Auditing struggles with crisis of confidence

Abstract

How is the auditing profession handling this crisis of confidence? The authors warn that new requirements will affect not just auditing firms, but also the way audits are done. Will this be a new era for auditors and their clients? © 2003 Wiley Periodicals, Inc.

The audit consideration of environmental matters

“…The pursuit of demonstrable legitimacy appears likely to be an ongoing concern for the audit profession. Apparent audit failures have resulted in a crisis of investor Consideration of environmental matters confidence in financial reporting and auditing (Byrnes et al, 2002;Thomas, 2003;Tinker and Sy, 2009;Weirich and Rouse, 2003) and continued debates about professional self-regulation (Kinney, 2005). In recent years, critical examination of the profession has intensified as a consequence of high profile corporate failures such as Enron, Worldcom and Health International Holdings (HIH) Insurance (Baker et al, 2006;Mak et al, 2005) and, more recently, the likes of Fannie Mae and Freddie Mac (Sikka, 2009).…”

The consideration of environmental matters in the audit of financial reports

“…The maintenance of organisational legitimacy is therefore critical to upholding the audit profession. However, the prevailing environmental crises and overseas audit failures have resulted in the audit profession generally facing a crisis of investor confidence in financial reporting and auditing (Weirich & Rouse, 2003), and:…”

“…The audit profession functions "within a society's framework of legitimate authority" (Pasewark et al, 1995, p. 77), and it relies for its status and position on the public perception that its members perform an important task with proficiency and with the backing of a legitimate professional body (Weirich & Rouse, 2003). Hence, its central focus is the 'social contract' (Deegan, 2006).…”

“…This requires the audit profession to provide socially-valued, audited financial statements in exchange for a virtual monopoly of audit practice and self-regulation (Baker, 1977), and enables the audit profession's long-term survival (Ashforth & Gibbs, 1990;Guthrie & Parker, 1989;Savage et al, 2000). Thus, maintenance of organisational legitimacy is critical to upholding the status of the audit profession (Weirich & Rouse, 2003).…”

“…As a result of repeated environmental crises and audit failures the auditing profession has faced a crisis of investor confidence in financial reporting and auditing (Byrnes, McNamee, Brady, Lavelle, & Palmeri, 2002;Thomas, 2003;Weirich & Rouse, 2003). Self-regulation has also been scrutinised (Kinney Jr, 2005).…”