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The Audit Process, Principles, Practice, and Cases

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Corporate fraud consists of a number of interrelated activities which jeopardise the overall structure and arrangement of an organisation’ s accounting standards (Cosserat, 2004). In the longer run, it betrays the expectations of investors who purchased the shares of the company. It is, therefore, agreed that organisations will develop the role of ‘ corporate audit committees’ for the exclusive task of gauging the performance effectiveness of various corporate forms (Gosling, 2004). Thus, the task of ensuring professional ethics in auditing is a combined initiative of regulatory independence bodies as well as the company’ s own corporate structure. 2.

Auditor’ s Legal Liability: Auditor’ s legal liability in the event of a financial crisis in the company is insured by the ‘ statement of independence’ as discussed before (Cosserat, 2004). Since the auditor claims no personal affiliation to the company’ s organisational structure, the liability, therefore, befalls with the company (Eilifsen & Messier, 2006). HHowever, auditing firms cannot always escape public scrutiny, especially in major downturn events. For example, during the recent US economy meltdown which shook world markets, an angry Wall Street shifted the blame on three major auditing firms – Deloitte, KPMG and PricewaterhouseCoopers stating they ‘ overlooked’ several instances of firms with the following set of problems: bad debts, off-balance sheet accounting, dubious asset values and questionable business models (Hanney, 2008).

It implies that auditing firms cannot always escape unscathed if there is ‘ enough evidence’ of their complicity or negligence in the event of public scrutiny of auditing records (Eilifsen & Messier, 2006). Above observation further bolsters the case of independence of auditing firms from any interference by clients. 3. Audit Risk: Any auditing activity is fraught with accounting risks which have to be addressed by those overseeing it.

The risk-based approach of auditing surmises that the entire audit assignment consists of problems and fraudulent data (Pine, 2008). This totally eliminates the possibility of any audit objectives not being met (Pine, 2008).  

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