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A193 BKAA5013 ISSUES IN AUDITING STUDENTS SYLLABUS

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Hi everyone...just in case you didn't see me clearly yesterday during Webex session, so, this is your lecturer - Dr. Nor Zalina Mohamad Yusof

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Submit a list of names, then click to spin the wheel to choose one at random! Save your lists and embed them in your website or blog!

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Classroom audience soundboard for quizzes, debates and so on.

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TOPIC 1 - THEORIES OF DEMAND AND SUPPLY OF AUDITING (2)

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ABBOTT ET AL 2016 INTERNAL AUDIT QUALITY INDEPENDENCE COMPETENCE

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PIRAYESH 2009 AUDIT COMPETENCE AND AUDIT QUALITY

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BERGLUND ET AL 2018 AJPT AUDITOR SIZE AND GOING CONCERN REPORTING

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jiang2018 BIG N AUDITORS AND AUDIT QUALITY (1)

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SIROIS MARMOUSEZ AND SIMUNIC 2016 AUDITOR SIZE AQ REVISITED

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HIGHLIGHTED - ENRONS COLLAPSE_ THE OVERVIEW; ARTHUR ANDERSEN FIRES AN EXECUTIVE FOR ENRON ORDERS - The New York Times

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JBFA99b-1 LENNOX 1990 AQ AUDITOR SIZE REPUTATION DEEP POCKET

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Please fill up this google form at the end of Week 1 (i.e. on Tuesday 3 Nov 2020). Your responses are very much appreciated. TQ

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Please attempt the question individually

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deangelo1981 AUDITOR SIZE AND AUDIT QUALITY

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Please attempt the questions individually

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1. FOZIAH RAMLI (827745)
2. FARIDAH HASHIM (827744)
3.AHMAD RIZAL AB MANAN (827742)

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1. JAFFAR TUKIRAN (827747)
2. NUR FARHANA HAZWANI ABDUL BASIR (827752)
3. NURUL FATIHA SOHAIMI (827753)

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1. Norasnidah Ali 827750
2. Rose Afdayanti 827754
3. Noraznita Miswan 827751
4. Siti Aisyah 827755

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1.Ahmad Zamakhshari Hasbullah (827743)
2. Ismail Amir Salim (827746)
3. Mohd Zaini Bahron (827748)
4. Mohd Zaki Nasir (827749)

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1) Foziah - 827745
2) Faridah - 827744
3) Rizal - 827742

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G4 - AUDITOR INDEPENDENCE & COMPETENCE (1)

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The matter is currently before the Federal Court.

Deloitte and Hastie

Deloitte faces a class action by law firm Phi Finney McDonald on behalf of investors in building services group Hastie, which went into administration in May 2012, reportedly $967 million in debt.

The case alleges that from August 2010 to August 2011, Deloitte breached both the Corporations Act and Australian Consumer Law by making false and misleading statements in signing off on Hastie's full and half-year financial statement audits and reviews and financial information in prospectus documents.

After audit partners involved in the Hastie matter successfully claimed privilege against self-incrimination over the production of material related to the case, it fell to "uninvolved partners" to comply with a court order to produce the documents.

The court met with resistance when the "uninvolved partners" applied to be excused from the production order because the material was inaccessible in the hands of one of the audit audit partners who had claimed privilege, Reuben Saayman.

In February, the Deloitte partnership appealed to the full Federal Court over the production order, arguing that all partners should be able to claim privilege.

They lost the case in February 2020, in a judgment that slammed both Mr Saayman's and Deloitte's conduct.

The court said Mr Saayman displayed "outrageous and contumacious" conduct that bordered on contempt, and that "Deloitte's conduct was not much better".

It also described the firm's evidence as "carefully contrived", "staggering" and "absurd".

Deloitte has indicated it will not appeal the decision and is currently working out how to comply with the production order.

The matter is currently before the Federal Court.

EY and LM First Mortgage Income Fund

EY's auditors are battling a civil case where they are accused of botching the oversight of valuations for fizzled property fund LM First Mortgage Income Fund.

The civil case has been brought by receiver David Whyte of BDO for the LM First Mortgage Income Fund, which collapsed in 2013 after raising almost $400 million from investors.

The firm and auditor Paula McLuskie is accused of failing to check whether valuations were up to date or had properly accounted for a real-estate rout. EY auditor Michael Reid and the firm are also targeted over their alleged oversight of compliance plans for the fund.

Lawyers for the EY auditors have argued a real risk exists that any adverse civil ruling from the lawsuit could flow on to a "penalty or criminal action". The matter is ongoing in the Queensland Supreme Court.

EY and Penrice Soda Holdings

EY's audit division has been accused of fraud and deceit in a civil claim in the NSW Supreme Court.

Investment group London City Equities alleges EY failed to conduct successive audits over a six-year period with due care and skill.

London City bought about $7.6 million worth of shares in the now-liquidated miner Penrice Soda Holdings in 2007 and 2008, and is suing EY for damages over its losses on this investment. Investors rarely sue auditors themselves, with class actions against the firm more common.

London City said it only acquired the shares because it believed EY's allegedly misleading audited financial reports on the company to be accurate.

An indepedent forensic accountant, commissioned by London City, quantified the losses at $11.9 million in September, 2020.

The figure, which includes the damages suffered by both London City and two other related plaintiffs, takes into account both economic and likely investment scenarios, and does not include the substantial legal costs associated with the case.

EY and Quintis

Two shareholder class actions over sandalwood grower Quintis, targeting the company and EY, continue to wind their way through the Federal Court.

Three class actions about the collapse have now been consolidated into two matters. The consolidated case alleges that certain matters were not disclosed to investors in breach of the company's disclosure obligations.

The third class action alleges Quintis improperly inflated the value of its Indian sandalwood trees which represent the group's biological assets and did not comply with relevant accounting standards. This third claim also alleges that Quintis' auditor EY "engaged in conduct that was misleading or deceptive, and was negligent" and that the financial reports issued by Quintis and audited by EY did not accurately depict the financial position of the company.

EY said in its defence that if it is found liable for its audit, then Bentleys Audit & Corporate in Perth, which audited Quintis in 2013 and 2014, is a "concurrent wrongdoer".

The company went through a Deed of Company Arrangement last year which means the only assets available to meet any successful shareholders claims are limited to any insurance Quintis may have. The EY case is not affected by this move.

The consolidated case is funded by Ironbark and run by Gadens and the third case is funded by Litigation Capital Management and run by Piper Alderman partner Simon Morris and ongoing in the Federal Court.

PwC and Axsesstoday

PwC is facing a class action from bondholders of its collapsed audit client Axsesstoday over allegations of shoddy accounting work by the big four consultancy.

Listed lending company Axsesstoday went into voluntary administration in April 2019 after breaching its loan term conditions, but a prospectus given to bondholders in June 2018 suggested Axsesstoday was not at risk of breaching any loan or debt obligations.

Bondholders are now alleging that PwC, who did accounting work on the prospectus, failed to adequately consider changes to accounting standards that meant the company's assets, liabilities and expected losses would be measured differently from July 2018.

The action was launched in August in the Federal Court.

PwC and Vocation

PwC's partners are claiming privilege against self-incrimination to stop their having to produce documents related to a class action over the failed education provider Vocation.

Vocation closed in November 2015, after the government stripped it of almost $20 million in business, citing poor training quality, and 94 per cent of its stock value was wiped off.

The firm was added to the class action in March over its 2014 audit of Vocation. PwC has also filed cross-claims against several Vocation directors and the education provider's law firm at the time of the audit, Johnson Winter & Slattery.

PwC's partnership told the Federal Court the risk it faced of criminal and civil proceedings from the Australian Securities and Investments Commission was "real" rather than "theoretical".

Deloitte previously made the same arguments regarding privilege to the Federal Court in the Hastie case, and is awaiting a judgment from the Full Federal Court on whether the protection extends to the entire partnership.

The Federal Court's Justice John Middleton originally put off making a decision on the claim until the Full Court handed down its decision in the Hastie case.

He said in February that he had made up his mind on PwC's application following Deloitte's court loss, but allowed the firm time to make submissions in March based on the Hastie decision.

The class action is part of a complicated number of claims and counter claims that are ongoing over the collapse of the company.

PwC partner Stephen Bourke, the lead auditor for Vocation's 2014 report, saw his audit registration cancelled in late 2017. He has retired as an auditor but remains at the firm as a partner.

The matter is before the Federal Court.

PwC and the ATO

PwC is facing a Federal Court action from the Australian Taxation Office over its work for meat producer JBS in a battle over documents the two firms are refusing to hand over because of lawyer-client confidentiality.

The ATO is arguing the documents will help it properly assess the tax liability of JBS, which is based in Brazil and has operations in Australia, the United States, Argentina and China.

The legal action represents an escalation of the ATO's ongoing battle with PwC and other professional services firms over the scope of the privilege, which has traditionally been restricted to documents prepared in contemplation of litigation.

Finalised

2019: Deloitte and Dick Smith

Deloitte succeeded in a bid to strike out a number of claims made by two shareholder class actions alleging the big four consulting firm's accounting work on failed retailer Dick Smith was negligent.

The two class actions dropped their cross-claims against Deloitte and other parties in November, 2019.

The Findlay shareholder class action is being funded by Vannin Capital and run by Corrs Chambers Westgarth. The Mastoris shareholder class action is being funded by Investor Claim Partners and run by Johnson Winter & Slattery.

There are a number of other claims over the collapsed retailer, by the receivers against the retailer's ex-CEO Nick Abboud and ex-CFO Michael Potts and non-executive directors, and by NAB and HSBC against Mr Abboud and Mr Potts. The four claims are scheduled to be heard together in 2020. The defendants in each of the four proceedings also filed cross-claims against Deloitte.

The matter is ongoing in the NSW Supreme Court, but no longer involves Deloitte.

2019: KPMG and Discovery Metals

KPMG has settled a class action with Discovery Metals shareholders over allegations the firm's advisory arm provided an independent expert report that contained misleading advice to the board of the failed junior miner.

The terms of the settlement, which included a confidential financial sum KPMG has agreed to pay, were approved at a NSW Supreme Court hearing scheduled on May 27, 2019.

KPMG denied the allegations and agreed to the settlement "without any admission of liability". The class action was funded by Litigation Capital Management and run by Piper Alderman partner Simon Morris.

2019: KPMG and Equititrust

Equititrust liquidations Hall Chadwick had filed the first action against KPMG in 2013. All of the settlement amount would go to the case funder, International Litigation Partners.

2019: Deloitte and Ashley Services

The Federal Court approved a $14.6 million settlement in a class action with private training provider Ashley Services, its auditors, Deloitte and Grant Thornton, and Holmes Management Group in June.

Both Deloitte and Grant Thornton reviewed financial forecasts in Ashley Services' prospectuses, which allegedly omitted material information about the risks posed to the company's future revenue by a company it acquired in 2014 and a government training program.

The settlement meant that a cross-claim against Deloitte in the class action was dismissed, although the proportion of the settlement paid by the big four firm is unknown. A cross-claim against Grant Thornton was also dismissed, as was a separate cross-claim filed by the firm against Ashley Services.

2018: PwC and Provident

Investors in failed debenture issuer Provident Capital brought a class action against Australian Executor Trustees, the fund's trustee, and its auditors PwC and HLB Mann Judd in 2014, after 3,000 investors lost money in its collapse.

Plaintiff law firm Slater and Gordon, who brought the action, said these were "mum and dad investors".

The case settled in July 2018 for $44.25 million. IOOF, of which Australian Executor Trustees is a wholly owned subsidiary, footed $8 million of the bill. The split of the remainder between PwC, HLB Mann Judd and IOOF's insurers and insurance broker was undisclosed.

2017: Deloitte and Tamaya Resources

Deloitte faced two proceedings in relation to its 2007 audit of the failed Tamaya Resources, one from liquidators on behalf of the company and one from investors through a class action.

The firm denied liability and defended both matters from 2013-2017.

Deloitte settled the class action in 2017 without admissions. The firm said it did so "on a commercial basis".

The liquidators' case collapsed two days into a 2017 hearing and was discontinued.

2017: KPMG and GDI Investment Management

Listed real estate group GDI Investment Management accused KPMG's property consulting arm of giving misleading advice in a due diligence report about an investment in a commercial building in Townsville.

GDI alleged the report contained untrue and misleading findings that the lifts within the building had been upgraded in 2010 when they had not been improved since their installation in 1992.

KPMG settled the case for an undisclosed amount.

2017: KPMG and AllCo

A shareholder claim over the collapsed financial services company Allco Finance Group against the company and KPMG was settled in 2017 for $40 million in the Federal Court. AllCo's 2007 accounts had not disclosed $1.9 billion in interest-bearing loans as required by accounting standards. Allco became insolvent, with receivers appointed in November 2008.

KPMG auditor Christopher Whittingham agreed to an enforceable undertaking to not act as an auditor for nine months. The case was funded by International Litigation Funding Partners and run by Maurice Blackburn.

2015: KPMG and Premium Income Fund

Unit-holders in the Premium Income Fund settled a case against KPMG for an amount reportedly worth up to $30 million in 2015 in the Federal Court. The fund had invested in real estate during the boom of 2006 and KPMG had audited its compliance plan.

In his judgment, Judge Nye Perram said the fund had entered into numerous loss-making transactions that were discordant with the compliance plan and that KPMG allegedly "failed to detect that a number of the loss-making transactions were with related parties".

Justice Perram added that KPMG would likely have won if the case had gone to trial. The case was funded by IMF Bentham.

2017: KPMG and Trilogy

The case settled for an undisclosed amount in mid-2017.

2015: PwC and CBD Energy

Investors brought a case against failed renewable energy company CBD Energy, its officers, and its auditor PwC over an audit opinion.

A US judge found that the opinion did not violate securities law because the auditor genuinely believed the information to be correct at the time. It was struck out by the court on PwC's application.

2015: PwC, Deloitte and Ausbil Investment Management

Various proceedings were brought against PwC and Deloitte. The former firm settled the matter.

2014: KPMG and Octavier

The big four firm was the fund's compliance plan auditor. Just eight months before Octavier's collapse, KPMG said its financial statements provided a "true and fair view of the company's ... financial position as at June 3, 2007".

2014: PwC and Great Southern Finance

There were related proceedings brought against the directors and for relevant purposes the Court held that service of the claim was ineffective. The matter was resolved in 2015. PwC privately settled the claims levelled against it for an undisclosed amount.

2012: PwC and Centro

Shareholder actions over the nearly failed property group Centro were settled in 2012 for $200 million in the Federal Court. About $133 million was paid by Centro-related companies and $67 million paid by Centro's long-time auditor PwC.

One class action, funded by IMF Bentham and run by Maurice Blackburn, was allocated $150 million. Another class action run by Slater & Gordon was allocated $50 million of the settlement amount. PwC auditor Stephen Cougle had to accept an ASIC suspension for nearly three years.

2010: KPMG and Westpoint

The firm audited seven of these companies from 2002-2004.

KPMG ultimately settled the case.

2010: KPMG and Bill Express

KPMG faced litigation following the collapse of electronic payments company, and the firm's audit client, Bill Express.

The company owed more than $180 million when it went into administration in July 2008. KPMG ultimately settled the matter.

2009: EY and Sons of Gwalia

EY settled with the administrators of Sons of Gwalia for $125 million in 2009 over the firm's auditing of the failed gold miner. The administrators had claimed the firm was negligent in the way it accounted for the gold and dollar hedging contracts at Sons of Gwalia, while former directors of the miner were accused of having insufficient internal controls. The gold miner collapsed in 2004 owing $800 million. EY said the payment was a commercial decision and not an admission of liability.

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Court actions against Deloitte, EY, KPMG and PwC

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The matter is currently before the Federal Court . Deloitte faces a class action by law firm Phi Finney McDonald on behalf of investors in building services group Hastie, which went into administration in May 2012, reportedly $967 million in debt.

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This has been a tumultuous year for the concept of auditor independence. Several major, aggressive enforcement actions by the Securities and Exchange Commission have pushed towards the outer limits of liability, imposing substantial awards even absent any evidence of audit errors or harm to the client.

Even given the push by the SEC's regulatory divisions to ease that burden somewhat, auditors, and potentially their clients, remain at risk. Auditors and audit clients who fail to pay sufficient attention to these risks expose themselves to potentially substantial liability.
Recent enforcement actions
Rule 2.10.2-01 of Regulation S-X provides that the "commission will not recognize an accountant as independent, with respect to an audit client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement." Recent cases set out some of these "relevant facts and circumstances."

The ripples are still being felt from an order dated Sept. 23, 2019, in which Big Four firm PricewaterhouseCoopers agreed to pay approximately $7.9 million (disgorgement of $4.4 million plus a penalty of $3.5 million) and was censured, all for violations of the independence rules. ( See our story.) PwC violated the rules by improperly exercising decision-making power in designing and implementing financial reporting software related to multiple clients' financial reporting, and engaging in management functions, all non-audit services. Brandon Sprankle, a member of the audit engagement team, obtained internal approval within PwC for these tasks by deliberately mischaracterizing the project as audit services, despite numerous red flags to the contrary.

What is notable about the settled order is that these violations were not deliberate policy on PwC's part. PwC was charged and penalized for failing to detect the misconduct of a member of the audit engagement team, who deliberately misled PwC.

Moreover, these failures exposed PwC's audit clients to potential liability, either in the form of SEC enforcement actions or civil lawsuits from investors. As the PwC order makes clear, an issuer violates the Securities Exchange Act by filing quarterly or annual reports where the auditor was not independent. Moreover, scienter - or intent - is not needed for liability, as mere negligence will do. Thus, an independence violation - even if it causes no harm to the audit client directly - can expose the client to potential liability.

Even if the independence failure does not lead to enforcement actions against the audit clients, it can have serious consequences for the client when it comes to light. After the PwC order became public, Mattel Inc. came under harsh scrutiny for retaining PwC as its auditor, even after Mattel's own audit committee determined PwC violated conflict of interest rules and provided bad advice on how to handle a significant income tax error. Consequently, Mattel was sued in a class action for securities fraud violations, based in part on PwC's independence violations. As for PwC, its work for Mattel has also earned review by the Public Company Accounting Oversight Board, for, among other things, potential violations of the independence rules.

Another important recent case involved RSM US: RSM agreed to a settled order fining it $950,000 for independence violations. This case involved negligent failures to follow internal administrative procedures. RSM had a centralized system in place to prevent breaches of the independence rules, but engagement teams failed to enter client names uniformly, or failed to complete entries. As a result, RSM failed to detect the provision of non-audit services to affiliates of audit clients.

Notably, there was no finding of intentional wrongdoing, or that RSM's objectivity or impartiality was compromised, or that there were any errors or misstatements. As the order pointed out in a footnote, the issue was negligence, not willful misconduct.

The SEC has recently sought to address the perceived over-inclusiveness of the independence rules. The focus of these proposals is to decrease compliance costs for firms and increase the number of audit firms available for engagements by permitting "technical" independence violations that don't affect impartiality or accuracy. To simplify, these rules largely seek to permit the relationship of the auditors to entities affiliated or under common control with audit clients as long as those entities do not exercise "significant influence" over the client.

Nonetheless, the full scope of the auditor independence requirement remains somewhat unsettled territory. While the SEC seeks to give auditors more leeway, it is hard to tell how that will affect or limit enforcement actions. Whether or not the scope of independence violations has been limited somewhat, a potential liability minefield remains, not only for auditors but for their clients as well.
Howard Fischer is a partner in the litigation and white collar departments of Moses & Singer LLP and was a former senior trial counsel at the SEC.

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This has been a tumultuous year for the concept of auditor independence. Several major, aggressive enforcement actions by the Securities and Exchange Commission have pushed towards the outer limits of liability, imposing substantial awards even absent any evidence of audit errors or harm to the client.

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FOR IMMEDIATE RELEASE
2018-302

The Securities and Exchange Commission today filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit firm for their significant failures in audits of Corporate Resource Services Inc., which went bankrupt in 2015 after the discovery of approximately $100 million in unpaid federal payroll tax liabilities.

The SEC's order against Crowe finds that its audit team identified pervasive fraud risks in connection with its 2013 audit of Corporate Resource Services yet failed to:

Include procedures designed to detect the company's undisclosed payroll tax obligations;

Properly identify and audit the company's related-party transactions;

Obtain sufficient appropriate audit evidence to respond to these fraud risks, support recognition of revenue, and otherwise support the audit opinion;

Evaluate substantial doubt about the company's ability to continue as a going concern; and

Conduct a proper engagement quality review.

The order also finds that Crowe was not independent as a result of an ongoing direct business relationship with Corporate Resource Services. According to the order, the audit deficiencies occurred despite the involvement of Crowe's national office, which was aware of the high-risk nature of the engagement and the inability to obtain appropriate evidence. The order also finds that Crowe's engagement partner, Joseph C. Macina, and engagement quality reviewer, Kevin V. Wydra, caused Crowe's audit failures.

A related order finds that Mitchell J. Rubin and Michael Bernstein, former partners at Rosen, Seymour, Shapps, Martin & Co., LLP, engaged in fraud and performed a highly deficient audit of Corporate Resource Services' 2012 financial statements, which amounted to no audit at all, and that Bernstein caused the firm to lack the required independence when he failed to comply with partner rotation requirements.

"The audit standards are designed to ensure that public accounting firms have reasonable procedures to identify and respond to illegality and issues that pose material risks to the integrity of an issuer's financial statements," said Anita B. Bandy, Associate Director in the Division of Enforcement. "As set out in our order, the pervasive audit failures of Crowe and these accountants left investors with a misleading picture of Corporate Resource Services' financial condition."

The SEC's orders find that Crowe violated the audit requirement and accountant reporting provisions of the federal securities laws and that Macina and Wydra caused those violations. The orders find that Rubin and Bernstein violated the antifraud provisions and caused violations of the audit requirement and accountant reporting provisions of the federal securities laws. The orders also find that Crowe, Macina, Wydra, Rubin, and Bernstein caused Corporate Resource Services to violate the issuer reporting provisions of the federal securities laws. Additionally, the orders find that Crowe, Macina, Wydra, Rubin, and Bernstein engaged in improper professional conduct.

Crowe has agreed to pay a penalty of $1.5 million, be censured, and retain an independent compliance consultant to review its audit policies and procedures. Macina, Rubin, and Bernstein each agreed to pay a penalty of $25,000, and Wydra has agreed to pay a penalty of $15,000. Macina, Wydra, Rubin, and Bernstein agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC's order permits Macina and Wydra to apply for reinstatement after three years and one year, respectively. Crowe, Macina, Wydra, Rubin, and Bernstein, who settled without admitting or denying the findings, also were ordered to cease and desist from future violations.

The SEC's investigation, which is continuing, has been conducted by Sharan K.S. Custer, Ernesto Amparo, Regina Barrett, and Kam Lee, and supervised by Ms. Bandy and Kristen Dieter.

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SEC Charges Audit Firm and Suspends Accountants for Deficient Audits

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FOR IMMEDIATE RELEASE 2018-302 The Securities and Exchange Commission today filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit firm for their significant failures in audits of Corporate Resource Services Inc., which went bankrupt in 2015 after the discovery of approximately $100 million in unpaid federal payroll tax liabilities.

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Set forth below is a chart containing the names, ages, residences, charges, and maximum penalties for the defendants. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Berman praised the investigative work of the United States Postal Inspection Service and also thanked the Securities and Exchange Commission, which has brought an administrative proceeding against the defendants. Mr. Berman also thanked Trial Attorney Heidi Boutros Gesch of the Department of Justice's Public Integrity Section for her assistance in the investigation.

This case is being handled by the Office's Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Rebecca Mermelstein, Amanda Kramer, and Jessica Greenwood are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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5 Former KPMG Executives And PCAOB Employees Charged In Manhattan Federal Court For Fraudulent Scheme To Steal Valuable And Confidential PCAOB Information And Use That Information To Fraudulently Improve KPMG Inspection Results

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Set forth below is a chart containing the names, ages, residences, charges, and maximum penalties for the defendants. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

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Malaysia fines auditor Deloitte US$535,000 for 1MDB breaches

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The firm was also reprimanded by the Malaysian Securities Commission for failing to do its duty and report irregularities

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SEC.gov _ Ernst & Young, Former Partners Charged With Violating Auditor Independence Rules

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Audit Quality - Big 4 urged to challenge

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Audit Quality - Big 4 urged to challenge

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Deadline: Sunday 13 December 2020

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BKAA 5013 ISSUES IN AUDITING AND INVESTIGATION ASSIGNMENT 1 GUIDELINES

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Reference - how to write critical review

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Reference - how to write critical review

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critical review or literature review handout

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Writing a Critique _ IOE Writing Centre - UCL – University College London

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You might be said I'm unfriendly person at the first sight, but try to say 'hi' to me and you will discover more about me. I'm a happy go lucky person, creative and lot of passion when doing what I interested in. Let's us Graduate On Time mates.. :)

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The US Securities and Exchange Commission (SEC)'s reforms to the Auditor Independence Framework have exposed deep divisions in the sector over where the audit profession is heading.

On October 16, the SEC announced changes to the Auditor Independence Framework which set out to relax rules around conflict of interest, allowing audit firms greater discretion over what constitutes a conflict of interest.

The reforms were passed by the regulator by three votes to two, with the two Democrats, Commissioner Allison Herren Lee and Commissioner Caroline Crenshaw voting against the proposals and releasing a statement entitled: 'Who watches the watchers?'.

The statement of dissent concluded: "We are concerned that the dial for auditor independence is turning in only one direction, and that is towards loosening standards and reducing transparency. We cannot support introducing greater opportunity for error and uncertainty into auditor independence standards while decreasing visibility into how auditors are actually making these judgments."

Kyle Gibbons, managing director Europe for audit tech vendor, Confirmation (part of Thomson Reuters) says the relaxation of the rules presents a "risk" for the sector even though the reforms might be good for audit quality and competitiveness.

"There's a risk in these circumstances, where you're giving more power to the audit firm to determine if a conflict is or isn't present. Though their motives may be impeccable, there is an incentive introduced to overlook real conflicts to independence. In a context where auditors' independence is being questioned, in an environment where auditors are not typically picking up on frauds and where their role is being questioned, the timing of this change and the way it can be perceived outside of the profession, is not good. And you can't at all times rely on auditors, or companies to be able to make that judgement as to whether there's a conflict of interest," Gibbons says.

The FT reported that all of the Big Four had welcomed the reforms from when they were first proposed in December 2019. At Grant Thornton's US division, the national partner-in-charge of Ethical Standards, Anna Dourdourekas says the firm are "very supportive" of the "reasonable" and "fair" new measures.

"These rules do modernize the rules a bit. But it does allow the auditors to focus more of their time more effectively on independence analysis and relationships or services that could potentially pose an independence threat to an auditor's objectivity or impartiality."

Gibbons explains that it gives the biggest US audit firms "greater scope" to determine whether or not they are conflicted.

"It's giving greater discretion to the audit firm to determine, 'are we conflicted here or not?' And certainly, there are some cases where you could argue there's no real conflict of interest happening in reality."

However, he feels a likely fallout of the reforms is that smaller firms will lose business. With the reforms essentially making it easier for firms to say they are not conflicted, a small firm who may only have gotten work because those above it are conflicted will likely find it harder to keep those contracts, he says.

"That scenario could prove beneficial to audit quality, since the better firm could now perhaps compete for the audit where previously they wouldn't have been able to," Gibbons adds.

But as audit faces a crisis of trust against the backdrop of years of audit scandal across the world, from Enron to Carillion to Wirecard, Commissioners Lee and Crenshaw warned against the SEC taking steps which "relaxes auditor independence rules for the second time in as many years".

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Industry divided over SEC auditor independence reforms

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The US Securities and Exchange Commission (SEC)'s reforms to the Auditor Independence Framework have exposed deep divisions in the sector over where the audit profession is heading. On October 16, the SEC announced changes to the Auditor Independence Framework which set out to relax rules around conflict of interest, allowing audit firms greater discretion over what constitutes a conflict of interest.

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The SEC adopted amendments Friday that are designed to prevent the triggering of technical auditor independence rules violations in situations that don't necessarily impair an auditor's judgment or impartiality.

The changes are designed to prevent auditors, their clients, and audit committees from spending time, attention, and other resources considering relationships that don't necessarily pose a threat to independence.

"These modernized auditor independence requirements will increase investor protection by focusing audit clients, audit committees, and auditors on areas that may threaten an auditor's objectivity and impartiality," SEC Chairman Jay Clayton said in a news release. "They also will improve competition and audit quality by increasing the number of qualified audit firms from which an issuer can choose."

The amendments to Rule 2-01 of Regulation S-X:

Amend the definitions of "affiliate of the audit client" in Rule 2-01(f)(4) and "investment company complex" in Rule 2-01(f)(14) to address certain affiliate relationships, including entities under common control;

Amend the definition of "audit and professional engagement period," specifically Rule 2-01(f)(5)(iii), to shorten the lookback period for domestic first-time filers in assessing compliance with the independence requirements;

Amend Rules 2-01(c)(1)(ii)(A)(1) and (E) to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;

Amend Rule 2-01(c)(3) to replace the reference to "substantial stockholders" in the business relationships rule with the concept of beneficial owners with significant influence;

Replace the transition provision in Rule 2-01(e) with a new Rule 2-01(e) to introduce a transition framework to address inadvertent independence violations that only arise as a result of merger or acquisition transactions; and

Make certain other miscellaneous updates.

The amendments will take effect 180 days after they are published in the Federal Register. Voluntary early compliance is permitted after the amendments are published in the Federal Register, provided that the final amendments are applied in their entirety from the date of early compliance. Auditors are not permitted to retroactively apply the final amendments to relationships and services that exist before the effective date or the early compliance date, if selected by the audit firm.

- Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA 's editorial director.

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SEC aims to reduce unnecessary auditor independence red flags

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The SEC adopted amendments Friday that are designed to prevent the triggering of technical auditor independence rules violations in situations that don't necessarily impair an auditor's judgment or impartiality. The changes are designed to prevent auditors, their clients, and audit committees from spending time, attention, and other resources considering relationships that don't necessarily pose a threat to independence.

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i'm shy at first but come and say hi and you found out that i'm actually quite funny :)
keep calm and lets do this. Fighting!

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ENRON'S COLLAPSE: THE OVERVIEW

Enron, the champion of energy deregulation that grew into one of the nation's 10 largest companies, collapsed yesterday, after a rival backed out of a deal to buy it and many big trading partners stopped doing business with it.

Enron, based in Houston, was widely expected to seek bankruptcy protection. With $62 billion in assets as of Sept. 30, it would be the biggest American company ever to go bankrupt, dwarfing the filing by Texaco in 1987. Late in the day, though, Enron's chief financial officer, Jeff McMahon, said that the company was still talking to banks about a restructuring and considering other options.

Talks with its would-be rescuer Dynegy, also of Houston, about salvaging the deal ended in acrimony.

Dynegy, which had agreed on Nov. 9 to buy Enron but had second thoughts as Enron disclosed more financial problems and investors pummeled its stock, accused Enron of misrepresenting the health of its business. Enron, meanwhile, was weighing whether to sue Dynegy for breaching the terms of the deal, a person close to Enron said.

Enron's swift collapse left the prospects of 21,000 employees in doubt and wiped out what was left of the holdings of stock investors, including some big mutual funds, as shares that sold for $90 in August 2000 crashed to close yesterday at 61 cents. It roiled the Treasury market and tarnished the standing of the big New York banks that both advised on the deal and poured their own cash into the company. And it left in tatters the reputation of Enron's chief executive, Kenneth L. Lay, a confidant and campaign backer of President George W. Bush. [Page C1.]

The Treasury Department, the Federal Reserve and the Federal Energy Regulatory Commission said they had monitored Enron's impact on the financial and energy markets yesterday; officials who would comment said they saw no dangerous ripple effect.

''The markets are functioning normally,'' said Peter Bakstansky, a spokesman for the Federal Reserve Bank of New York.

From a pipeline company in the 1980's, Enron grew into the world's largest energy trader, using the Internet to buy and sell natural gas and electric power supplies for utilities and industrial power users and helping them hedge against fluctuations in power prices.

But Enron was undone by shaky accounting, too much borrowed money and an unwillingness to provide information to investors who grew to doubt its financial reports.

Five weeks ago, the company disclosed that, to fuel its growth, it had shifted billions of dollars in debt off its balance sheet and into an array of complex partnerships. The Securities and Exchange Commission began an investigation, and Enron restated five years of earnings, wiping out nearly $600 million in profit.

Enron was teetering close to insolvency before Dynegy, a smaller cross-town rival, agreed to acquire it for $9 billion plus the assumption of $13 billion in debt, with additional financing from ChevronTexaco, a major Dynegy shareholder.

But Enron subsequently disclosed even more debts, and its financial plight continued to worsen. Energy-trading companies reduced dealings with the firm; doubting its creditworthiness, some forced Enron to pay higher prices for natural gas and other products or required it to post large cash deposits to back trades.

For four days, Enron and Dynegy worked to salvage the deal. But yesterday morning, Dynegy pulled out. ''We knew when to say no, and this morning, we said no,'' said Chuck Watson, Dynegy's chairman.

In an interview, Mr. Watson said Enron's energy-trading business had deteriorated. He also cited ''surprises'' in the quarterly report to the S.E.C. that Enron filed on Nov. 19, including the disclosures that a credit downgrade meant Enron had to pay or refinance a $690 million obligation and that Enron had less cash on hand than Dynegy had expected. ''Confidence and credibility, which is what this business is all about, deteriorated after that,'' he said.

Mr. Watson said he called Mr. Lay yesterday after a meeting of Dynegy's board to call off the deal. By then, S.& P. had downgraded Enron's debt to junk status, accelerating up to $3.9 billion in debt payments.

But last night, Mr. McMahon, Enron's chief financial officer, took strong issue with the notion that Dynegy could have been surprised by Enron's financial report.

''I believe Dynegy was aware of everything that was encapsulated in that,'' Mr. McMahon said, explaining that Dynegy had been given advance copies of the filing.

The companies even disagreed about whether they had reached agreement on a renegotiated deal that would have cut Dynegy's purchase price and pumped hundreds of millions dollars more into Enron.

''There was never a global settlement that all parties agreed to,'' Mr. Watson said.

Mr. McMahon had a very different view. ''It's fair to say that we thought we had a deal several times,'' he said, ''and the goal posts definitely kept moving on us.''

As for Enron's future, Mr. McMahon said: ''We are looking at every option under the sun, as you can imagine.'' Those options include the Chapter 11 filing for bankruptcy reorganization that analysts and competitors widely expected. He said that a Chapter 7 filing -- in short, the liquidation of the company -- ''is not an option we are pursuing.''

An executive close to Enron said it had not yet done the advance work needed to seek protection in bankruptcy court. ''It's a last resort, but not a last-minute kind of thing,'' this executive said. ''If you go in and file for Chapter 11 like this without having everything done, it's like walking in a bank lobby and throwing a dozen eggs on the floor.''

A bankruptcy filing would give the company some breathing room to deal with creditors' claims, but it would be complicated, and many creditors -- including stockholders -- would be likely to come away empty handed. Enron has relatively few hard assets, and those it has -- including an extensive network of natural gas pipelines -- are already pledged to lenders.

In any case, by the end of the day Enron was a shadow of the colossus that politicians blamed for California's energy crisis and analysts promoted as an innovator that epitomized the free-market swashbuckling that the Internet could unleash.

Yesterday morning, Enron shut down its Internet-based trading platform, EnronOnline, its screens going blank. Other major energy traders announced that they would trade with Enron only in cash -- effectively meaning that virtually all trading with the company had stopped, they said.

Late yesterday, Mr. McMahon said that Enron was doing some trading by phone, but he declined to say how much or whether EnronOnline would be reopened today.

Yesterday, shares of Enron, which peaked last summer at $90, fell to 61 cents, down 85 percent for the day; Dynegy shares fell $4.08, or 10 percent, to close at $36.81.

Other big energy traders, like the El Paso Corporation, Reliant Energy, Mirant and Aquila, also fell. But Enron's gradual decline over the last month gave many energy companies time to reduce their exposure to Enron, and many operate rival trading operations that would benefit from its collapse.

Yesterday morning, as news leaked out of Dynegy's plans to cancel the deal and S.& P. announced its downgrade of Enron's credit, prices for natural gas futures traded on the New York Mercantile Exchange soared more than 10 percent. But they quickly reversed, plunging about 15 percent from the highs reached before noon. Traders said volume fell off sharply as word of Enron's problems spread.

Mr. McMahon said Enron was working with J. P. Morgan Chase and Citigroup, its lead banks, to restructure the company's debts. ''We are optimistic we can get a restructuring,'' he said. Earlier in the day, Enron said that it had begun a ''temporary suspension of all payments other than those necessary to maintain core operations,'' but Mr. McMahon declined to comment on what bills Enron was paying.

The two banks had hoped that by helping arrange Enron's rescue they could prove the merits of their strategy of providing both loans and advice in the merger business. Now, not only have the banks lost bragging rights for pulling off a difficult deal, as well as millions in fees, they are also left holding hundreds of millions in loans to Enron, analysts said.

Dynegy may come out better. Under terms of the initial merger deal, the $1.5 billion it injected into Enron earlier in the month gave it preferred stock in Enron's Northern Natural Gas pipeline that can be converted into ownership of the pipeline. Dynegy said yesterday that it would exercise its option to acquire the pipeline. Enron said it was reviewing the ''assertion'' by Dynegy that it could claim the pipeline.

The person close to Enron said that Dynegy might have been seeking control of the pipeline all along. ''You've got to wonder if they ever wanted to go through with this agreement from the get-go,'' he said of Dynegy. ''Certainly, this was a way to take probably the world's largest energy player out of the market.''

Mr. Watson said that Enron had never leveled that charge at Dynegy in the course of their talks.

Enron executives believed they had successfully revised the deal with Dynegy on Monday afternoon.

Mr. Lay was in a private plane preparing to fly out of Teterboro Airport in suburban New Jersey. He had just signed new merger documents and was hoping to announce a deal on Tuesday in Houston, executives close to the talks said.

But Mr. Watson, who had just returned from a trip, had become deeply involved in the talks earlier that day and kept raising the ante, one executive close to Enron said. ''All the parties were flipping out because Chuck was changing the terms by the hour,'' this executive said.

As Mr. Lay's plane was taxiing for takeoff, the executives said, a call came in from Mr. Watson asking to change the terms once again. That, they said, was when it became clear that the deal might unravel.

In the end, Enron's uncertain finances and evidence that its customers were fleeing sealed Dynegy's decision. ''Sometimes,'' Mr. Watson said, ''a company's best deals are the very ones they did not do.''

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ENRON'S COLLAPSE: THE OVERVIEW; ENRON COLLAPSES AS SUITOR CANCELS PLANS FOR MERGER (Published 2001)

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Enron, champion of energy deregulation that grew into one of nation's 10 largest companies, collapses after rival Dynegy backs out of deal to buy it and many big trading partners stop doing business with it; is widely expected to seek bankruptcy protection; would be biggest American company ever to go bankrupt; stock price graph; photo (M)

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Arthur Andersen fired its partner in charge of auditing the Enron Corporation today, saying he had ordered the destruction of thousands of documents and e-mail messages after learning that the Securities and Exchange Commission had begun an investigation of Enron's accounting.

The fired partner, David B. Duncan, called a meeting of auditors at the firm's Houston office and ordered ''an expedited effort to destroy documents'' on Oct. 23, the day after Enron disclosed that the S.E.C. had begun its inquiry, the firm said. The destruction apparently did not end until Mr. Duncan's assistant sent an e-mail message to other secretaries on Nov. 9 that said ''stop the shredding,'' the firm said. Andersen had received a subpoena from the S.E.C. the day before.

Further disclosures today underscored the accountants' central role in the scandal surrounding Enron, the pioneering Houston energy company that was the nation's seventh- largest company before its precipitous fall into bankruptcy protection. [Business Day, Page C1.]

A report in October by Enron's law firm, commissioned by the company to investigate an employee's allegations of improper accounting, concluded that Andersen auditors reviewed and approved of transactions by Enron-related partnerships that contributed to the company's collapse. The employee, who made the allegations in an anonymous letter, has been identified as Sherron S. Watkins, an Enron vice president for corporate development.

All material facts about the partnerships ''appeared to have been disclosed to and reviewed by AA,'' a reference to Arthur Andersen, said the report by Vinson & Elkins, a Houston law firm.

In Washington, the House Energy and Commerce Committee released the full text of the employee's August letter to Kenneth L. Lay, Enron's chairman, a day after disclosing excerpts in which the author warned that the company could ''implode in a wave of accounting scandals.''

In her seven-page letter, Ms. Watkins questioned whether the company's complicated, largely undisclosed deals with partnerships set up by Enron officials had helped inflate the company's stock price and, in the end, would be found out to be an ''elaborate accounting hoax.''

Enron, she warned, should not rely on Andersen's assurances that the company's books were in order. ''None of this will protect Enron if these transactions are ever disclosed in the bright light of day,'' she wrote.

Ms. Watkins also urged that Vinson & Elkins not be used to investigate the transactions, contending that the firm had a conflict of interest because of its involvement in advising Enron on some of the deals.

A spokesman for the law firm, Joe Householder, said he could not comment specifically on work the firm did for Enron because of client-confidentiality rules. ''We are confident everything we did for that client was with the highest standards and professional ethics,'' he said.

Others in the company had also objected to Enron's financial practices, Ms. Watkins told Mr. Lay in her letter. She said that J. Clifford Baxter, an Enron vice chairman who resigned in May, had ''complained mightily'' to officials including Jeffrey K. Skilling, Enron's former chief executive, about the ''inappropriateness'' of the transactions. Mr. Skilling's resignation on Aug. 14 appears to have prompted the letter, which says his ''abrupt departure will raise suspicions of accounting improprieties.''

Mr. Baxter could not be reached for comment. Mr. Skilling has maintained that no one at the company raised broad concerns about the transactions with him.

Enron instructed Vinson & Elkins to explore only whether a broader inquiry was needed to deal with the allegations in the letter from Ms. Watkins and to avoid ''second-guessing the accounting advice and treatment'' provided by Andersen, according to the law firm's report. As a result, many of the detailed allegations of accounting problems in the letter went unaddressed in the law firm's report.

While the Enron audits were handled in the accounting firm's Houston office, the report also makes clear the involvement of Andersen executives at the firm's Chicago headquarters: ''AA consulted with its senior technical experts in its Chicago office regarding the technical accounting treatment'' involving deals with the partnerships.

The report, dated Oct. 15, concluded that Enron had done nothing wrong. The next day, Enron issued its third-quarter earnings report and made no reference to the law firm's inquiry. Within weeks, Enron was forced to acknowledge that improper accounting, much of it related to the partnerships, had resulted in overstating its earnings by almost $600 million over five years.

Robert S. Bennett, a lawyer for Enron in Washington, said that Mr. Lay sought the report from Vinson & Elkins to determine if there was any basis for further concern about Ms. Watkins's claims. Enron's directive that Vinson & Elkins not re-evaluate the accounting on the partnerships was intended to ensure a quick response to serious allegations, he said.

''Mr. Lay acted in a very responsible and professional manner,'' Mr. Bennett said. ''He did everything that could be expected of him.''

As the disclosures tumbled out today, the New York Stock Exchange moved to delist Enron's stock, which has generally sold for less than $1 a share since the company's Chapter 11 bankruptcy filing on Dec. 2. The stock -- which peaked at about $90 in August 2000 -- will now trade in the over-the-counter market. Enron has not traded since Thursday, when the shares closed at 67 cents.

Also today, the Senate Finance Committee said it planned to review Enron's corporate income tax returns, becoming the sixth Congressional committee to join the investigations of the company. Senator Charles E. Grassley of Iowa, the committee's ranking Republican, said the issue of primary concern to him was not tax avoidance but ''whether Enron used tax vehicles that might have masked the company's financial condition.''

Mr. Duncan, the fired Andersen partner, is expected to meet Wednesday with investigators from the House Energy and Commerce Committee in Washington.

''Today, we heard one side of the story; tomorrow we'll hear the other,'' said Ken Johnson, a spokesman for Representative Billy Tauzin, the Louisiana Republican who is chairman of the committee. ''The admission that Andersen destroyed documents after learning of an S.E.C. inquiry is more than just unethical. It could be criminal as well.''

Meanwhile, Paul Sarbanes, chairman of the Senate Banking Committee, asked the General Accounting Office to begin two investigations. One inquiry will be to determine how many employees in the last decade have suffered substantial retirement losses because of declines in company stock values. The other will delve into the adequacy of current financial reporting requirements.

Joseph F. Berardino, Andersen's chief executive officer, said today that the firm, one of accounting's Big Five, was moving aggressively to rehabilitate its reputation. ''The integrity of this firm is in question,'' he said in an interview. ''Our reputation is our most important asset.''

Legal experts said that firing Mr. Duncan would not relieve Andersen of liability for his actions. A lawyer for Mr. Duncan, who has been the partner in charge of Enron audits since 1997, said his client had done nothing wrong and was cooperating with investigators.

''He followed the instructions of an Andersen in-house lawyer, which were consistent with Andersen's longstanding policy,'' said the lawyer with Sullivan & Cromwell in New York, who insisted that his name not be used. That appeared to be a reference to a previously disclosed memo from Nancy Temple, an Andersen lawyer, reminding the Houston office of Andersen's policies on document destruction.

Mr. Berardino, asked if anyone from Andersen's headquarters in Chicago had approved of the destruction, said, ''I don't know yet if anyone advised him to do that.''

Mr. Duncan, 42, started at Andersen in 1981 and has been a partner since 1995.

In addition to firing Mr. Duncan, the firm placed on leave three other partners who worked on Enron audits: Thomas H. Bauer, Debra A. Cash and Roger D. Willard. Also, four partners in Andersen's Houston office were ''relieved of management responsibilities'': D. Stephen Goddard Jr., Michael M. Lowther, Gary B. Goolsby and Michael C. Odom.

Andersen said it had learned of ''the deletion of thousands of e-mails and the rushed disposal of large numbers of paper documents'' after the Oct. 23 meeting in its Houston office. ''These activities were on such a scale and of such a nature as to remove any doubt that Andersen's policies and reasonable good judgment were violated,'' the firm said.

According to the Vinson & Elkins report, both Enron and Andersen acknowledged that the accounting treatment given to some of the company's transactions was ''creative and aggressive,'' but the law firm concluded that no further investigation was warranted.

It did warn, however, that there was a ''serious risk of adverse publicity and litigation'' because of the ''bad cosmetics'' of the transactions and the falling value of both Enron's stock and assets in the transactions.

According to its report, the law firm received assurances of the legitimacy of the partnership transactions from officials at Andersen and Enron close to the dealings. Among the main officials the law firm interviewed to reach those conclusions were Mr. Duncan and Andrew S. Fastow, at the time Enron's chief financial officer.

Mr. Fastow, who organized the partnerships on the company's behalf and earned more than $30 million from his own investments in them, was asked to leave the firm on Oct. 23, as Wall Street grew increasingly distressed about Enron's performance and disclosures.

The transactions involving the partnerships were complex. According to the Vinson & Elkins report, the first of the partnerships, known as LJM1, was organized to allow Enron to hedge its investment in Rhythms Netcommunications, an Internet networking company.

Another partnership, LJM2, raised $349 million from investors, according to the Vinson & Elkins report, including ''commercial and investment banks, insurance companies, public and private pension funds and high net worth individuals.'' According to the report, LJM2 engaged in 21 transactions with Enron.

Each partnership transaction was closely reviewed by Enron executives, the report says. A sheet tracking each deal was reviewed and signed by senior Enron officials in the legal, technical and commercial divisions of the company.

During the lawyers' interviews for their report, concerns were raised by some officials about the potential for conflicts of interest, because Enron officials including Mr. Fastow were working for both the company and for the partnerships.

''Within Enron, there appeared to be an air of secrecy regarding the LJM partnerships and suspicion that those Enron employees acting for LJM were receiving special or additional compensation,'' the report says. Vinson & Elkins apparently did not learn of Mr. Fastow's earnings from the partnerships.

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ENRON'S COLLAPSE: THE OVERVIEW; ARTHUR ANDERSEN FIRES AN EXECUTIVE FOR ENRON ORDERS (Published 2002)

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Arthur Andersen accounting firm dismisses David B Duncan, partner in charge of auditing Enron Corp, saying he ordered destruction of thousands of documents and e-mail messages on Oct 23 after Enron disclosed that Securities and Exchange Commission was probing its accounting; destruction apparently did not stop until his assistant ordered

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LH201 TOPIC 2_ AUDITOR INDEPENDENCE AND COMPETENCE

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deangelo1981 AUDITOR SIZE AND AUDIT QUALITY

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Copy of TOPIC 4_ CORPORATE GOVERNANCE AND AUDIT QUALITY

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A mother of 2. Food lover. I enjoy watching Korean dramas & I like to make a new friends as well.
May اللّهُ ease our journey to Master in Science (International Accounting).
اَمِين يَا رَبَّ الْعَالَمِيْن
Keep calm & let’s do this together💪🏻You’ll never walk alone💪🏻

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1. Independence, competence and honesty (integrity) are 3 main values MUST have in an auditor
2. Without 1 of it, that auditor will produce poor quality of audit report
3. Big firm maybe has advantage on resources to built independence and competence among their auditors, but not the honesty (integrity)

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1. Audit quality comes from the independence and competence auditors.
2. Reliable financial statement important to the user in making a good decisions.
3. Professional competence can be achieved by receiving adequate training and experience in all aspects of audit works.
4. The size of firm effect auditors' audit quality.
5. The bigger the firm, the higher audit quality will effect the auditors decisions.

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1. The importance of auditor being competence and independence
2. How size of big firm although can give audit quality still need to consider integrity and honesty
3. The need for audit quality. Audit quality is important for management to make decison based on that. Stakeholder can trust the financial statement presented

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1. Always be honest while doing audit / investigating.
2. Free your mind & appearance to get better result in assurance engagement.
3. Enhance knowledge and skills to improve your credibility & ability.

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Interrelation in concept of auditing (independence, competence & honesty) & auditor size to fulfill audit quality.

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1.CONCEPT OF AUDITING
-STEWARDSHIP, AGENCY, ACCOUNTABILITY
- COMPETENT & INDEPENDENT - QUALITY
- RULES/STANDARD/GL FOR AUDITING
-INTEGRITY

2. HISTORY OF AUDITING - PRIOR 1840S-

3. NATURE OF AUDITING - OBJECTIVE -I.NATURE, II. PURPOSE, III- SCOPE

4. IMPORTANT THEORY- POLICEMEN THEORY, LENDING CREDIBILITY THEORY, INSPIRED CONFIDENCE, AGENCY THEORY

5. INDEPENDENCE TYPES - 1.IN MIND, 2. IN APPEARANCE

6. FACTORS EFFECT QUALITY AUDIT: I. iNDEPENDENCE, II. COMPETENCE, III. ETHICS/INTEGRITY, IV. KNOWLEDGE (INDUSTRY), SKILL(TRIGGERED ISSUES)

7. HOW THE SIZE OF FIRM INFLUENCE THE QUALITY OF AUDIT : SIZE OF FIRM V. QUALITY - IMPORTANT ARTICLES : I. DEANGELO (1981)II. LENNOX (1990)  III. SIVOIS & SIMUNIA(2016) IV. JIANG AT AL (2018)

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1) Indepence comprises two : independence of mind & independence of appreance.
2) The size of auditors gives effect to the going concern reports.
3) Honesty is an integrity. Act without fear and favour :)

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Asnidah reflection Topic 2 & 3 :                                   To achieve quality audit, an auditors must have 3 main aspect :1. Competence2. indepence 3. integrity Indepence is comprise independence in mind & indepence in appearance. Independence in mind is freely to express an aopinion towards FS being audited while independence in apperance means act freely not to show good relation with the client so that public will not judge.  

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Asnidah reflection Topic 2 & 3 :                                   To achieve quality audit, an auditors must have 3 main aspect :1. Competence2. indepence 3. integrity Indepence is comprise independence in mind & indepence in appearance. Independence in mind is freely to express an aopinion towards FS being audited while independence in apperance means act freely not to show good relation with the client so that public will not judge.  

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Differences 'independence' between internal/external audit is Internal audit is more independence to produce report to management to improve the operation while external auditor is independently can express opinion towards FS being audited.

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Ahmad -

1) a good auditor should possess three main charecters,competence, independence and integrity

2)The big firm basically have the advantages towards audit quality if compared to small firm

3)

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1.audit quality have 3 elements
Independence
Compentence
Honesty

2.Audit scandals recently involved Big 4 clients indicates the honest is so important in audit quality

3.Size of firm is not really signaficant to factor a of audit quality

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Week1 Reflection                      	•	Indepence of mind & apperence important                 •	Professional competence and due care                                •	Honesty that keep high valuable reputation     

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Week1 Reflection                      	•	Indepence of mind & apperence important                 •	Professional competence and due care                                •	Honesty that keep high valuable reputation     

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1. Audit quality involves element as input, process and output
2. Size firm will affect to audit quality
3. Honesty is an
integrity