Research Paper: Reforms of Auditor Standards

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[. . .] " Allen states that the HIH board depended on independent actuary reports and its auditor assessments of those reports but that the reports were never tabled at the audit committee or board meetings and there was never an actuary who was asked to be at the meetings to provide explanations for those reports or to answer any questions that might be posed. Therefore, Allen reports that "the inefficacy of the HIH board is a theme that permeates the entire Royal Commission report" which states that there was a lack in "clearly defined limits on the authority of the chief executive" resulting in "some areas of the system being out of control." (1997) In addition, the board lacked a policy that was understood well in terms of policy matters and that these only came forward "at the discretion of the chief executive" with the agenda used for the board being one that was management controlled. The CLERP Proposals for Reform states that when investors do not possess enough information concerning conflicts of interest the result can be market failure. This is because investors are not in a position to make decisions of how much weight should be given to recommendations arising from research on investing decisions. Disclosure obligations have the purpose of correct market failures resulting from information that is "incomplete or asymmetric" as well as ensuring that information that investors need to make informed decisions has been received by those investors. Ramsey (2001) eports that the Corporations Act presently contains several provisions that relate to the independence of auditors including employment relationships that are prohibited and financial relationships that are prohibited but fails to include a general statement that requires the auditor to be independent therefore the Corporations Act makes provisions that are auditor is not considered to be independent if "the auditor is not independent with respect to an audit client, if the auditor is not, or a reasonable investor with full knowledge of all relevant facts and circumstances would conclude that the auditor is not, capable of exercising objective and impartial judgment on all issues encompassed within the auditor's engagement. In determining whether an auditor is independent, all relevant circumstances should be considered, including all relationships between the auditor and the audit client." (Ramsay, 2001) reports that the auditor also needs to make a declaration on an annual basis that is addressed to the board of directors that the auditor has "maintained its independence in accordance with the Corporations Act and the rules of the professional accounting bodies'. (Ramsay, 2001, p. 7) The parameters for auditor independence in various areas including the auditor's relationship with the employer or if the employer employs relatives of the auditor. Loans, business relationships and non-audit services are noted to affect the independence of auditors. It is reported that professional ethical rules be utilized to reflect the IFAC proposals. The independent supervisory board is held as an instrument that is critical in addressing the challenge of the implementation of new auditor independence requirements in Australia. The Auditor Independence Supervisory Boiardo (AISB) will assist in ensuring confidence in the public in the independence of auditors. Included and represented in the AISB include: (1) two representatives from the professional accounting bodies including one CPA from Australia; and (2) one form the Institute of Chartered Accountants in Australia (ICAA); and (3) one representative from the Institute of Chartered Accountants in Australia; (4) one representative from the Investment and Financial Services Association; (5) one representative from the securities institute of Australia; (6) one representative from the Institute of Internal Auditors; (7) One representative from the Australian Securities and Investments Commission; (8) one representative from the Australian Stock Exchange Limited; (9) One representative from the Australian Shareholders' Association (ASA); (10) One representative from the Australian Institute of Company Directors (AICD); and (11) Three representatives of the public interest. (Ramsay, 2001) The AISB must operate an as independent body.

II. The Regulatory Legislative Response

It was reported by the Parliament of the Commonwealth of Australia (2002-2003-2004) that amendments had been made for financial reporting including the following stated amendments:

(1) A modification of the information gathering powers to be used by the Financial Reporting Council (FRC) when overseeing auditor independence requirements to allow the FRC Chairman to issue notices on behalf of the FRC;

(2) Modifications to the forms to be used by registered company auditors and authorized audit companies, including a change to the timing for lodgment of an annual statement;

(3) Refinements to auditor appointment and independence provisions to clarify the legislative intent, and operation of, those provisions;

(4) Changes to the Financial Reporting Panel's administrative and operating procedures;

(5) Changes to Chapter 2M of the Corporations Act to facilitate the introduction of international accounting standards;

(6) Modifications to the whistle blowing provisions to expand the range of people who may make protected disclosures and to provide that certain disclosures are to be treated as confidential;

(7) The inclusion of a due diligence defense for persons involved in a contravention of the continuous disclosure provisions; and (8) The introduction of a requirement for a register of information about relevant interests in listed entities.( Parliament of the Commonwealth of Australia, 2002, 2003, 2004)

In 2003 The Corporate Economic Reform Program or Audit Reform and Corporate Disclosure Bill established the Auditing and Assurance Standards Board as a "corporate body with perpetual succession, having a common seal, with the capacity to "acquire, hold and dispose of real and personal property, and may sue and be sued in its corporation name." (2002-2003) The AUASB was granted the power to "engage staff and consultants" as well as to "establish committees, advisory panels, and consultative groups" and to "receive money contributed towards its operating costs" and "do anything else that is necessary for, or reasonably incidental to, the performance of its functions." (The Parliament of the Commonwealth of Australia, 2003) The AUASB was given the power to make auditing standards although they are required to be consistent with the ACT and its regulations. The 2006 Australian Auditor Independence Requirements state that the "major policy driver of the reforms that have taken place over the past five years in relation to auditor independence and audit regulation generally has been the loss of credibility in financial reporting that followed the collapse of Enron and other major companies from late 2001. The reforms relating to audit regulation, including auditor independence, were one component of broader corporate governance reforms introduced in the wake of the collapse of Enron and other corporate failures." (p. 6) worldwide crisis resulting in initiatives at the international level. Substantial differences found in the arrangements of institutions in the area of audit regulation and in the legal framework applied to requirements on auditor independence. ASIC is reported as the primary corporate regulator and a statutory body that was established by federal legislation. Australian auditor independence requirements that the Federal Parliament enacted in the Corporations act includes that the majority of the enhanced auditor independence requirements be placed in the Corporations act reported to be "within a co-regulatory model." (p. 6) Australia has adopted independence requirements with legislative backing and Australia's system is a national system of corporate regulation although the ASIC does not possess the power needed to create the kind of rules that the SEC in the United States possesses. Stated as a distinguishing feature of the auditor independence requirements of Australia is the "detailed independence requirements enacted by the Federal Parliament in the Corporations Act to provide a comprehensive legislative code." (2006 Australian Auditor Independence Requirements)

III. Review of the Regulatory Legislative Response

The Corporations Legislation Amendment (Audit Enhancement) Bill 2012 sets out the functions of the FRC in the areas of providing strategic policy advice and reports to professional accounting bodies and the Minister in regards to audit quality by Australian auditors. The report also sets out the processes and procedures when audits are found to be lacking in quality. Audit deficiency is reported to be on the basis of auditor failure to comply with standards in auditing, or failure to comply with auditor independence or any code of professional conduct that is applicable or to comply with Corporation Acts provisions. Should any auditor deficiency be found the ASIC will notify the auditor in writing of the deficiency and prepare an auditor deficiency report identifying the deficiency and indicating any remedial action. Prior to publication the ASIC must provide a written report to the auditor and give them 21 days to express their opinion.

Summary and Conclusion

The changes in auditing standards for disclosure and reporting are such that will provide more accountability requirements to auditors in Australia and that will make them more… [END OF PREVIEW]

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APA Format

Reforms of Auditor Standards.  (2014, April 23).  Retrieved April 18, 2019, from https://www.essaytown.com/subjects/paper/reforms-auditor-standards/758529

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"Reforms of Auditor Standards."  23 April 2014.  Web.  18 April 2019. <https://www.essaytown.com/subjects/paper/reforms-auditor-standards/758529>.

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"Reforms of Auditor Standards."  Essaytown.com.  April 23, 2014.  Accessed April 18, 2019.
https://www.essaytown.com/subjects/paper/reforms-auditor-standards/758529.