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Audit Framework Essay Example

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Audit Framework

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This is where auditing comes in as an important factor to ensure growth. This is because auditing helps the company to have a very objective and fair overview of its statements, records, operations and performances, based on which it will know whether it is growing or falling (Collins, 2006). In effect, effective and quality auditing plays a part in the growth of the company and thus goes a long way to ensure that the needs of stakeholders are met. Having said this, it is important to speculate on what happens when the outcome of audit reporting based on which growth decisions are made is not credible or accurate. Certainly, an inaccurate audit reporting will mean that decisions to be made about the company cannot be regarded as right or tailored towards the real state of the company (Eichenwald, 2005). It is against this backdrop that auditor independence can be linked to the achievement of the needs of stakeholder groups in the organisation and in UK as a whole. This is because Sharpe (2004) found auditor independence to be a major factor in ensuring accuracy with audit reports.In the UK, stakeholders concerned with ensuring that statutory audit is a high quality product can be grouped into internal stakeholders and external stakeholders. In the same way, auditor independence comes in two forms which are independence of the internal auditor and independence of the external auditor. Independence of the internal auditor is enforced when the internal auditor is given independence from parties or people whose interest may be harmed by the outcome of the audit report (Bradshaw & Franc, 2010). Likewise, independence of the external auditor is said to be enforced when the external auditor is kept independent from parities or people who may have an interest in the published statements of the company (Rubinstein, 2006). Graham and Harvey (2011) however debated that for the needs of stakeholders, whether they are internal or external stakeholders to be achieved, it is important that independence of the internal auditor and independence of the external auditor will both be promoted in the same way. This is because internal audit reports have direct influence on management decision making, which also has a direct influence on what external stakeholders, particularly shareholders get from the company (Roll, 2012). In a like manner, external

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Aldrick, P. & Kirkup, J. (2013, April 4). KPMG faces possible audit inquiry over HBOS failure. Retrieved from http://www.telegraph.co.uk/finance/economics/9979995/KPMG-faces-possible-audit-inquiry-over-HBOS-failure.html

Bradshaw, M. & Franca, T. (2010). Response to the SECs Proposed Rule- Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) by U.S. Issuers, Accounting Horizons 24(1), 45-53.

Collins, D. (2006). Behaving Badly: Ethical Lessons from Enron. Texas: Dog Ear Publishing.

Dunn, J. (1996). Auditing Theory and Practice. New York: Prentice Hall.

Eichenwald, K. (2005). Conspiracy of Fools: A True Story. Monaco: Broadway.

Graham, J. & Harvey, C. (2011). The Theory And Practice Of Corporate Finance: Evidence From The Field, Journal Of Financial Economics 60, 187-243

International Accounting Standards Board (2007). International Financial Reporting Standards, London: LexisNexis

Jones, A. (2012, April 15). PwC fined £1.4m for audit failure. Retrieved from http://www.ft.com/intl/cms/s/0/b2b4332e-36d7-11e1-b741-00144feabdc0.html#axzz3KTPS1lKM

Roll, R. (2012). A Critique of the Asset Pricing Theory Test, Journal of Financial Economics, 4, 129-176

Rubinstein, M. (2006). A History of the Theory of Investments. Hoboken: John Wiley & Sons, Inc

Sharpe, W. F. (2004). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk, Journal of Finance 19, 425-442

Toffler, B.L. & Reingold J. (2004). Final Accounting: Ambition, Greed and the Fall of Arthur Andersen. Monaco: Broadway Business

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