In Australia, Corporation Law and ASX listing rules play an important role in managing and support audit quality standards. in Australia, after the collapse of HIH and On tel, there was great change in rules and regulation, which gave rise to Corporate Law Economics Reform which regulates the auditing procedures with due care of auditor independence. according to Arens et al (2008), s 324CA-CC of the corporation Act establishes the general requirements for the auditing standards which is overseen by FRC; whereas ss225 and 225 A of the ASIC Act specify the FRC's functions. Grant 2007 suggests, ASX listing rules suggests the recommendations in the interest of corporate governance and disclosures with the goal to produce best practices corporate governance principles and provide legal amendments and regulations for the listed companies. ASX listing Rule 4.10.3 requires a statement disclosing the extent to which an entity has followed the best practices recommendations of the ASX Corporate Governance Council failing to do so, requires the companies to provide written communication to the council as obligation to explain to investors and an alternative approach to be adopted. It should also inform the period of adoption as well. Where as in China there is Corporate Law 1993 and Securities Law 1998. In addition to legal sources, the memorandums of associations of each corporation play an active role in each corporation's corporate governance structure. According to Eccher & Healy 2003, in China there are different stock exchanges, which are Shanghai Stock Exchange, Shenzen Stock Exchange and Hong Kong Stock Exchange, regulated by Securities Law. This law provide lagal protection to the investors by providing rights to shareholders such as vote for board of directors and sue the management for fraud, misleading disclosure or misappropriation of funds. They have few Listing rules in relation with corporate governance too such as requirement of three independent non-executive directors, audit committe, compliance officer and requirement to appoint compliances advisors for the two full years after listing.
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According to Lin and Hung Chan 2008, accounting profession is relatively younger in China. China intoriduced its own auditing standards known as Chinese Auditing Standards, associated with professional body called Chinese Association of Certified Public Auditors (CACPA) established in 1991. These independent auditing standards are comprised of three catogories of statements of different level of authority. These standards act as the overall framework and provides a basis for the development of other catogories of statements. These independent auditing standards apply to any audit with a view to expressing an opinion on the truthfulness and fairness of the financial statmenets prepared by business management. Wan Hua et al 2010, say Chinese market is being very limited and auditing firms use to lower their fee to retain the client that is low-balling, due to government protection and competition, which was creating problem of auditor independence and question on quality of the audit as well. Auditor are entitled to perform audit work as well as other duties such as mergers, demergers and liquidations Later on realisation of the importance of the auditor independence, because of forgein invetors and globalisation, China adopted three sets of auditing standards in 1995, 1997 and 1999 respectively, which were based and patterned after the International Auditing Standards (IAS). Situation is different in Australia. In Australia auditing standards are fully based on IAS and regulated by AuASB. This is because of the need to harmonization with the global market. Australia particularly amended its auditing standards after the collapse of the HIH and One Tel, resulted the formulation of the CLERP 9 which was based on Sarben-Oxeley Act 2002 formed in USA. Australian audit standards clearly define and separate the role of the auditor for audit and non-audit services to maintain the auditor independence in appearance.
Chappele et al (2010) states that Australia's APES 110 Code of Ethics for Professional Accountants, para 290.8 states that auditor independence is considere as independence in fact and independence in appearance. Independence in fact is crucial for auditor to maintain throughout the audit to maintain the unbiased attitude. Failing to this give different threats to independence such self-interest, self-review, advocacy, familiarity and intimidation. (Arens, 2008). It reduces the quality of the audit and hence can cause to corporate faulires such as HIH and One Tel. Whereas in China Article 5 of the Chinese General Standards on Profession Ethics requires the auditor to remain independent in form and in substance which is based on IFAC , which addresses the independence issue in the Code of Ethics for Professional Accountants. Despite this practical situation in China is different and raises questions over the independence of CPA firms. Hence China restructured CPA firms by delinking from sponcering organizations in terms of personnel, finance, business stategay and name. It resulted in increased audit independence. To maintain the quality of the auditing China has issues the General Standards on Quality Control to ensure that all audits are conducted with relavant laws and regulations. ISA 200 requires the auditors to follow the ethical principles addressed in the Code of Ethics for Professional Accountants issued by IFAC. The MOF enforces ethical standards in China. (Lin & Hung Chan 2008)
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