Audting

Topics: Auditing, Audit, Auditor's report Pages: 5 (1376 words) Published: September 4, 2013
1.14How has the accounting profession’s role changed in recent years? What does the accounting profession currently have responsibility for?

From the earliest days of the accounting profession an important role was to provide a ‘brand name’ to illustrate quality. This still has an important value today. Some of the specific parts of the accounting profession’s role have included: ·developing standards of practice through research and issuance of standards, professional education, and the establishment of rules of conduct for members ·ensuring professional conduct and effective self-regulation of quality of service ·maintaining standards of qualifications through accredited courses, examinations, and practical experience for accountants seeking to become members.

The last ten years have seen a significant change in the role of the accounting profession in Australia. This has been, in part, a response to some of the corporate scandals of the early 2000s where there was a large amount of trust lost in the accounting profession and consequently some of their previous responsibilities have been taken over by the government. The responsibility for accounting and auditing standard setting for companies that report under the Corporations Act is now under government control. The regulation of accountants involved in the corporate reporting world is now mainly performed by ASIC. The accounting professions ongoing responsibilities are now mainly associated with: maintaining standards of qualification, ongoing professional development, and ethical standard setting.

1.15How has case law affected auditing practice?

Case law has been an important influence on what an auditor does and what an auditor reports since the late nineteenth century. One of the first major cases to address some of these emerging issues for the auditing profession was Kingston Cotton Mill Co. (1896) 2 Ch. 279, where Lopes made the following comment on what is required of an auditor:

It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution that a reasonably competent, careful and cautious auditor would use.

The emphasis of reasonable skill and care was a downgrading of the perceptions of auditor responsibility up to this time. It meant that the concepts of risk, materiality and sampling could be developed in the knowledge that the auditor was not attempting to provide absolute assurance on a set of financial statements. The term ‘reasonable assurance’ is still in the current audit opinion. This legal judgement also outlined that the audit role was not to detect fraud. Fraud is difficult to detect because it differs from error in that there is an intention to hide it, thereby making it harder to find than standard ‘errors’. This judgement lessened the auditors’ responsibility in this area and some have suggested since that it went too far.

Fraud was addressed in the major Australian case of Pacific Acceptance Corporation v. Forsyth (1970) 92 WN NSW (29). Moffit J noted that the auditors should pay due regard to the possibility of fraud and actively investigate the possibility of fraud if suspicious circumstances exist. Moffit J also addressed the concept of ‘reasonable skill and care’ and that it calls for changed standards to meet changed business conditions or changed understanding of the dangers.

Case law has provided important guidance on the auditor’s role and responsibility over the years. The courts are still the ultimate adjudicator on these issues although the number of decided cases relating to auditors in recent years is few.

1.22 Level of assurance

Auditors perform audit attestation to enhance the credibility of the financial statements. However, it is quite impossible for the auditors to provide an absolute assurance regarding the subject matter on which they epress their opinion.

a) Why is it impossible for an auditor to provide absolute assurance...
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