澳洲会计审计专用教材总结ID summary.doc

General rule the regulators have the idea that comparability would be achieved when each companys financial prepared in accord with the same rules. The mistaken proposition is that uniformity of essentially input and processing rules would produce uniform, comparable financial statements. Yet the falsity in the reasoning of the proposition was clearly demonstrable, and clearly evidenced by the variance in the outputs in the forms of financial statements of companies following the rules.Audit RiskInherent risk: one-man show; complex structure; complex financial arrangement (related party transactions); high risk industry; over-reliance on debt; aggressive expansion strategy; foreign exchange dealingsControl Risk: one-man show; corporate governance; internal controlEnron case:High Inherent Risk: conglomerate structure with numerous subsidiaries and SPEs. Enron engaged in energy, which included hedge and derivative transaction. Price volatility. High control risk: poor internal control.High detection risk: Anderson lack of independence. the provision of non-audit related services by audit firms. The former employee of outside auditors was Enrons internal accounting staff. Anderson received $23m non-audit service fee, which occupied 92% of the whole audit fee. He destroyed the document before litigation.HIH case:High inherent risk: aggressive acquisition strategy dominant manager industry risk (insurance industry uses provisioning policies and discounting rate) complex corporate structureHigh control risk: insufficient information system incompetent manager- no identifiable long-term strategy poor corporate governance ineffective audit committeeHigh detection risk: lack of professional skeptics Andersen generally relied on extracts from 6 months reports that actually prepared without any expert assistance and he mainly relied on HIHs internal audit report.Quality Control Mechanism(1) Quality control in a manufacturing setting ensures that a product is fit for purpose. Similarly, auditors provide assurance that financial data audited is serviceable to the users.(2) The recognized function of audits is to act as a quality control mechanism in verifying that the financial accounts prepared by directors do in fact provide a true and fair view of an entitys financial state of affairs. The data are true and fair if they are serviceable in the use ordinarily made of them.(3) What is being tested is the result of some previous action, not the action itself. The tests that auditors should apply therefore are tests of the fitness of the financial figures for the use in future calculations and in making judgments about the past or decision about the future on financial grounds.(4) But now, the focus is on auditors personal characteristics, financial and professional relationships, rather than what auditors are doing when they are supposed to be independence.(5) The reforms such as the independence standard or the implement recommendation for audit quality oversight bodies are process-driven focus, not the outcome-driven focus. There has been little attempt to redress the fundamental flaws in the audited financial reporting system.(6) The shift of the auditing from certificate to report to opinion shows that the auditors verification function are weaker in the modern society. (7) The only focus on the standardization of the input and the process but not specific requirements of the quality of the end product will just misrepresent the company as a whole.(8) Ideally, an independence check of the balances assets and equity would eliminate the possibility of concealment or manipulation.Independence(1) Independence means that an independent auditor is one who forms judgments solely, or primarily, upon on the basis if the evidence presented, one who is not influenced by other than that evidence.(2) It was without any clear explanation of what independence actually entails, what it means as an operational concept in the context of commercial affairs, without any serious debate regarding why it was such an important characteristic, or how it might best be manifested in the ordinary course of corporate affairs.(3) Despite the intensity with which it is heralded as a virtue, as a necessary qualitative characteristic of directors judgment and decision-making and of auditors forming and reporting their opinion in wealth and performance of corporations, the notion of independence is virtually useless, operationally bankrupt.(4) It is useless because it doesnt faithfully describe or reinforces how essential it is that both directors and auditors in going about their tasks are extremely well informed.(5) It is operationally bankrupt because it is at best, functional only as reactive rather than proactive tool and dubious benefit in either event.(6) The greater the association, the greater the opportunity for the auditor to understand the clients business. It is equally feasible that the longer the audit engagement, the more frequently and more wide spread the non-audit service provided, the greater the linkage between the current employees of the client with the auditor. Then the greater the auditors knowledge and understanding of the clients affairs and, as a consequence, the better position the auditor is to undertake an informed audit.(7) The auditors opinion on whether the financial statements disclose a true and fair view of a companys wealth and progress, is formed on the basis that the prescribed Accounting Standards have been complied with, and not according to any observations by the auditors, not according to how financial position and financial performance are almost certainly understood outside of accounting and auditing. (8) Auditors are directed by their professional bodies and schools in their education within hallowed university to understand financial truth as the outcome of a dubious process, rather than an observable set of facts, capable of corroboration.(9) Auditors are neither financially nor technically independence.(10) Independence without honesty and integrity is useless. Honesty and integrity are sufficient to achieve what independence the promoters want.Enron case: (1) Andersons audit independence was necessarily compromised because the firm was receiving consultancy fees from Enron. Those fees were large that it became vital factor in the firm deciding to keep Enron as a client.(2) Anderson lacked independence rests upon the fact that he offered non-audit and audit services to the same client.(3) Assisting Enrons income management, through its use of the mark- to- market model mechanism and keeping liabilities off its balance sheet through its use of SPEs, appear to underpin the fact that Anderson lacked independence.(4) Anderson had been accused that the large consultancy fees influenced its judgments on how it viewed Enrons accounting practices, the structure of its business and how it account for the outcomes.(5) Long-term employment relationship between Anderson and Enron as well as some former staff and partners of Anderson entered Enrons management, indicating that the independence has been impaired. HIH case:Andersen issued an unqualified opinion with an emphasis of matter section for HIHs annual report. But actually Andersen lacked of professional skeptics:He heavily relied on HIHs internal audit. The facts are the followings: the acquisition cost of FAI was the main reason of the collapse. The auditors relied on FAIs financial report without researching more evidence to check if FAI was really worth the value represented by goodwill. Andersen failed to collect external evidence to verify the strange figure in HIHs financial reports, which had low level of cash, plant and equipment but high level of trade receivables and goodwill. In confirming the figure for reserves, Andersen all relied on reports by independent actuary (独立精算师) without obtaining an understanding of the assumptions and methods they used and considered they are reasonable. DTA- when a company incurs a tax loss, significant doubt must arise about the companys ability to realize the future related income tax benefits in the subsequent period. Andersens partner admitted that he applied far less enough tests on whether there were reasonable grounds to believe that HIH would continue to operate profitable in the future. Deferred acquisition cost- if the acquisition cost can be reliably measured and be likely that future revenue will flow to the entity, the acquisition cost can be regarded as an asset. Andersen just relied on HIHs historical profitability figures and did not consider recoverability of deferred acquisition cost.Non-Audit ServiceType of non-audit services: preparation of accounting records; taxation service; internal audit service; IT system service; valuation service.For (1) There is no solid evidence to prove any link between audit failure and the provision of non-audit service. (2) Extensive knowledge of clients business, including the procedures, the policies, controls, risks, personnel, systems and culture. (3) Auditors are professionals have the skills and experience to benefit clients. Many non-audit services are in the public interest and to improve audit effectiveness.Against (1) Non-audit services provided by the audit firms and said to provide a constraint against auditors acting independently when they undertake audit services. (2) The provision of non-audit services increases the risk that an auditor might allow that familiarity to influence judgment improperly in the audit process.Evidence Collection(1) The audit procedures selected should provide sufficient appropriate audit evidence for the auditors to form conclusions concerning the validity of the individual assessments embodied in the components of the financial reports and to give an audit opinion.(2) Auditors reach conclusion regarding audit objectives based on premises supported by audit evidence. The strength or weakness of the evidence depends on how persuasive it is. Persuasiveness depends on the relevance of the evidence to premises and given relevance, the sufficiency and competence of the evidence collected.Adsteam case(1) In Adsteam case, the directors make lots of related-party transactions to increase the profit, which only internal supporting documentations were available. External evidence is difficult to collect and internal evidence is far more than enough to estimate the true worth of the investment of related parties and inter-group loans between Adsteam and its group entities.(2) Before developing audit strategy, auditors should fully assess the risk they are facing and they should have known the high risk involved in Adsteams aggressive acquisition strategy and the inherent risk is much higher than company in other industries. (3) Further more, auditors noticed directors wrong method of calculating profits, but the auditing committee within Adsteam was silent on this issue.(4) Auditors in such an environment should be impartial and try to collect sufficient and appropriate evidence, although it is difficult in Adsteam as the group and associated companies were tightly controlled by directors. The auditors can get documentation evidence through checking its business transactions, clearing the complex structure and receiving history documents. Expectation GapDefinition the difference between what auditors actually do when they conduct an audit and what shareholders and others think auditors do, or should do.Component reasonableness gap (unrealistic expectations of users) & performance gap (inadequate performance of auditor)l Public believe that the unqualified audit indicates that the report is free from fraud, the companies is well managed and financially sound. However, auditors opinion just helps establish credibility of the financial information.l The public expect that the auditor will detect or prevent all frauds whereas the auditing profession has generally not regarded fraud detection as primary objectives.l To make economic sense, auditors are only required to test selected transactions, so the problem transactions may not appear in the sample selected and then there is a risk that audited financial statements may contain undiscovered material error. Public should realized that auditors provides only reasonable than absolute assurance, that financial statements are free of material misstatements.三种fraud Ingenious fraud, fraud that arouse or ought to arouse an auditors suspicion and well-known fraud.There is not auditors duty to detect ingenious fraud due to its features of being creative and lack of knowledge, and may be there exists external documentation evidence to support it.Bond At the very beginning, the auditors were not familiar with the mechanisms of back-to-back loan, and the audit procedure considered external documentation a strong form of evidence with back-to-back loan. The external evidence was available and unlikely to arouse auditors suspicion, so it is ingenious fraud. Now, it has become well-known fraud.Parmalat Ingenious fraud: forging confirmation document of subsidiarys account in Bank of America. It used the forging subsidiary to create a fake impression that the company had plenty of assets and decreased the concern about high level of debts on the balance sheet. Well-known fraud: it created fake transactions, which were done merely with scissors and a scanner, and official stamps were also clearly tempered with.but the independent auditor failed to exercise due skill and care. True and Fair ViewTechnical view to be the outcome of complying with the accounting standards.An auditor who conducts an audit of the financial statement must form an opinion as to whether The financial statements are in accordance with the law, comply with accounting standards and give a true and fair view. All information, explanation and assistance necessary for the conduct of the audit have been provided. The financial records have been kept to enable the preparation and audit of the financial statements.Opinion expressed in an auditors report can be either modified or unqualified.Definition of True and Fair View (ID) A true and fair view means a representation which refer to these accounts and information, which is relevant to the decisions which may be made by these persons in relation to the purchase, sale or other actions in connections with their securities and interests.(1) The data used in the calculations were defective, in error, on the wrong track. They (data) are the result of complying with rules rather than principles.(2) The misleading financials of Enron, Worldcom show to us that the data is deceived even if they comply with the framework of the rules, but not keep with the spirit of them.(3) No general principles have been specified, no explanation of how the data that emerge from the standards will provide a true and fair view of an entitys financial positions and performance.(4) The data to be true and fair, they must be useable for the calculation of the myriad financial indicators of different companies financial characteristics, such as solvency, liquidity, rate of return, asset backing, gearing or debt to equity. (5) The fail