Auditors Regulatory Oversight

In recent times, there have been accounting scandals that have stunned the finance and accounting realm, and thereby reemphasized the significance of maintaining proper accounting practices. The recent accounting scandal of Olympus Corporation, a Japanese manufacturing company for cameras and endoscopes is selected for this study. The company's scandal encompassed a 13-year period of accounting irregularities totaling almost $1.7 billion (Infinit Accounting, 2014). Audit Report Issued by CPA Firm When Michael C.

Woodford was appointed as president and Chief Executive Officer (CEO) of Olympus Corporation, he endeavored to make certain that the financial statements of the company were accurate and reliable. It is at this time that he discovered doubtful transactions in the statements of financial position of the company, with respect to the expenses reported. He instantly started inquisitions regarding these transactions, particularly about the inflated M&A advisory payments.

Woodford was sacked by Olympus two weeks later upon deliberating with the management in an effort to remedy the inconsistencies with the books. He thereafter made the decision to report to the British authorities as a whistleblower (Elam et al., 2014). numerous accounting and financial irregularities were uncovered in the financial statements of the company after review, which contained false statements reported by the executives. However, regardless of the apprehensions on the balance sheets reported, the auditors still made the decision to approve the financial reports.

Through the tobashi scheme, Olympus Imaging Executives were able to hide approximately $1.7 billion in losses (Elam et al., 2014). Statement of GAAS Violated by Company In delineation, generally accepted auditing standards (GAAS) are the group of systematic guidelines used by auditors when undertaking audits of the finances of firms, making certain that the actions and reports of the auditor are accurate, consistent, and verifiable. In general, GAAS encompasses three components that have to be employed in the course of every audit.

These elements include general standards, standards of fieldwork, and standards of reporting. For each of the three standards, there are a set of rules that must be complied with in the course of every audit. The statement violated is within the standards of fieldwork (AICPA, 2016).

Most possibly, Olympus Corporation violated the regulation that the "auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures" (AICPA, 2016).

Comparison of Responsibilities for Management and Auditor for Financial Reporting The responsibility of a company's management with respect to financial reporting is to ensure that the consolidated financial statements are prepared and reported conform to the accounting standards. On the other hand, the responsibility of auditors is to analyze the financial statements of a company and give an opinion as to whether they are reliable and do not have misstatements (Gibson, 2009). In the case of Olympus Corporation, different parties were liable for the accounting irregularities.

In accordance to Elam et al. (2014), executive managers of the company were liable to and arrested for the accounting irregularities. They included the former chairman of the company Tsuyoshi Kikukawa, and also other two former executives, Hideo Yamada and Hisashi Mori, who were the former auditors and vice president of the company respectively. Another individual held liable to falsification of financial accounts was Akio Nakagawa, a former broker, deemed responsible for the manipulation of financial statements (Mintz, 2012).

Despite the fact that executive management members were arrested and held responsible for fraudulent activities, the auditors, by virtue of their specific duties should bear the greater burden. the auditors have the responsibility of checking the financial statements and assessing whether there are any falsifications and therefore giving the final opinion. The auditors failed to either note or report the continued accounting irregularities and therefore should bear more responsibility.

Sanctions Available under SOX and key Recommendations The Public Company Accounting Oversight Board (PCAOB) was formed by the Sarbanes-Oxley Act (SOX) with the main purpose of overseeing the audits of public corporations. PCAOB was formed to safeguard not only the investors but also the public to not only have accurate but also independent audits (PCAOB, 2016). One of the permitted sanctions for PCAOB takes into account the suspension and deferment of a practitioner from undertaking any auditors for registered companies.

Such sanctions comprise of a temporary, deterrent effect, or permanent disqualification of an auditor depending on the severity of the accounting irregularities. Another aspect encompassed in the sanctions is barring a firm or individuals from engaging new clients. The PCAOB should take certain recommended key actions that enable to hold management or the audit firm accountable for the accounting irregularities. One of the recommendations is revoking the firm's.