This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
Corporate failures such as HIH in Australia and Enron in the US, have once more focused attention on the professional ethics and auditing standards. New auditing and assurance standards have been issued with the aim to improve the quality and credibility of audited financial reports and improve investor confidence in these reports. To achieve these aims, auditors need to be trained in the application of the new standards (ASIC, 2006).
A comparative study is made on the current regulatory, ethical and quality environment for auditors in Australia with India. This study specifically deals with the regulators and how it supports audit quality, auditing standards, code of ethics and overall quality of auditing in both countries. It has covered the reports and findings of statutory and professional bodies of both countries. It is a study of how both countries differ in auditing regulatory environment, standards and ultimately the audit quality. The key findings show that each country has its own regulatory bodies ,code of ethics ,set of auditing standards to enhance the relevance, reliability and timeliness of information provided to users of auditing and assurance services.
Analysis of Auditing in India and Australia
Auditing is the process of assessing the integrity of the financial statements and/or operations, ending in a report providing assurances regarding that integrity. Users of financial statements expect external auditors to bring to the reporting process technical competence, integrity, independence and objectivity.
In the result of recent scandals, there have been calls for enhanced corporate governance and risk management, as well as increasing quality and scrutiny in auditing. There has been a push of laws, regulations, listings requirements and reporting standards. Standard-setters and market regulatory bodies seem determined to keep financial reporting and auditing standards under close and continuing review.
A comparative study is made between the auditing environment of India and Australia on the following basis:
Comparison of regulatory environment in India and Australia
According to eStandardsForum Financial Standards Foundation, 2010,
In India Institute of Chartered Accountants of India (ICAI) has been empowered as the statutory body for auditing .Companies Act 1956 provides all the basic requirements relating to financial reporting of all companies incorporated in India. The Central Government enforces the Companies Act through the Ministry of Company Affairs (MCA), the Company Law Board, the Regional Directors, and the Registrars of Companies (RoC). Listed companies in India must comply with the Securities and Exchange Board of India (SEBI) requirements as laid out in the SEBI Act and the Securities Contracts (Regulation) Act. Financial audit of all companies in India is required to be done by an ICAI certified auditor as per the Companies Act. To ensure the audit quality, the Act requires the auditor to verify whether financial statements are in line with set auditing standards and to report on the compliance.
Australian Treasury, 2010 in its strategic review of audit quality says,
In Australia, the broad statutory regime on auditor regulation, including auditor registration requirements, extensive auditor independence requirements and a strong disciplinary framework is established by the Corporation Act. The professional conduct rules applying to members of the three main professional accounting bodies (CPA Australia, the Institute of Chartered Accountants in Australia (ICAA) and the National Institute of Accountants (NIA) is also added to the legislative framework in the Corporations Act. The Accounting Professional and Ethical Standards Board (APESB), an independent ethical standards board, is responsible for the professional conduct rules applicable to their members. Audit is required to be done by a registered company auditor. Financial statements need to comply with the set accounting standards and report to be lodged with ASIC and ASX. Audit regulation framework and the audit review processes are key drivers supporting audit quality in Australia.
Comparison of Auditing Standards in India and Australia
In India, The Auditing and Assurance Standards Board (AASB) of the Institute of Chartered Accountants of India (ICAI) are the national auditing-standards setting body. As of 2006, the AASB had issued thirty-four AASs, three Statements, three General Clarifications and thirty seven Guidance Notes, including four industry specific Guidance Notes. (EStandardsForum Financial Standards Foundation, 2010). The mission of AASB is to set high quality auditing standards that help the auditors in proper and optimum discharge of their professional duties and also promote uniformity in practice as also comparability (ICAI, 2010).
As ICAI is a member of the International Federation of Accountants, the auditing standards issued by the ICAI are in harmony with the International Standards on Auditing. Till date, International Auditing and Assurance Board (IAASB) of the IFAC has issued thirty nine Engagement Standards, comprising one Standard on Quality control (ISQC), thirty two ISAs, two International Standards on Review Engagements (ISREs), two International Standards on Assurance Engagements (ISAEs) and two International Standards on Related Services (ISRSs). The ICAI has issued thirty five auditing standards corresponding to the Engagement Standards issued by the IAASB of the IFAC and three auditing standards are in the pipeline. (ICAI, 2010).
The Auditing and Assurance Standards Board (AUASB), an independent statutory agency of the Australian Government is responsible for developing, issuing and maintaining auditing and assurance standards in Australia. The mission of AUASB is to expand in public interest, high-quality auditing and assurance standards and related guidance in order to enhance the relevance, reliability and timeliness of information provided to users of auditing and assurance services. Australian Auditing Standards contain requirements relevant when conducting an audit or review in accordance with the standards, as well as related guidance. This includes format, Australian Auditing Standards, Standardson Review Engagements, Standards on Assurance Engagements, Auditing and Assurance Standards (AUSs) (AUASB, 2010).
From April 2006 Australian Auditing Standards (ASAs), based on International Auditing Standards (ISAs) was released by the International Auditing and Assurance Standards Board (IAASB).This ensures that Australia's auditing standards are consistent with international standards. Any changes and additions to standards are made on an ongoing basis. AUASB may identify technical issues that require consideration and these may be referred to the IAASB. The AUASB makes submissions to the International Auditing and Assurance Board (IAASB) and also provides formal submissions on documents issued for comment by the IAASB, to contribute to the setting of international auditing and assurance standards.(Jackson J,2010). AUASB revised and redrafted the Australian Auditing Standards, using the equivalent International Standard on Auditing (ISA) as the underlying standards applicable from 1 January 2010 ((eStandardsForum Financial Standards Foundation, 2010).
Comparison of Code of Ethics for India and Australia
APESB issued APES 110 code of ethics for professional accountants operative from 1 June 2006 prepared by the Ethics Committee of International Federation of Accountants (IFAC) based on IFAC code. By changing the IFAC wording where appropriate, and by the insertion of additional Australian paragraphs, denoted by the letters AUST appearing before the paragraph number, APESB sought to adapt the IFAC Code to Australian circumstances (Meredith P, 2010). Code is mandatory to all members and noncompliance would lead to disciplinary proceedings by the professional body to which members belong (APESB 2008). It establishes the ethical requirements for professional accountants. Professional accountants should be aware of the requirements and guidance that differ from the code imposed by the jurisdictions, and comply with more stringent requirements and guidance unless prohibited by law or regulation. "This code is in three parts, Part A establishing the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles. Part B and Part C discuss safeguards in the work environment for professional accountants in public practice and business."(IFAC 2006)
It was for the first time in India the revised code of ethics, Code of Ethics 2009, incorporated the International Federation of Accountants (IFAC) Code of Ethics for professional accountants with variances, wherever required, to make it compatible with Indian laws. (ICAI 2009).
According to ICAI 2003, the self imposed Code of Ethics is essential to command the respect and confidence of the general public for the success of the profession of accountancy. The objectives of the accountancy profession are to work to the highest standards of professionalism, to attain the highest levels of performance and generally to meet the public interest requirements.
These objectives require the following compliance of the following basic needs: -
â- Quality of Service
The fundamental principles to attain the objectives of the accountancy profession are:
â- Professional Competence and Due Care
â- Professional Behaviour
â- Technical standards
Comparison of overall quality of auditing in India and Australia
According to the Report on the observance of standards and codes-India (ROSC, 2004), the quality of audit practice differs significantly among audit firms because of the inadequacy of quality control arrangements in most of the small audit firms. From the interviews conducted by the ROSC team to assess the actual auditing practice, it found that majority of auditors used a tradition vouching based audit approach focussing on transactions as opposed to modern risk based approach focussing on critical assertions. In addition most of the auditors focussed only on financial reporting and compliance with provisions of statute. Improvements in audit quality can be achieved by development and dissemination of practical guidelines on the implementation of auditing standards.
White L, 2010 says,ASIC's inspection of auditor focussed on "understanding and examining how auditors managed their independence responsibilities and other professional obligations, their performance of work, review of policies and processes, audit methodologies and technologies, compliance with standards and their response to challenges to audit quality". A key finding from ASIC's latest inspection is that Australia's audit regime compares well internationally. Some areas where improvement recommended by ASIC include the existence of sufficient audit evidence and documentation for significant judgment areas. SIC also reflects, the past improvements recommended has been fixed which is a strong commitment in the profession to remediation coming from findings on inspections. "Timely remediation is an essential component of managing audit quality and is a clear measure of the maturity of the audit profession".
The findings of Australian Treasury 2010, in its strategic review of audit quality in Australia also aligned with ASIC, that the audit regime compares well in terms of international best practice. It also noted that the audit regulation framework appears to be functioning effectively during the current uncertain economic conditions. According to Treasury's strategic review of audit quality, 2010 "while all ASAs are relevant to audit quality, ASA 220 Quality Control for Audits of Historical Financial Information which is the Australian equivalent of ISA 220 Quality Control of Audits of Historical Financial Information creates mandatory requirements and provides explanatory guidance on specific responsibilities of firm personnel regarding quality control procedures for an audit of a financial report".
ASIC has made aware of auditors that it will be focusing on audits where audit fees had been considerably reduced without clear reason. ASIC wants to deal with actual or apparent decline in audit quality when audit fees fall. This move focuses its work in a risk-based manner. (White, L 2010).Peter Nash, Australia's national head of Audit welcomed the findings of ASIC and said "the audit inspection process plays a key role in enhancing auditor independence and audit quality, ultimately helping to maintain public confidence in financial reports".(KPMG,2010)
Overall finding indicate that Australia and its regulatory systems has been recognised internationally as one of the only developed countries to have successfully dealt well with the global economic downturn .As auditing is an important component, auditing profession can take part of that credit.( White L, 2010 )
To conclude, the operations of regulatory bodies of auditing of India and Australia intends to expand in public interest, high-quality auditing and assurance standards and related guidance that help the auditors in proper and optimum discharge of their professional duties and also promote uniformity in practice as also comparability in order to enhance the relevance, reliability and timeliness of information provided to users of auditing and assurance services. To attain the highest level of performance and thereby maintain the highest audit quality, the statutory board of both countries have set up code of ethics which is mandatory to all members and noncompliance would lead to disciplinary proceedings .Although, both countries strive to keep up audit quality, overall findings indicate that Australia and its regulatory systems has been recognised internationally as one of the best in audit practice.