sanction may vary. It may be :
-A fine
-A reprimand
-A suspension for a limited period of time
-A lifetime ban from the profession
Suggested Solutions to Auditor Liability :
Exclude certain activities with higher risk profile from the auditors’
liability.
A. B. C.
Fairness of Company’s Company’s internal
financial ability to control system
statements continue as a Barings bank
going concern. example
Reporting on
D. Effectivenees of
Occurrance of fraud. internal control
Famous fraud
Object of an audit one hundreed E.
years ago Occurrence of
Fraud- a responbility not assumed ilegal acts
Fraud back in the spotlight
Fraud in planning, evaluating, and
reporting
EXAMPLE OF
LANDMARK STUDIES
AND LEGISLATION
THAT INFLUENCED
THE INTERNATIONAL
AUDIT MARKET
Harmonising the
definitions
regarding internal
control and is
components