Audit Essay Example | Topics and Well Written Essays - 1500 words - 1

Audit - Essay Example This has resulted in the emergence of the phrase that â€Å"auditors are the dogs that did not bark during the crisis†, and thus their role in helping avert financial crisis through detecting and reporting any anomaly or perceived misrepresentation of the financial truthfulness of organizations has been put to question (Fielding, 2011 p35). Therefore, considering that there are four major auditing firms that operate globally and monopolizes the European Union regions, namely PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG, concerns have always arisen regarding the collusion between the auditing firms and their clients to give unfair and unbalanced financial reporting information and opinion (Clifford, n.p.). This has necessitated the need for introducing reforms that would see the already existing collusion, as well as the conflict of interest in auditing, effectively addressed (IFAC, 2013 p36). EC audit reform proposals and the underlying areas of concern that they s eek to address First, the EC audit reform proposes a system of compulsory rotation of audit firms amongst their clients (Crump, 2011 n.p.). This proposal has arisen from the fact that; it has been noted that many firms and organization have enlisted the services of a single audit firm for many years, even running for decades, something that has made it possible for the audit firms and their clients to develop a collusion mechanism that prevents the auditors from applying prudence in auditing the transactions and the financial reports of their longstanding clients (Irvine, 2013, n.p.). The effect of this has always been unbalanced and misleading audit reports, which are only proven wrong, when such firms are eventually netted in big financial scandal or when the firms are forced to close down, due to financial problems, despite the fact that their previous reporting and audit reports have been indicating favorable financial positions (Garcia, 2005 p56). Consequently the EU has introd uced a proposal requiring that the client firms will have to change their auditors after a maximum period of 6 years, or a maximum of 9 years, on condition that the client firms have enlisted the services of joint auditing services, since there is a potential of the audit firms increasing the quality of the auditing done, when the firm is audited by two different firms (IFAC, 2013 p42). Thus, this proposal was meant to introduce measures that would encourage joint services, even where it is has not been made obligatory; to avert the problem of conflict of interests and collusion, amongst the auditing firms and their client firms (Orlik, 2011 n.p.). Mandatory audit tendering The EC reform proposal also introduces a proposal for the audit client firms for all public-interest entities to mandatory introduce obligatory open and transparent selection procedures for the new firms (Lovells & Banerjee, 2011 p44). Under this requirement, the EC also proposes that the audit committee should e ffectively be involved in the selection procedure of the new auditors, to ensure the prudence of the selection process, since the auditors selected also influences the nature of the reporting and financial opinion given by the audit firms