Service Business Management for Edward Elgar-myassignmenthelp

Question: Discuss about theService Business Management for Edward Elgar. Answer: Introduction The article explains in detail the issue of insincere audit by auditing firms which has become an issue of great concern by investors. The paper discusses the various case studies that have shaped fraud in auditing of financial statements by independent auditors. Failure by the auditors to conduct a thorough audit on companies` has resulted to huge losses by major companies globally. The paper expands that the lack of proper legislation placing more legal responsibility on the auditor in case they give unqualified opinion on the financial statements and they later turn to be fraud. Tesco used dodgy accounting to exaggerate their financial results so that investors could be lured into buying the companies` stock. The company was found to be have overstated the rebate income and hence exaggerating the revenues of the company. The other auditing firms also failed to detect fraud at Colonial bank which ended up becoming insolvent. Enron and WorldCom scandal was the most popular of these cases and it became the biggest accounting failure in history (Zimmermann Werner, 2013). This instigated the formulation of new laws governing auditing. This paper analyzes the roles and responsibility of auditors in any given organization. The paper also discusses regulations and deregulations in accounting as well as the impact. My view of the paper The paper analyzes the major cases in auditing fraud and the results of dodgy auditing activities. Auditing is a very sensitive process in an organization and therefore it is important that auditors are very thorough in their work. The auditing of a firms financial statements has to be done with the interest of the shareholders at the forefront. The big four auditing companies globally have been faced a by a series of cases where the companies have given a clean record on the financial records of an organization whereas there is a lot of fraud, misstatement, and omissions in the financial statements (Welytok, 2008).The auditing companies tend to create a warm relationship with the companies. The companies give handsome fees to the auditing companies and hence they end up compromising the standards of auditing and hence leading to an increase in these cases. Some auditors are personally responsible for the mess and they need to be legally responsible for the fraud and the misleading f inancial statements audited by their parent companies`. The regulatory body which is the Auditing and Assurance Standards Board should put more stringent measures to ensure that the interest of the shareholders is protected. The legislation should place individual legal responsibility on the auditors to who carried out the audit. This would help in increasing competence and professionalism in auditing profession so as to ensure that thorough audit is conducted on the companies and hence increasing the confidence of users of the financial statements who currently have lost faith in the external auditors( Great britain.2011). The auditors have to ensure that the companies` do not approve financial statements that are full of fraud. The auditing big auditing firms also need to take responsibility and raise the bar on auditing standards so as to save the investors from the huge losses that they have incurred as a result of misleading audited financial statements. Critical evaluation of role and responsibility of the auditor The auditors have a very large responsibility in protecting the interests of shareholders and other important stakeholders of the client company. The external auditors play a very critical role in scrutinizing and validating the financial statements of the client company. The audited financial statements of a company are very important to the lenders of finances and other creditors. If one of these stakeholders realizes that the auditor failed to detect material misstatements in financial statements. This gives a bad impression on the accounting firm and the company being audited. The bad publicity may come as a result of this failure and it may end up being very costly to the company itself and the auditing firm (Stachowicz-stanusch, Amann mMangia, 2017) It is therefore very important that auditors attached to a particular auditing firm have to be aware of the standards set by the regulatory bodies and the company itself. The following are the major responsibilities and duties of au ditors; The auditors are responsible for providing an opinion on the financial statements prepared by the company. The external managers are in charge of ensuring that the financial statements prepared by the accounting department of a company are in line with the accounting principles and standards stipulated in the International body of accounting and the Australian Accounting Standards Board (BrysonDaniels, 2015). The external auditor is not responsible for preparing the statements. They scrutinize and ensure that what is recorded in the financial statements is the ideal thing before giving an opinion on the financial reports. For this role to be played perfectly, the auditor needs to be very professional and independent. The auditor have the role of evaluating and understanding the internal control system. This helps the auditor to understand the major loopholes in the internal control system. This will also help the auditor to identify the most risky areas and rank them appropriately (Doyran, 2011). This will help to understand the The auditor has a responsibility of understanding the entity and the environment which the entity operates. The auditor needs to understand the nature of the industry in which the company is operating in. The auditor also needs to understand the challenges faced in the operating environment of the company and understand the items that are at the core of the businesses operations (Pietra, McleayRonen, n.d.). This will be important for the auditors to conduct risk assessment for the company and compare it with the other companies in the industry before deciding on how to go about their accounting work. The auditor also needs to obtain sufficient material evidence when making an opinion on the financial statements. The quality of evidence collected by the auditor is also crucial in backing up the opinion expressed by the author. The auditors have a responsibility of being independent throughout the auditing assignment. They should ensure that their independence is not compromised at whatever cost. The audit firms should not have a financial interest in the company which is the client. This will ensure that all the records are investigated thoroughly and a fair and true opinion is expressed by the auditor (Klikauer, 2012). This helps to raise the credibility and assurance of the external audit. The auditor has a responsibility of testing the documentation and supporting balances of accounts. The trial balances of the company and other testing documentation have to be investigated by the auditor. The auditor also has to observe and confirm the physical inventory to ensure that what is listed in the financial statements is actually what exists physically. Independence of auditors The issue of independence of either the external or the internal auditor is very critical. This is because the auditors are required to investigate the financial statement by the company and make an honest and true opinion on the financial statements. The auditors need to be independent from parties whether companies or individuals who have a financial interest in the company that is audited. The external auditor needs to be independent from the companies or the entities that have an interest in the financial statements of a particular entity (Hill Rae, 2010). The independence of an auditor is at the core of the code of ethics of the accounting profession and every auditing firms code of ethics. This is because the role of auditors in a company is to investigate financial statements independently without favoring any of the parties interested in the financial results. The independence of the auditor means that the users of the audited financial records will have increased confidence in the results. The scandals experienced since the year 2000 such as the Enron scandal has cast doubt on the independence of the auditors. This is because as discussed in the case studies, it is seen that the largest auditing companies have committed accounting failures that have been very costly to the companies and the investors (Beattie, FearnleyHines, 2011). Some auditing firms have colluded with the companies they are auditing to persuade them to compromise the auditing standards so as to accommodate material misstatements and issue unqualified opinion on the financial reports. New regulations need to be put in place to make the companies adhere to the principle of independence and hence enhance the confidence that parties have on audited financial statements. Regulations and deregulations There are very many changes in regulations that have been made to laws in the auditing sector to help reduce the failures that have been witnessed over the years. The audit/accounting failures witnessed since the year 2001 has necessitated an initiate to change the regulations of the industry and the profession to help increase confidence among the users of audited financial statements. Some of these changes have involved significant removal of some regulations which interfere with the ability of the auditors to deliver a true and fair opinion on a companys financial statements. There has been a call for companies to change auditors regularly. There has been proposals that an auditor should be given a contact of ten years after which their performance can be renewed to evaluates whether they are the best option. In the US, the Sarbanes -Oxley Act was implemented to deal with the issue of conflict of interest on the part of the auditing company Auditing firms were no longer allowed to offer consultancy services to their clients to present the conflict of interest. In 2005, the Supreme Court in America ruled that the shareholders must prove a direct causal link between the actions of the auditor and the decline in share price which has resulted to losses (Niskanen, 2007). The Public Company Accounting oversight Board (PCAOB) was formed to play a supervisory role over the auditing companies to ensure that the companies` adhere to the code of conduct and to other regulations regarding the auditing of public companies. The Financial Reporting council also plays the same role. Conclusion The Enron scandal brought about a new chapter in auditing of public accounts by the big auditing firms. The collapse of the company revealed many loopholes in the auditing of public companies financial statements. Many companies such as Tesco have found themselves in trouble with their investors due to failure by the auditors to detect risky areas in the company which have had a huge effect on the companies` books of account. Companies over the years have tried to cook financial records in order to impress the shareholders and gain a favorable price on their shares hence raising share capital. The auditing companies have failed to meet the auditing standards and have been lax in performing their audit functions and hence leading to many accounting failures. Changes have been made to help seal these loopholes by trying to place more legal responsibility on the auditors. The report discusses the roles and responsibilities of auditors and the regulations and deregulations that have been made to the on auditing over the years. References Beattie, v., fearnley, s., hines, t. (2011). Reaching key financial reporting decisions: How directors and auditors interact. Chichester, west sussex, united kingdom, john wiley sons. Bryson, j. R., daniels, p. W. (2015). Handbook of service business management, marketing, innovation and internationalisation. Cheltenham, edward elgar pub. Ltd. Doyran, m. A. (2011). Financial crisis management and the pursuit of power american pre-eminence and the credit crunch. Burlington, vt, ashgate. Http://site.ebrary.com/id/10478326. Great britain. (2011). Auditors: Market concentration and their role : 2nd report of session 2010-11. Vol. 2, vol. 2. London, stationery office. Hill, a., rae, s. B. (2010). The virtues of capitalism a moral case for free markets. Chicago, il, northfield pub. Klikauer, t. (2012). Seven management moralities. Houndmills, basingstoke, hampshire, palgrave macmillan. Niskanen, w. A. (2007). After enron: Lessons for public policy. Pietra, r., mcleay, s., ronen, j. (n.d.). Accounting and regulation [recurso electrnico] new insights on governance, markets and institutions. Stachowicz-stanusch, a., amann, w., mangia, g. (2017). Corporate social irresponsibility: Individual behaviors and organizational practices. Http://search.ebscohost.com/login.aspx?Direct=truescope=sitedb=nlebkdb=nlabkan=1487257. Welytok, j. G. (2008). Sarbanes-oxley for dummies. Hoboken, n.j., wiley pub. Http://www.books24x7.com/marc.asp?Bookid=24452. Zimmermann, j., werner, j. R. (2013). Regulating capitalism?: The evolution of transnational accounting governance. Basingstoke, palgrave macmillan. Http://public.eblib.com/choice/publicfullrecord.aspx?P=1514192.