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The role of auditor in the current business environment has been changing due to changes in the accounting and auditing regulatory frame work. Auditors play a major role of reporting to the external stake holder of a business. The expectation of the external stake holder and the responsibility of an auditor are not always match each other. By considering the above aspect this report is intended to elaborate the Audit expectation gap and its changing nature in the contemporary business environment. Furthered it try to elaborate changing nature of the auditors liability and aspect in which there are audit gap can be reduced by using some regulations.There are performance auditors those who have different responsibilities in various firms , such as universities, hospitals and local authorities. Firms are in need of auditors and they play an important role in showing the financial soundness of the firm and the performance to stake holders , suppliers and directors. It has several ideas, like the managers and customers in an attempt to increase the personal income, and there financial report and there is a need to provide a full picture about the firm to show that the organization and the projects will benefit from it and I have found that the directors and agents trust in the financial reports more if confirmed by an auditor, and groups of individuals with the reasoning they have different information.Although the auditors have different responsibilities in different organizations, as mentioned before, the steps that usually follow in any audit assignment are the same. There are two sets of views about the role and performance audit. We will make it clear that the gap pulled by a stage of the setup process before, but linked to give examples of some components thing that varies. A difference arises because people expect more from audit process from the actual results it can give. In practical terms, such as detecting all instances of fraud, however small.It is clearly unreasonable that it would be to examine all transactions and balances of a large corporation.Thus, a user might be expected reasonably for the auditors to report on cases of misappropriation of the assets of a company by senior managers or users to a regulator. If the profession of law do not require this, a deficient standards gap is found. It is interesting to note that in the UK, auditors have a duty to report on these and other organizations of the things organizations fill in the item of financial services, including banks and housing associations, although it is not currently a requirement in general. The performance gap is incomplete (which might be described as a gap audit rotting). Therefore, if the auditing profession has issued a standard that says that auditors should observe the procedures taken Shares of the customer, but if the auditors fail to do so, then their act will be in a manner that is inconsistent with professional auditing standards. Therefore, if there is evidence that many of the auditors fail to perform adequately, one may provide post-qualification experience, or even, in the end, committed to withdraw their testimony.Audit expectations is the main issue facing the review process.Yes, because look where the audit process is to be one of the key issues that is facing the auditing profession, and the company expects users of audit reports and the report to detect fraud and material irregularities,among other issues. In contrast,the profession says that users misunderstand the duty of auditors, and fraud detection reporting is not an audit central government.If the educated users of financial statements and the general public is to believe that the auditor's role detect and prevent fraud, particularly with regard to the items of material.
The gap is not a simple gap between two sets of views about the role and performance audit. We will make it clear that the gap pulled by a carrier (1993) in New Zealand, which is useful because of the installation use them to distinguish the various elements of the gap. Phase of the installation is adapted to give examples of some components that discriminate.
A reasonable gap that arises because people expect more of audit than it can give in practical terms, such as detecting all instances of fraud, however small. There is a belief in some quarters that examines the checker package and the balance of very lonely, as auditor of the practice being examined samples of transactions and balances when forming conclusions about the population of those transactions and balances. It is clearly unreasonable of examining all transactions and balances of a large corporation . This gap is itself split into two:
A deficient standards gap:- The gap between auditors are reasonably expected to be working and that the law of profession and asking them to do. Thus , a user might be expected to reasonably auditors to report on cases of misappropriation of the assets of a company by senior managers or users to a regulator. If the profession of law do not require this, a deficient standards gap will be found. It is interesting to note that in UK, auditors have a duty to report on these and fill in the item of financial services, including banks and housing associations, although it is not currently a required in general.
The performance gap is incomplete (which might be described as a gap audit rotting). therefore, if the auditing profession has issued a standard that says that auditors should observe the procedures taken.
Of the above, we will discuss the expectations gap that has emerged for various reasons. One felt that the gap include different components, where one can seek solutions to close the gap constituents. Therefore, if there is evidence that many of the auditors fail to perform adequately, one may provide post-qualification experience, or even, in the end, committed to withdraw their testimony. You may notice that there are those who propose that the risk of endorsing a look to check the work of the border rather than the narrower view of audit risk, may cause expectations to rise, which if not met will cause the gap for expansion.
In an effort to narrow the audit expectation gap, various approaches have been examined and suggested by researchers and professional bodies through out the period which can be summarized as follows:-
Expanded audit report :- An expanded audit report gives broad understanding of the scope, nature and significance of the audit and influences the reader's perceptions concerning the audit and the auditor's role,It has reduced the audit expectation gap in one way or another. Researchers have suggested that word changes in the audit report address the specific areas of the expectation gap should be considered in closing the gap.
There are structured audit methodologies and increased use of auditor decision aids which are one of the responses made by some audit firms to narrow the expectation gap.
By adopting more structured methods of audit operation, firms expect that consistently high-quality audits can be provided.
Expansion of auditor's responsibilities and enhancement of auditor independence.
Evaluation of internal control systems; and the regulation in reporting can be identified as major addition to the auditor's responsibilities. However, for these proposals the risk of liability is present unless the liability crisis is dealt with. In audit committees there is the power and duties. That means the authority of the Audit Committee must have clear rights to the will of the information and decision-making and the implementation of the duties prescribed.
The Audit Committee should review and also give their consent to any data included in the financial reports relating to internal control and risk management. Analysis the company's policy with regard to storm a whistle and guarantee there are proper mechanisms applied to investigate and followers of the whistle that blows things. Analysis and observe the effectiveness of the company's internal audit function of the accounts. Review the nature of the work that will lead by the internal auditors and monitor their impact.
The Audit Committee must also ensure that the functions of internal audit are sufficiently productive again. When the function of an internal audit, be on an annual basis there is the need for such a function recommended on the appointment, of the conditions related to the size of the remuneration of external auditors. It ensures the independence and objectivity of external auditors. When evaluating the independence of external auditors by the Audit Committee must take into account the non-audit service provided by them. The Audit Committee must also ensure that the audit company to comply with the legal and professional requirement regarding the independence Checker. The main concern of the Audit Committee will ensure that the item non-audit services will not compromise the independence of the audit company. Thus, the Audit Committee would be interested in the case, such as the nature of the service is not equipped with a check and wages for the work of non-audit compared to the wage for the work of scrutiny. Money Laundering process a large amounts of money obtained by the changing of crimes, such as drug trafficking, to Innovation from a legitimate source. Anti-money laundering is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act.
Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must perform due diligence by ascertaining a customer's identity and monitor transactions for suspicious activity. To do this, many financial institutions utilize the services of special software, and use the services of companies such as C6 to gather information about high risk individuals and organizations. United States federal law related to money laundering is implemented under the Bank Secrecy Act of 1970 as amended by anti-money laundering acts up to the present. Many people have confused Anti-Money Laundering with Anti-Terrorist Financing.Under the Bank Secrecy Act of USA, Money Laundering and Terrorist Financing are classified when financial institutions file Suspicious Activity Reports to Financial Crimes Enforcement Network which is a US government agency. As financial crime has become more complex, and "Financial Intelligence" has become more recognized in combating international crime and terrorism, money laundering has become more prominent in political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way (for if not, the money would not need to be laundered).
It is a typical Money Laundering Scheme â€¢ Into the legitimate financial institutions. What is this person performing the transfer of funds to the account of an ally that issued him or her invoice for products or services that they delivered. The account holder and then" lend "money to the person who paid the bill counterfeit. In the final step, the first criminal integrates his or her money into the economy by purchasing actual land and other legitimate assets with big amounts of difficult-to-trace-but illicitly earned-cash. Overall, business is very useful to traders to money-laundering conduits for tainted funds. So, since the dealers in money laundering usually do not confiscate the assets, rarely leaving the guide activities on the financial statements, making it difficult to detect their activities illegal during a traditional audit.Illegal acts by clients, in order to be aware of the possibility that illegal acts may have occurred, the quantities influential indirectly recorded in the statements of the financial entity. In addition, if specific information comes to the attention of the auditor, which refers to the illegal acts of the potential can have a material indirect effect (for example, the entity's contingent liability resulting from illegal acts committed as part of the money laundering process) on the entity's financial statements, the auditor should apply audit procedures specifically designed to investigate whether such activity has occurred. Include references to potential money laundering activity in the following:
Unauthorized or improperly recorded transactions; inadequate audit trails.
Large currency transactions unusual, especially as an alternative to bonds, negotiable instruments or to buy direct services to transfer money. *
Businesses that want to invest administrative services when the source of funds is difficult to determine the accuracy or the emergence of contradictory means the customer or the expected behavior.
Payment of immature characteristically non-investment vehicles, especially requests to re-revenue to third parties unrelated to appear.
Large net amounts from abroad. Insurance policies and values that seem contradictory to the needs of the buyer or the means to secure the phenomenon. * Purchases of goods and currency prices significantly below or above the market. *Use many different companies for auditors and advisers to entities associated with the business.
Auditors are needed in any institution and their need can be explained by three theories:
The information hypothesis, the agency theory, the insurance hypothesis.
Since auditors are needed and they play a very important role in any organization, we have to find ways to reduce the audit expectations gap. Some of these ways include introducing an expended audit report, widening the role and responsibility of auditors in areas like fraud, illegal acts, strengthening the independence of auditors and the audit education. Although, the audit education has proved to be efficient in some situations, it cannot be guaranteed that it will work all the time. And the auditing profession is very important for the success or failure of the company. It is also believed that the increase in disputes between parties and criticism of auditors can be traced to the audit expectation gap. The audit expectation gap is detrimental to the auditing profession as it has negative influences on the value of auditing and the reputation of auditors in the modern society. It is found that the existence of an audit expectation gap is due to complicated nature of an audit function; conflicting role of auditors; before evaluating the auditors' performance; time lag in responding to changing expectation; and self- regulation process of the auditing profession. Such occasions and problematic factors that contribute to the existence of the expectation gap, is neither the auditors nor users who should be blamed for the "audit expectation gap" crisis.