Audit Firms Work

In: Business and Management

Submitted By zsystephy
Words 477
Pages 2
September 23, 2012
Audit Firms’ Work Deemed Deficient
September 17, 2012
Siyuan Zhu

I. Summary of the Story with Key points clearly identified
Recently, regulators discover that big audit firms’ work has a substantial amount of serious deficiencies. Although the PCAOB conducts inspections of the big firms concentrate on problems at highest risk every year, it states that the report may not be truly reveal how frequently a firm’s overall audit work is deficient. Thus more work need to be done to improve the quality of audit services.

II. My Reaction to the story with rationale and possible solutions
From my perspective, the primary target of the audit today is the verification of financial statements. The audit is an important part of the capital market framework as it not only reduces the cost of information exchange between managers and shareholders but also provides a signaling mechanism to the markets that the information which management is providing is reliable. At the same time, the audit will lose its value when independence which gives credibility to the financial statements is undermined, which is the exact situation in the journal. To promote the independence of external auditors as well as to ensure the quality of audit services, it is significant and profound to establish an audit committee separate from management inside a company. Specifically, the audit committee is responsible for monitoring, overseeing, and evaluating the duties and responsibilities of management, internal and external auditors. Besides, regulatory environment needs to be improved. Following with SAS and SOX, stricter standards should be imposed on audit firms to enhance the quality of external audit services. Moreover, qualified outside examiners need to bear the responsibility to effectively assess audit objectives and procedures. As part of the supervisory…...

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