Legislation and Standards Affecting it Auditing

Legislation and standards affecting IT auditing

The Audit Quality Forum was established with the primary purpose of reinforcing confidence in financial reporting. Statutory auditing promotes confidence because auditors are likely to give external and objective opinions on the presentation and preparation of financial statements. Auditors are required to be independent in opinions expressed, and their work is greatly based on real world. This is challenging in particular national settings. Recently, standard setters, audit practitioners, and regulators embraced significant steps in enhancing confidence within quality of financial statement audits, considering the challenges faced in leading capital markets. IT auditing is critical to any organization. The existence of legislations and standards has ensured that auditors offer independent opinions and that their work is greatly based on real world. This study however shows that this is challenging in some situations as seen in the comparisons provided.

Latest initiatives have focused on an international scope as there have been perceived failures in audits involving financial statements and operations in various countries. Therefore, initiatives have endeavored to promote consistency within nations in regards to what auditors must do and what users of financial statements must expect from an audit. The initiatives entail:

Widespread adoption and strengthening of international quality control standards and International auditing standards issued by the Assurance Standards and International Auditing.

Implementing and updating of the national statutory audit directive of the national commission

Establishing national independent audit oversight agencies like agreements that national regulators conquer to depend on each other's work

While it is crucial to acknowledge the significance of such initiatives in enhancing audit quality, there are deeply embedded national environment features that pose challenges for global consistency in audit quality. Evaluation of legal, economic, political, and cultural differences is challenging and prone to accusations of arrogance and misinterpretation. Regardless of the related sensitivities, understanding national differences is necessary in the appreciation of limits to the feasibility of auditing consistency and promoting global consistency in audit quality (Rittenberg, Johnstone & Gramling, 2012).

This study aims at achieving the following set of objectives:

Raising global awareness about the effects of national differences on audit quality and stimulating further research and studies on issues highlighted in this study

Identifying barriers to attaining global consistency in audit quality by taking into account how national differences affect the application of standards

Highlight the key risks that standard setters, audit firms, academicians, governments, and regulators think about and approaches to address them for the benefit of global businesses and investors (Bode, 2007).

Methodology

This paper utilizes both primary and secondary information identified with auditor independence regulation. The primary exploration depends on explanations from expert bodies from the nations. Information from secondary research literary works and published journals is also important. Subsequently, the primary research has empowered this study to analyze and distinguish distinctions around comments issued by professional bodies (Wright, Freedman & Liu, 2008). It is highly unlikely that articulations issued by the expert bodies may be broken down by utilizing secondary information. Data identified with auditing standards can just be obtained from the websites of professional bodies. Besides, optional information is likewise significant for this study to come a close the discoveries and comes about with the distributed literary works. This has empowered the researcher to give recommendations and conclusions of the research. The accompanying paragraph illustrates several explanations why the researcher favored not to utilize the other alternative methodologies (Gramling & Rittenberg, 2014).

The methodologies including directing interviews, surveys, and questionnaire may have been utilized for this thesis. Nonetheless, the researcher has prioritized the critical examination of information published and identified with auditor independence over the methodologies said above. Numerous elements influenced the researcher's decision for leading research. These components incorporate the nature of the study to be directed and detriments of methodologies specified previously (Weirich, Churyk & Pearson, 2012). The hindrances identified with these alternative methodologies are examined in the accompanying paragraph. The level of accuracy or interviews relies on the versatility of the interviewer overall precision of interviews can effectively be questioned. Directing interviews are extremely subjective in nature. Consequently, there will dependably be a peril of biases. Interviews are characterized by a few individuals but is extremely time consuming. This may be justified by the measure of time used by the researcher for every interview.

Questionnaires are ordinarily reputed to be a straightforward and brisk technique for distributing data. In any case, questionnaires happen after the occasion. It is more probable that members might disregard issues identified by the research. Questionnaires can generate diverse measures of information for the researcher. This can take a long time analyze. Surveys may be applied to almost numerous types of researches like political, market and social exploration (Singleton & Singleton, 2010). On the other hand, it has impediments where individuals sampled cannot answer questions because of vague inquiries. Moreover, the respondents might furnish the needed sentiment in view of politeness of the researcher. This paper includes the universal investigation of auditor independence regulation in four separate continents including Europe, America, Australia, and Asia. Besides, it is troublesome for the researcher to visit every nation and take care of travel expenses. In this way, the constraints like money, time and volume of data needed, these modes of research seem to be the most suitable (Bagshaw, 2013).

While acknowledging all these elements, the researcher has chosen to analyze electronically accessible literature. Scholars and global expert bodies also have critical and valuable information for this study. The accompanying piece talks about how the primary and secondary information has been gathered from this research. The primary information is obtained from diverse websites of professional bodies. The main source of primary information is the sentiments issued by these institutions after the failure of Enron. The secondary research incorporates the utilization of books, academic journals, and articles. The books are utilized from the college library in order to comprehend the fundamental concept of proposed research (Rittenberg, Johnstone & Gramling, 2012).

Articles are likewise utilized from the expert bodies' magazines, like the student manual provided by ACCA. Finally, journals have been l incorporated in the research acquired from online database resources. The databases utilized in this paper are Emerald, EBSCO, Ingenta connect, Proquest and SSRN. The Statements issued by the diverse expert bodies are gathered at the close of June until the mid of July. The second stage will be analyzing the collected primary data and contrast this data and the past research conducted. At that point, the researcher has examined the both primary and secondary information with a defined goal to distinguish the fitting steps to improve independence in IT auditing (Moeller, 2009).

Statement of the problem

This study will focus on the challenges facing the achievement of international consistency in audit quality. Because consistency is an integral element of standards, the study will view standards as a source of appropriate benchmark against which, potential impacts of national differences will be identified. This study will take the application of standards as a vital and an adequate condition in achieving audit quality. However, it is the scope of this study to research the nature of audit quality succinctly. As different countries are seeking to apply The International Auditing and Assurance Standards Board (IAASB) standards on varied forms, they are a point of reference (Knapp, 2013). These standards have not been applied for a long time. The notable efforts geared towards strengthening and revising them tend to respond to perceived challenges with auditing in leading capital markets in recent years (Gramling & Rittenberg, 2014).

Therefore, this study is a learning process of how these standards are adapted and adopted in various countries. The study will consider an analysis by referencing to the United States (U.S.) and the non-U.S. activities of U.S. companies. In fact, the national differences identified in this study are expected to affect the application of any national standards so long as those standards are applicable to activities outside the country of origin. In relation to this implicit assumption about standards, the study will recognize the sensitivities within these issues with no intent to suggest that any one national climate is better than another is countries are to apply a set of global standards (Singleton & Singleton, 2010). It is obvious that this study will raise the most relevant and current issues. It will take the angle that certain attributes of reporting environment may undermine the confidentiality of the information in financial statements. However, the study will recognize that implementing some elements of the standards in certain national settings may prove challenging and might have an adverse impact on businesses (Wright, Freedman & Liu, 2008).

Findings

Legal system

The process of audit risk assessment may be influenced by the nature of national legal frameworks. In case property rights are not unmistakably built on the laws of a nation and if the government bodies have the authority to seize property, this can be challenging for auditors in making judgments about asset recognition and affirming proprietorship rights and commitments (Weirich, Churyk & Pearson, 2012). Issues of legal protection, like the degree of recourse given to creditors of investors who have been hurt as a major aspect of the nation's regulatory and legal framework might affect the audit. In the business world where investors have limited authority of the resource, it might expedite the creation of a dominant position for management to impact or miss-use their position, distort the assessment of liabilities, and override controls (Bode, 2007).

Implicit in standards

A nation's norms and values may not be consistent with those that are implied in worldwide standards. The dangers of ISAs have recently been recently highlighted based on philosophy and illustration of the diversity of auditing in some nations. Similarly, while this paper does not explicitly address implicit cultural biases in standards, a few nations may have troubles with their implementation. Distinctions in the cultural attributes of auditors may especially influence auditors' requisition of ISAs to multinational teams (Gramling & Rittenberg, 2014).

Although the adoption and adaption of ISAs is frequently encouraged. This endeavors to create and make auditing uniform and universally homogeneous. However, contrasts between the non-local and enormous global, and the diminutive indigenous audit firms cannot be eliminated. There might also be contrasts between local assumptions and those epitomized in the accounting standards applied at a combined level. This may influence the application of accounting standards and the capacity of individuals in roles of finance to utilize expert judgment, which in turn might expedite contrasts in financial reporting practices and the inappropriate accounting treatment and transaction classifications (Bagshaw, 2013). For instance, if IFRS is to be utilized, this may be conflicting with, or not sufficiently upheld by, local laws and regulatory structures, or a multinational team might have locally employed staff without the level of experience and knowledge required for purposes of group reporting and additionally for local filing requirements.

Quality of record keeping

Auditors may have accurate accounting records to be used in auditing for various reasons pertaining to the national reporting environment, for instance:

I. Lack of suitably experiences and qualified workforce or financial expertise in the audited entity

II. A culture of mechanistic book keeping whereby transactions are recorded based on form instead of substance (Weirich, Churyk & Pearson, 2012).

The cultural complexity and characteristics of businesses relationships and structures may also affect the details and completeness of accounting records in auditing entities. In some nations, business associations might be conducted on a minimally formal ground than others. Agreement terms may be vague. The ultimate determinants of the business outcome of an agreement may be the relationship of trust between the partners but not the writings on the papers. In some cases, trading among family members may be common, and some auditors may rely on this. Oral agreements may also be made. The absence of formal documentation leads to problems for auditors in terms of obtaining adequate appropriate audit evidence and risk assessments (Singleton & Singleton, 2010).

Analysis

Because of the need to apply expert judgment and skepticism on audits, auditing has become more of an art than a science. As an art is dependably the result of an individual artisan, the audit process too will be influenced by the distinct characteristics of auditors. Hiring auditors with the appropriate financial expertise may be troublesome in nations with poor education frameworks with constrained cross-border exercises, communication and chances to acquire significant experience and financial literacy skills (Wright, Freedman & Liu, 2008). The nature and success of audits performed may be affected in case of the limited training facilities to share experience with knowledge and advance these vital skills. Even without those issues, a poor attitude of the profession of auditing may imply that a career in auditing does not draw in enough high caliber applicants. This may be the case when discernment fosters the understanding that auditing is practically ticking boxes, adhering to regulations, and not adding quality to organizations. Auditors play a critical role at this point by ensuring that the information they provide is understandable and worthy the investment (Wright, Freedman & Liu, 2008).

In some nations, auditors may fail to agree about making judgments and being suspicious where the principle-based culture exists. The process has dependably been more critical than outcome and dependability more essential than relevance. Utilizing Hofstede's cultural dimensions, auditors in countries of high uncertainty avoidance, where rules are predominant may be less sure about making judgments dependent upon standards than auditors in low uncertainty avoidance nations. This may have a huge impact on the level of work viewed important by auditors (Weirich, Churyk & Pearson, 2012). The cultural background of auditors will influence their perspectives on the adequacy of transactions and offer ascent to national dangers to global consistency in audit quality. Similarly, there may be distinctions in the methodology of auditor independence and the established and acceptable cultural presumptions accompanying the reasons for the audit. There may be cultural roadblocks to communication like the adequacy of an audit group member approaching the engagement partner with an issue or concern (Bagshaw, 2013). While appreciating the significance of correspondence in the audit group, various ISAs includes various requirements for examination in the engagement group. In case the audit team members are not incentivized to raise issues or when culturally considered inappropriate, it might be challenging audit firms to adhere to all the requirements in ISQ 1 and ISAs (Wright, Freedman & Liu, 2008).

International Standards on Auditing

The IAASB's reference terms have confirmed that ISAs are created to improve the quality and consistency of audit practice globally. ISAs require auditors to acquire sensible confirmation whether financial comments are free from material misstatement. In case of error or fraud, this creates the foundation of the auditor's opinion. An essential feature of ISAs is their danger-based approach to auditing. The ISA 315 is relevant in this circumstance because it sets out the prerequisites for assessing and identifying risks of material errors by comprehending the institution and its environment (Knapp, 2013). Such a methodology is altogether different on how a few audits may have been performed in the past in a few nations. This does not relate to the ticking boxes and the running down of strategies. It requires true judgment where a distinctive work will be performed for diverse sorts of organizations in distinctive environments. This philosophy might not be easy to follow. Auditors need to be familiar with the risks emerging from distinctive environments. Some characteristics of national environments are not explicitly addressed in ISAs. They affect the way ISAs are applied and auditors' interaction with audited institutions (Knapp, 2013).

Conclusion

This paper has identified and raised awareness about the risks to audit quality arising from national differences. The research has drawn on the most relevant academic research. The Little academic study focuses directly on the issues of how national diversities contribute towards the differences in audit quality. In support of national differences in audit, the paper has recognized that research and academic might make a crucial contribution by identifying effective ways of sharing global experience, exploring linkages between broader issues of economic development and audit practices, and analyzing how global standards should recognize national differences (Moeller, 2009).

A wider global adoptions and implementation of IFRS has of late led to a massive expansion of academic research into global comparisons of the importance of financial reporting. Evidently, the regular IFRS platform facilitates such comparisons. As such, we remain optimistic to see a similar phenomenon in the area of audit research (Singleton & Singleton, 2010). As countries across the world are increasingly adopting and implementing IAASB standards and thus establishing a shared quality benchmark, there is a likelihood of more scope for both quantitative and qualitative research to analyze the magnitude at which national difference impact audit quality (Knapp, 2013). The implementation of IAASB standards must give new and more comparable data on issues like audit report modifications and qualifications, audit costs, published results of assurance regimes of audit quality and the experiences of financial preparers and auditors pertaining to the audit process. Conducting a qualitative research in this field may prove somehow challenging but will be imperative. Such a study ought to be ultimately useful to investors, auditors, standard setters, businesses, and regulators (Wright, Freedman & Liu, 2008).