Regulatory Framework For External Audits Accounting Essay

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1.0 introduction

The firm carries out an audit services that include the implementation of the audited financial statements of the limited liability company with the law. Audit services include audit and general compliance with either in project-based (MUSTAPHA, 2005) [Online].

An audit firms pledge to provide such assurance services is to guarantees on the financial performance for the group and operating on business. An external auditor also can help many clients on business to improve its external financial reporting and adapt to new regulatory requirements such as International Financial Reporting Standards (IFRS) (PricewaterhouseCoopers, 2009) [Online].

External auditor has obligation to provide an opinion on the true and fairness on the financial statement about the performance or position during the certain period time which intended to provide their client a degree of assurance of the services (ACCA, 2007 p.52).

Effective regulatory framework is trying to constantly making an improvement on auditor independence system to resume trust and strengthen independence of auditor. The impact of auditor independence can be extremely greater to audit quality services. Besides, regulatory framework is also to monitor the effective of the development or operation of risk management and corporate governance in the council.

2.0 Auditing Standard

An audit has been regulated by the law and regulation imposed by the government. Therefore, auditors are following the same standards issues by the variety of bodies. The majority of the audit industry has regulation to ensure the professional standards and ethical conduct and integrity of the audit.

The International Auditing and Assurance Standards Board (IAASB) is a function of standard setting body by the International Federation of Accountants (IFAC). IAASB is to establish high quality auditing, assurance, quality control and related services standards and to improve the uniformity of practice by professional. It also regulates International Standards on Auditing (ISAs) related matters accountants (ACCA, 2007, pp. 76-79)

Auditors use auditing standards to conceal when have an incorrectly statement or go wrong. Therefore, auditing standards is very specific about what the requirement for an auditor is required to do. Auditing standard also should be a stick with which to verify the wrong audit. ISAs may not deal with the small position and less complex entities on an adequate basis. However, the risk of ISAs in a particular are the development of the use of the best practices on behalf of large scale to regulatory bodies for issues of concern, which have obligation to provide best services but not the obligation to consider the needs of smaller or less complex entities. (AQF, 2006) [Online]

On other hand, sometimes there are unclear specific what are the meaning of the criteria mention by the auditing standard. Therefore, the acceptance of the core standard as part of overall framework together with the method of interprets the concept of auditing but not on the rules to enable the compilation of the financial statement.

Auditing standard has provided a benchmark which measures the quality of audit work. Therefore, this may be useful to monitoring body which is considering whether a particular audit firm is subject to disciplinary sanction. If the audit firm does not meet the standard in the audit work, there would be a high probability chance of the work failing below what the profession regard of acceptance. Objective of using audit standard is to increase the general standard of audit in future. (Gray, Manson, 2007, p.119)

3.0 Codes of ethic

Accountants and auditors are members of professional bodies are subject to ethical requirement imposed by those bodies. The rules and regulation of the professional bodies included wide ranges of system designed to protect and promote the public interest against the personal acts of self interest. Therefore, it encourages member’s bodies to adopt high standard of ethics for their member and promotes good ethical practices globally.

Professional accountant should comply with the relevant laws and regulations, and refrain from any action likely to discredit the professional. However, an external auditor provide non-assurance services, sometimes may created some threat by the provision of such services. Therefore, it may eliminate or reduce the threat by application of safeguards to an acceptable level. Auditor should be professional to use the best condition during the auditing.

Some possible threats may fall into the auditor independence. Such as, self- interest treat occur as a result of the financial or other interests of a professional accountant or immediate family members of the assurance team an immediate. In this case, it may be include involving an additional professional accountant to review work done by team or prohibit staff or partners to hold financial interest in audit client. Other relevant safeguards application should be under laws and regulations. (ACCA, 2007, pp. 96-97)

Familiarity threats, which may be occur when a close relationship between family member and a member of the assurance team is director. As a result of, may be direct or significant influence over matter information of the assurance. Consequently, a firm should have quality control policies and procedures which staff members should be removed from the assurance team or involving additional partner review work done by team engagement (ACCA, 2007, p.98)

Some safeguard may increase the possibility of identifying unethical practices. Those safeguards may be created by the accounting profession and regulation but not restricted to experience requirements or high level of educational to enter the profession. (IFAC, 2007) [Online]

4.0 Audit committee

Audit committee is important for emphasis in the recommendation of the reporting bodies mentioned. This committee is also one such corporate governance mechanism, where the companies have trying to cope with the growing number of public pressures for greater accountability brought by the major corporate collapses of large companies. (Baxter, Pragasam, 1999, p. 42)

The audit committee could assist directors to meet their statutory and fiduciary responsibilities, especially relation to the annual account or accounting record. Besides, the audit committee can also act as a filter to that ensure that the committee is view only the most important items to the audit accounting or internal control. The committee cans also appointed a non executive director to use their wider business knowledge to bear on accounting or auditing (Sherer, Turley, 1997, pp. 73-76).

As a result of policy setting implication, it assumes that all of the companies have set up the audit committee during this period it also has been existence. If any new changes in the formation of regulatory requirement of audit committees would not have significant impact because they have been complying with any proposed new rules. Due to the size of the impact of the vast majority of the voluntary disclosure of the audit committee, only listed companies for more than a predetermined size threshold required form of an audit committee. As there was a low level of voluntary disclosure of additional audit committee information it could be difficult for financial statement user to make an informed assessment about the performance of the committee (Baxter, Pragasam, 1999, pp 42-43)

The audit committee might be the responsible for making the final decision after the audit firm has provided a report of the advantages and weaknesses of making acquisition and disposal. But the audit firms might also ensure that they had provided the clear information of report. The disclosure of non-audit services approved by the audit committee must be including the detailed of costs and also certain non-audit services. (Gray, Manson, 2007, pp.88-96)

5.0 Corporate governance

Corporate governance is a system that will enable the company's command and control by the management in best interests of shareholders to ensure greater transparency and better timely financial reports. The boards of directors are responsible for the governance of companies (ACCA, 2007, p80). Good corporate governance should also provide a proper incentive to the board or management to pursuit objective of the company.

Effective performance of the board of directors such as provides positive responsibility with collective skills and experience. Effective corporate governance also due to the result of dedicated specific directors and senior management faithfully perform their duties to take care of the institution (CGU, 2003) [Online]

An external auditor is also part of the corporate governance system. External auditor also provides with an independent to inspect of the financial information prepared by the boards of director for the use of shareholders. In public company, the board of director of the company has to compliance with the particular corporate governance regulations imposed by the external auditor. (ACCA, 2007, p. 23)

Corporate governance may influence by legislation, custom, ethics or stakeholder pressure and also public opinion. As an independent of effective governance, an external auditor should be capability to differentiated the term of the unrelated financial interests and it should also include a critical review of the capacity of director whether the strategies or decision making by the director are in the best interests to the company. (Yalden, Sarra,, 2008, pp. 630-631) [Online]

The code of corporate governance have been regulated, such as, a listed company specifically the requirements at least composed of a sufficient number of non executive director, therefore the existing director executive power have been reduces. Because of the non executive directors have been increased, which may affect the life of the company in some of the business issues due to the provision of a non tender opinion in the meeting. As a result, this may be affecting the company’s future business operation. (Rossi, 2004) [Online]

6.0 Companies Commission Malaysia

Under Malaysia government law, companies incorporated in Malaysia are governed by the Malaysian Companies Act, 1965. If any companies wishing to do business in Malaysia, therefore they must be registered with Companies Commission of Malaysia (CCM) under the company Act 1965. (CBM, 2006)[Online]

Under company’s law, the companies act requires the companies to appoint a qualified and approved external auditor to audit its company’s books. The duty of the auditors is to provide the annual report to the shareholder and other members of the company before the annual general Meeting. Auditors must give a good opinion of the financial statement on the disclosure will be defined in the auditors report. CBM, 2006) [Online]

The CCM proposed framework a limited liability partnership to supplement existing forms of commercial vehicles. Limited liability partnership can enjoy some benefit such as, the liability of the companies will be limited and there is separate entity between partners. Therefore, will not be affected by the changes in the company and the company can indicated their own private name as well.

7.0 Conclusion

As the development of regulations and penalties for non-compliance has become focused, therefore, to avoid regulatory sanctions, review and delay is now the key to survival. An audit is conduct by a professional who are understand the worldwide regulatory requirement, using the high quality standard and review for regulatory compliance. External auditors are to classify the seriousness of the audit, defect weaknesses in the accounting records and provide services with a clear path to resolve the defect.

Revision of auditing standard is a great step forward for the development of truly international auditing standards. The movement of the previous version standard should be revised to recognize the special needs of auditing in performance and policies or provides analyses. Auditing standards do not have strong application to reflect a best practices consensus with the judges. Therefore, audit standard must extent to which the standards are compatible with the achievement of its mission

The implementation of resources may involve in all aspect of the review, audit services should agree on the proposal to examine the issues before the final audit report. Therefore, will be carried out or use of existing resources or additional resources can be easy appeal to the audit