Auditing Assignment Instructions
The CEO of your company recently met with the external auditors to discuss the scope of the year’s audit. The auditors suggested that they conduct an integrated audit. The CEO has asked you, the accountant, to make a presentation at the next board of directors meeting that includes the following:
- Give a definition of auditing.
- Explain the purposes and reasons for public accounting firms to perform an integrated audit. Address the Sarbanes-Oxley Act (SOX).
- Explain corporate governance and its relation to integrated audits.
- Cite an example of a recent failure in corporate governance.
- Find an article in which the actions that the public perceived as necessary to improve the quality of corporate governance are discussed; list the actions requested according to the article.
Auditing Sample Paper
Definition of Auditing
This paper discusses the scope of the year’s audit, which covers the definition of auditing, the reasons why public accounting firms perform integrated audit, what corporate auditing entails and its relation to integrated audits. Different authors have defined auditing in different ways; where all these definitions relate to examination of financial accounts or records to verify if they are accurate. According to Arens and Elder (2011), auditing is a process of examining vouchers, documents, accounts, and books of a company in an independent and systematic manner to establish the extent to which the financial statements represent the correct opinion of the concern. It, also, means a process where an organization has its financial statements and records independently evaluated and examined by either an internal or an external auditing firm.
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Why Public Accounting Firms Perform Integrated Audit
An integrated audit, on the other hand, combines a financial audit with an audit of internal control over financial reporting (Budding & Grossi, 2014). It is worth noting that dissimilarities exist between integrated and non-integrated audit in terms of overall complexity and scope. Public accounting firms; however, prefer performing an integrated audit for a number of reasons. Integrated audit provides the flexibility of utilizing various audit approaches to attain the desired outcome. It incorporates enriched skills of project management to facilitate coordination so that effective accomplishment of the audit exercise can be achieved.
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Integrated audit permits exploitation of increased knowledge or external resources as well as additional sets of skills. It, also, allows augmented creativity and oversight for the auditor to think widely, and boost communication among different parties engaged in the audit process. Integrated audit enables a balanced approach in regard to rating and identification of risk. This is especially significant for unfamiliar areas where traditional audit processes have not been able to conduct a successful review. Integrated audit is, also, appropriate for accommodating changes in the contemporary model of staffing. In this respect, the Sarbanes-Oxley Act (SOX) came into force in 2002 to help restore investor confidence due to the noticed breakdowns in internal controls (Budding & Grossi, 2014). The Act clarified the scope within which auditors can perform their duties without having their independence compromised. It, also, gives direction regarding the manner in which external auditors should utilize internal auditors of an organization.
Corporate Governance and its Relation to Integrated Audits.
Corporate governance entails promotion of accountability, transparency, and fairness. It has a structure, which specifies the allocation of responsibilities and rights of shareholders, managers and the board, and clarifies the procedure required for making decisions that relate to corporate affairs of an organization (Arens & Elder, 2011). Strong corporate governance provides an integrated audit with a chance to be a more strategic and active team player. It relates to integrated audit by offering facilitation to the audit committee so that it can fulfill its responsibilities. It also plays a significant role in the evaluation of risks and establishing the level of performance in the organization. It also relates to integrated audit through verification of the accounting principle that should be applied in the organization. An example of a recent failure in corporate governance was experienced at Lehman Brothers which failed due to weakness in the following areas: board of directors; corporate risk management; nomination committees; and remuneration scheme.
In the article “Corporate governance mechanisms and capital structure in UAE”, Hussainey and Aljiri (2012) outline a number of steps that require consideration in order to improve corporate governance. The first one is clarification of the role of the board in strategy. The second is consistent monitoring of organization performance. The third is recognition of the fact that compliance is not the only recipe of improved corporate governance. Fourth is about establishment of an effective infrastructure of governance. Finally, corporate governance can improve by ensuring that directors access essential information in a timely manner.
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