All Limited Companies Are Required To Have Their Accounts Audited Accounting Esssay

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In the UK, all limited companies are required to have their accounts audited by a suitably qualified independent auditor. Therefore, independent auditors are important; they play a vital role in adding the reliability of financial information produced by companies by providing assurance on the reliability of the financial statements. Limited transparency makes an assessment of audit quality by those who rely on it difficult as the audit report provides limited information to assess the underlying quality of audit and users have a limited role in appointing the auditor. (FRC, 2010: Online) Therefore, the auditor meets its responsibilities to clients, general public and other parties who rely on independent auditors to maintain credibility of financial information. FRC has published today its Audit Quality Framework to assist companies in evaluating audit proposals. Audit Committees in undertake annual assessments of the effectiveness of external audits. "Audit quality is a much used, but poorly, defined term. We hope this Framework will assist all stakeholders but particularly audit committees, auditors and companies in their communications and assessments of audit quality." Said by APB chairman (FRC, 2008: Online)

Recently, companies' failure and scandals was reduced public confidence in audit. Therefore, various initiatives emerged such as professional oversight, professional work standards in order to ensure auditor work effectiveness. The regulatory bodies who have a responsibility to regulate audit quality are includes the Professional Oversight Board (POB), the International Auditing and Assurance Standards Board (IAASB), and the Audit Inspection Unit (AIU). The Professional Oversight Board is a part of Financial Reporting Council; it has responsibility to give confidence to investor, market and public by increase credibility of financial information and governance stewardship of listed and other entities. Professional oversights Board regulate of the auditing by independent oversight and recognize of those accountancy bodies that are responsible for supervising the work of auditors or offering an audit qualification to make sure they carry their accountancy profession properly in supervising the work of auditors. POB monitoring the quality of the auditing function in relation to economically significant entities and independent oversight of the regulation of the actuarial profession by the professional actuarial bodies and promoting high quality actuarial work. It also independent supervision of the Auditors General in carries out their function as statutory auditors. Besides that, the International Auditing and Assurance Standards Board (IAASB) is an independent standard setting body under the auspices of International of Accountants (IFAC). It has responsibility to serves the public interest and enhance the public confidence in the global auditing by establish high quality auditing, assurance and quality control to improve the uniformly practice by professional account throughout the world. Besides that, Auditing Practice Board (APB) is one of the regulatory bodies which are responsible in setting high audit quality and give the guidance to external auditor on how to carry their work properly. Moreover, Audit Inspection Unit (AIU) which set up following the Government's post-Enron review of the regulation of the regulation of the UK accountancy profession is part of Professional Oversight Board (POB) ¼Œit is responsibility in monitoring audits of all listed and other major public interest entities by review a sample of relevant audit engagements at each firm selected for an inspection visit.

Nowadays, Auditor's report is important and is needed by most of businesses and non-profit organization. Auditor's report is acts as part of annual financial reporting back to investor, board of directors, and other party who are interest in the ongoing success of the organization. Besides that, auditor's report is to point toward resources that may help the organization to improve their current methods of bookkeeping (Tatum, 2009: Online). Therefore, auditors are independent to provide assurance or attesting to fairness of the presentation of the information on the financial statement. Auditor should be unbiased, honest, justifiable and objective in order to present an accurate report. 'Besides that, auditors should consider materiality when determining the nature, timing and extent of audit procedures. (SAS220.2)' (The accountancy Foundation Limited, 1995: Online) For example, if an amount equal to or more than 10 percent of operating profit is classed as material, if an amount equal or less than 5 percent of operating profit then is regarded as immaterial, if between 5 to 10 percent, that will be depends on the circumstances of the client or audit. Materiality is also important when evaluating the effect of misstatement on the fair presentation of financial statement. Auditor should assess the materiality of the aggregate of uncorrected misstatement. 'If they conclude that the misstatement maybe material they consider reducing audit risk procedures or requesting the director to adjust financial statement.' (The Accountancy Foundation Limited, 1995: Online)

Problem of audit market is getting series recent year. In the UK, lack of choice in the audit market is a big problem. Before that, the audit market concentration is used to be the Big Eight and now was reduced to the Big four after the series merger. The Big Four include Pricewaterhouse Coopers (PwC), Ernst& Young, Deloitte and KPMG. There have oligopolies over the audit market. There have been numerous reports and studies looking at the issue, including the Oxera Report (2006) and the Financial Reporting Council's (FRC) ongoing project. As mention before, lack of choice in the audit market is a big problem. Because of the regulations surrounding audit and non-audit work for the same client and also auditing of close competitors, some have no realistic choice of alternative auditor in the short term future. The lack of choice in audit market resulted companies has to pay higher prices to hire an auditor and that due to the lack of alternatives these higher prices are able to stick and there is a lack of downward pressure on audit prices.

In United States, Enron scandal was cause by Arthur Andersen; he failed to prevent the conflict of interest in Enron Company. Arthur Andersen issued a serious misrepresentation of the audit report and lack independent to the Enron. This can be show because Arthur Andersen has a the close relationship with the senior management in Enron company. Besides that, Arthur Andersen did not take corrective measure even he know that Enron accounting is fraud. The failure of Enron cause a big impact on the audit market concentration as people lost trust and confidence in the accounting industry. Besides that, Lehman brother which are the fourth largest investment bank are faced to bankruptcy. One of the reasons is because fail of external audit and supervision of accounting firm carried they work. Ernst& Young are the auditor of Lehman Brother but it turned a blind eye at Lehman brother fraud. The report shows that even after the situation is informed as true, Ernst& Young still not do objection to any question on the Lehman billions of dollars in undisclosed interim balance sheet transactions. After of Lehman Brother bankruptcy, investor and public lost trust and confidence to the auditor.

Furthermore, Financial Reporting Council (FRC) has struggling to find out the solution of the audit market concentration. In fact, audit regulators should break up of one or more of the Big Four. By this way, largest companies can have more choice in audit market. However, this solution is needs to be approved by audit regulators across the world. If this approach is being approved, the biggest issue will be solving. On the other hand, Financial Reporting Council should promote greater transparency of capabilities of individual audit firm to give the public have a better understanding of auditing firm and not much depend on reputation or branding of audit when they hire auditor, so they will have more choice in audit market. Besides that, audit regulator can introduce the legislation in audit market to other supplier such as National Audit Office and Audit Commission. This can turn all firms to an independent auditor. In addition, audit regulatory should change perceptions in order to solve the problem of lack of choice in audit market. 'Oxera (2006) concluded that unless perceptions of the non-Big Four audit firms changed, entry into the FTSE 100 and FTSE 250 audit markets would require uneconomic levels of investment.' (Richard, 2009: Online) In addition, audit regulator can promote merger between mid-tier firms. Merger between mid-tier firms can create audit firm comparable on scale to the Big Four firms. This will make the audit market has competitive and increase the choice of largest companies.

In the conclusion, Auditor has responsibilities to give a truth and fair view when present report to clients and public to add credibility of financial information. Auditor need to give a true and fair view in the auditor's report. Therefore, Financial Reporting Council has published today its Audit Quality Framework to improve quality audit, whether in the UK or overseas and regulator when undertaking and reporting on their monitoring of the audit profession. Audit regulator need to put more effort in promote their auditing to give the public better knowledge about audit work and increase public confident to the audit firms.

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