Auditing refers to the process of scrutinizing the account books of the company to ascertain the correct financial position of a company and to make out whether all the transactions were legit thereby confirming the absence of any fraud. Auditing involves examining the financial records of an organization or an individual to determine if they are error-free and in accordance with any applicable rules, regulations, and laws.
The International Auditing And Accounting Standards Board (IAASB) is the body which regulates auditing and sets standards in the field of accounting and auditing. The International Standards in Auditing (ISA) are the standards to be followed while performing a financial audit. These are issued by the International Federation of Accountants (IFAC) through the IAASB.
The Future of Audit
In a recent meeting of the Association of Chartered Certified Accountants (ACCA), the future of auditing was the point of discussion.
The participants analysed two opposing views of audit:
- In developed nations, the prevailing opinion is that audits need to evolve. For many years, the prevailing practice — with the exception of the US — was for all companies, whether privately owned or publicly owned, to be audited. For the last twenty years or so, the trend has been to exempt small, private companies from the auditing requirement and to increase the coverage of this exemption. For listed companies, participants called for the audit to give a more relevant set of insights beyond the 'pass-fail' provided within the auditor’s report under the current model.
The participants put forth three broad issues with the audit report:
- It is addressed to the shareholders alone;
- It is issued after the period-end and covers only historical financial information; and
- It is a standardized report that doesn’t reflect the needs of particular users.
- The meeting revealed a very different picture of developing economies. In these countries, an audit is a comparatively new occurrence. They see the financial statement audit as an integral part of increasing investor confidence in business. They are keen to help their flourishing audit professions grow further so that audits can be conducted using local talent to a consistently high quality. So far, there is little interest in evolving the audit: what matters most is getting the standard, historical financial statement audit right.
Participants debated how the audit might develop to provide more functional information to users. There was a sense of frustration amongst the people that auditors have crucial business insights but do not pass them on to the users. However, it was also recognized that it’s important for auditors to be independent. Legislation and Regulation may be the drivers for change.
The participants were asked for their views on the skills the auditor of the future will need. Participants generally agreed that auditors would need better communication skills and commercial acumen, and audit teams will need to access a broader range of technical abilities, including perhaps engineering, psychology, and statistics.
The Computer Age also presents a lot of challenges, with investors and businesses looking to auditors to make use of the latest technologies, data analytics to speed up the audit process, produce innovative insights, and improve the quality of audit.
The report concludes with some observations about the future: in particular, while improvements in developed economies are important, it should not be presumed that they will be equally applicable world over. Developing countries should be given more time to improve their audit infrastructure. Also, the report identifies the advantages of a solid body of standards. Improving audit quality is important and, sometimes, maybe achieved by allowing auditors more time to understand the current standards rather than continually updating them.
Hence, it can be said that audit quality can improve through auditor innovation, as well as from regulatory intervention.
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