RECENT ASSIGNMENT

The Business School
BUACC5935: Auditing & Assurance Services

Semester 3
ASSIGNMENT

This assignment is to be completed in groups of three and comprises twenty per-cent of the marks for this course. There are 4 parts to discuss – each is worth 5 marks.

Assessment Criteria:
Student work will generally be assessed in terms of the following criteria:
1. Effectiveness of communication - ie readability, legibility, grammar, spelling, neatness, completeness and presentation will be a minimum threshold requirement for all written work submitted for assessment. Work that is illegible or incomprehensible and does not meet the minimum requirement will be awarded a fail grade.
2. Demonstrated understanding - This will be evidenced by the student's ability to be dialectical in the discussion of contentious issues.
3. Evidence of research - This will be evidenced by the references made to the statutes, auditing standards, books, journal articles and inclusion of a bibliography.
Note:
1. All written work must conform with the University of Ballarat General Guide for the Presentation of Academic Work.
2. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised. Plagiarism is presenting someone else work as your own and is a serious offence with serious consequences. As set out in the University Regulation 6.1.1, students who are caught plagiarising will, for a first offence, be given a zero mark for that task. A second offence will result in a failing grade for the course(s) involved and any subsequent offence will be referred to the Student Discipline Committee. Student must be aware of the University Regulation 6.1.1
Student Plagiarism, available at http://www.ballarat.edu.au/legislation/6.1.1-plagiarism. The link to the library website for more information is: http://www.ballarat.edu.au/library/assignment-and-research-help/referencing
Students must:
•?fully reference the source(s) of all material, even if you have re-expressed the ideas, facts or descriptions;
•?acknowledge all direct quotations; and
•?not submit work that has been researched and written by another person.

PART A.
ASIC Chairman Greg Medcraft has described as ‘disappointing’ the results of ASIC’s audit inspection report 317 (2011-12 Issued Dec 2102) which shows a decline in audit quality. ‘Auditors are gatekeepers that play a critical role in ensuring that Australian investors can be confident and informed,’ Mr Medcraft said. ‘These results are disappointing. Audit firms need to increase their efforts to improve audit quality and the consistency of audit execution.’ While the financial reports audited may not have been materially misstated, the auditor had not obtained reasonable assurance that the financial report as a whole was free of material misstatement. The audit inspection report (2011-12) identified 8 key findings (4 on Audit file reviews and four on quality control)
Discuss and explain the findings.

PART B.
In December 2012, ASIC wrote to the CEOs of the six largest firms – Pricewaterhouse Coopers, KPMG, Ernst & Young, Deloitte Touche Tohmatsu, Grant Thornton and BDO – asking them to develop action plans to improve audit quality. ASIC asked the firms to focus on improving the consistency of the execution of audits and to address the three broad areas requiring improvement identified in ASIC’s public audit firm inspection report:
1. the sufficiency and appropriateness of audit evidence obtained by the auditor
2. the level of professional scepticism exercised by auditors, and
3. the extent of reliance that can be placed on the work of other auditors and experts.
Expand on and discuss and explain the aforementioned in terms of improvements to audit quality.

PART C.
The going concern is a basic business concept which is also a fundamental principle underlying the preparation of the vast majority of annual report.
Difficult or uncertain economic conditions, as they relate to going concern, present challenges for:
Company directors (directors)—particularly those of listed companies, who will need to ensure that they prepare thoroughly for their assessment of going concern and make appropriate financial report disclosures Independent Auditors (auditors)—who will need to ensure that they adequately evaluate directors' going concern assessments and only refer to going concern in their audit opinions when appropriate
Users of financial reports—who will need to carefully consider the potential implications of these conditions in market announcements and financial reports. Such users include the investment community, finance lenders, suppliers, customers and employees.
Discuss and explain the following four points in terms of their relationship with the aforementioned stakeholders.
1. The going concern assumption—what it means and its context in difficult or uncertain economic conditions
2. Going concern and liquidity risk—in particular, disclosure requirements
3. The company's interaction with the auditor—the directors' role in planning for the audit and the types of audit opinions that may result from uncertainties about the going concern assumption for a company
4. Communications issues—including continuous disclosure obligations of listed companies

PART D.
The “audit failure” issue is one that we should all be concerned about, but in doing so, we need to separate reality from urban myth while we still have the time (Pat McDonnell)
The admission by Olympus Corp that it falsified financial reports for more than a decade should not shock anyone. The shock is that, for years, auditors failed to detect such massive fraud. The failures of auditors to uncover cooked books, which run the gamut from Adelphia to Waste
Management Inc, are a cancer on the accounting industry.
Modern financial history is chock full of such stories, in which managements at brand name companies hide losses, fabricate revenues, report imaginary profits and claim to have assets that turn out to be non-existent, all of which supposedly independent auditors either fail to detect or keep quiet.
“A gray area where the accounting is being perverted; where managers are cutting corners; and, where earnings reports reflect the desires of management rather than the underlying financial performance of the company.” (David Johnstone)
Tony Tinker, an accounting professor at Baruch College in New York who is a leader in the critical accounting movement which favours more robust and skeptical examinations, says “auditors aren’t trying too hard to find stuff. Remember in Waste Management the management and the auditors signed a ‘contract’ to fix the mess, each year, for five years.”
Tinker points to a second problem: the SEC and other white-collar law enforcement agencies “are so understaffed and underfunded” that there is little risk of official inquiry and even less of official action.
Professor Prem Sikka, a reformer at the University of Essex in Britain, notes surveys showing that “as many as 70 percent of auditors admit to falsified audit work” in surveys of countries around the world.
“We need to look at the internal value systems and culture of the accounting firms,” Sikka said.
There is the real problem — the structure and the rules of auditing.
Discuss