The audit crunch: reforming auditing

Abstract

A research paper that seeks to stimulate debates about contemporary auditing practices. Approach: The paper builds a generalised theory of auditing to pose some questions about the basic auditing model, notions of audit quality and the possibility that some transactions cannot be audited in the traditional way. Findings: It is argued that the basic auditing model is flawed since it makes auditors financially dependent on companies. The conventional approach to 'audit quality' is also incomplete as it pays little attention to the organisational and social context of auditing. It also argues that as companies have diversified into new forms of investment and complex financial instruments, some transactions may be not be capable of being audited in the traditional way. Research limitations: The paper does not offer a comprehensive critique of contemporary auditing issues. Rather is a focus on some selected issues. Practical implications: The paper encourages reflections on contemporary practices and offers some suggestions for reforms. Originality: The paper is a combination of theory, evidence and speculation on contemporary issues.

Internal Audits as a Source of Ethical Behavior, Efficiency, and Effectiveness in Work Units

“…Our research underscores the internal audit function and the significant role of internal auditors and the top management in inducing changes in the desired Table 1 Means, standard deviations (SD), and correlations Specifically, an internal audit is an important organizational tool and its understanding and evaluation are critical to unraveling how it influences audited units' outcomes (Albrecht et al 1989). An internal audit contributes to better organizing, greater consistency, a higher level of reliability, and the promotion of ethical behavior in the organization, which are all important yet difficult to build and design (Bailey et al 2003;Karcher 1996;Lin et al 2011;Sikka et al 2009;Stead et al 1990;Woods et al 2009). In newly developed environments, auditing activities are even more important for multiple constituents including investors, managers, employees, regulators, suppliers, and customers.…”

“…The need to stem organizational irregularities and fraud, promote continuous operational improvement, and respond to external turmoil often result in further control and supervision. However, this does not tend to lead to satisfactory outcomes (Sikka et al 2009) and raises the question of why internal audits do not fully achieve their goal (Arena et al 2006), and why the expectation gap in auditing has not been resolved (Commission on Auditors' Responsibilities 1978;Liggio 1974;Porter 1993). Specifically, it is unclear how auditors and top management facilitate auditees' learning from internal audits and which implications should be drawn for continuous improvement of ethical behavior, efficiency, and effectiveness.…”

Assessing the current practice of Auditing in Islamic Financial Institutions in Malaysia and Indonesia

“…The conventional approach to audit is incomplete as it pays little attention to the organizational and social context of auditing [7]. It is argued that the basic auditing model is flawed since it makes auditors financially dependent on companies.…”

Influence of Remuneration and Tenure on Auditors’ Independence in Nigeria

“…Onwuchekwa, Erah and Izedonmi (2012) argue that, where this happens, the auditor will have to dance to the tune of the directors as they may not want to bite the very hands that fed them even if it means compromising their independence. There is a widespread public perception that auditors lack independence from company executives and as a result, there are concerns about the quality of audits (Evbodaghe, 2009 andSikka, Filling andLiew, 2009).The contemporary auditing model makes audits to be dependent on companies and their directors for fees and profits. This model is further complicated by the fact that auditors are permitted to sell other accountancy services to their audit clients (Otunsanya, and Lauwo, 2010).…”