The Practice and Profession of Auditing Explained

Evaluation of the Profession

The profession of accounting has undergone vast changes over the years. The traditional accountant concerned himself or herself only with recording the financial transactions of individuals, organizations, and entities. This resulted in the accountant issuing an annual report — a financial statement showing the position of the firm for multiple purposes. Today, however, many non-financial reporting practices are gaining prominence, and many auditing and accounting methods are in vogue that were absent in earlier eras. Accounting techniques even differ between the private and public sectors (Hollingsworth & White, 1999).

Accountants are no longer mere service providers who simply followed the lines that management dictated. Earlier perceptions held this to be the case. However, global changes have transformed the accountant into a responsible entity with duties to the company and to investors. Professionalism must be maintained, which involves adherence to accounting rules and practice. Today, accountants must comply with approved standards and are now redefined in roles that give them managerial responsibilities. They are expected to be current and diligent in their functions, and the accountant has increasingly become a consultant to management. The accounting occupation has thus been transformed into an authority carrying occupational responsibility (West, 2003).

Having established that auditors have a duty to inform the public of a company's financial difficulties, auditors are also held liable for lapses in fulfilling this duty. As a result, the accountant must acquire specialized qualifications that were not previously required. Professional associations and institutes now bestow credentials that ensure the accountant has sufficient education and training. Given the complexity of the work, accountants must attain a high degree of competence and maintain requisite standards and ethical values. Beyond the traditional role, professional accountants are expected to provide specialized expert services that fall within their professional capabilities (Davis & Stark, 2001).

Auditing is therefore a complicated and responsible profession that carries substantial liabilities. The auditor is responsible not only to employers but also to the government and, in the case of corporations, to the general public — particularly where social questions are involved. Auditing has branched into many subcategories, and the accountant is expected to be well versed in all of these nuances.

Audit as a Controlling Mechanism

The first important aspect of auditing is that it is intended to control and remove unwanted and even unethical activities within the firm or subject of the audit. Although corporations and business entities maintain internal controls, these are not absolute — no control can be entirely foolproof. In the case of large organizations, the greater cost of implementing internal controls may be offset by the value of the assets being protected. In other cases, the costs of creating internal controls may not be justified relative to the benefits or the relative safety they provide for assets of lesser value. The audit can reveal the exact nature and limitations of the control systems in place (Porter & Norton, 2009).

In today's world, auditing has become more important due to lean production and cost-cutting initiatives. Often, what is intended to be protected may not match in value the costs involved in protecting it. A second limitation is the cost of implementation itself. A third limitation is that no matter how carefully a system is designed to prevent willful dishonesty, there is no absolute safeguard against collusion, unintentional human errors, system failures, or faulty processes. The internal control model therefore presupposes reliable machinery and the hiring of highly qualified and trained personnel (Porter & Norton, 2009).

One practical example is the control exercised over cash flow and billing, an area where discrepancies are most likely to occur. A control model must govern how cash received over a counter is accounted for. Cash registers and customer receipts prepared in duplicate are common formal control methods (Porter & Norton, 2009). These controls are among the primary means of arresting financial irregularities, and auditing plays a vital role in ensuring they function effectively.

Auditors are, in a sense, the keepers of conscience for the entities they audit, and are expected to promote fairness and honesty and to make transactions transparent. Fairness is an essential ethical quality for the accountant. In professional accounting, the accountant must maintain neutrality in both analysis and financial reporting. D. R. Scott, writing in 1941, established the principle that the accounting process must be "fair, unbiased, and impartial" and must not serve special interests (Riahi-Belkaoui, 1992).

Ethics and Responsibilities

After World War II, there was a tremendous global increase in the quality of life, accompanied by growing concern over social issues related to technology, ecology, energy, consumer affairs, and corporate conduct. Globalization has made these challenges ever more complex. As a result, auditors have become participants in shaping policy and producing social reports that indicate progress toward social goals, alongside the traditional subjects of audit (Riahi-Belkaoui, 1992).

Accountants are also looked upon to prevent or detect business fraud. The responsibilities of external auditors, internal auditors, and management all intersect in fraud prevention (Farrell & Franco, 1999). Beyond fraud detection, accountants are facilitators of the formation of corporate entities. From drafting prospectuses to listing a company on the stock market and handling incorporation, accountants play multiple roles. The downfall of companies like Enron illustrates what happens when top executives and auditors alike fail in their ethical duties: the company became corrupt because those entrusted with oversight were themselves corrupt.

The auditor thus carries a dual responsibility: protecting the company or business entity against fraud and misfeasance from within, while also serving as a watchdog to ensure fairness to external interested parties — investors, shareholders, and stockholders — through accurate, unbiased financial documents and forecasts.

Conclusion

Riahi-Belkaoui, Ahmed. (1992). Morality in Accounting. Quorum Books: Westport, CT.

Shah, Anwar. (2007). Performance Accountability and Combating Corruption. World Bank: Washington, DC.

Smith, Ephraim P.; et al. (2009). Federal Taxation: Comprehensive Topics. CCH.

West, Brian P. (2003). Professionalism and Accounting Rules. Routledge: New York.