澳洲会计审计专用教材总结ID summary

General rule→the regulators have the idea that comparability would be achieved when each company’s financial prepared in accord with the same rules. The mistaken proposition is that uniformity of essentially input and processing rules would produce uniform, comparable financial statements. Yet the falsity in the reasoning of the proposition was clearly demonstrable, and clearly evidenced by the variance in the outputs in the forms of financial statements of companies following the rules.

Audit Risk

Inherent risk: one-man show; complex structure; complex financial arrangement (related party transactions); high risk industry; over-reliance on debt; aggressive expansion strategy; foreign exchange dealings

Control Risk: one-man show; corporate governance; internal control

Enron case:High Inherent Risk: ① conglomerate structure with numerous subsidiaries and SPEs.

② Enron engaged in energy, which included hedge and derivative transaction. ③ Price volatility.

High control risk: poor internal control.

High detection risk: ①Anderson – lack of independence. ② the provision of non-audit related services by audit firms.③The former employee of outside auditors was Enron’s internal accounting staff. ④Anderson received $23m non-audit service fee, which occupied 92% of the whole audit fee. ⑤He destroyed the document before litigation.

HIH case:

High inherent risk: ① aggressive acquisition strategy ② dominant manager ③ industry risk (insurance industry uses provisioning policies and discounting rate) ④ complex corporate structure

High control risk: ① insufficient information system ② incompetent manager- no identifiable long-term strategy ③ poor corporate governance ④ ineffective audit committee

High detection risk: lack of professional skeptics→ Andersen generally relied on extracts from 6 months reports that actually prepared without any expert assistance and he mainly relied on HIH’s internal audit report.

Quality Control Mechanism

(1)Quality control in a manufacturing setting ensures that a product is fit for purpose. Similarly, auditors

provide assurance that financial data audited is serviceable to the users.

(2)The recognized function of audits is to act as a quality control mechanism in verifying that the

financial accounts prepared by directors do in fact provide a true and fair view of an entity’s financial state of affairs. The data are true and fair if they are serviceable in the use ordinarily made of them. (3)What is being tested is the result of some previous action, not the action itself. The tests that auditors

should apply therefore are tests of the fitness of the financial figures for the use in future calculations and in making judgments about the past or decision about the future on financial grounds.

(4)But now, the focus is on auditors’ personal characteristics, financial and professional relationships,

rather than what auditors are doing when they are supposed to be independence.

(5)The reforms such as the independence standard or the implement recommendation for audit quality

oversight bodies are process-driven focus, not the outcome-driven focus. There has been little attempt to redress the fundamental flaws in the audited financial reporting system.

(6)The shift of the auditing from ‘ certificate’ to ‘report’ to ‘opinion’shows that the auditors’ verification

function are weaker in the modern society.

(7)The only focus on the standardization of the input and the process but not specific requirements of the

quality of the end product will just misrepresent the company as a whole.

(8)Ideally, an independence check of the balances assets and equity would eliminate the possibility of

concealment or manipulation.