- 10 Marks
AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability
Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.
Question
Recent cases of bank failures have called into question the professional competence and integrity of external auditors. Some have explained that an auditor might be misled about the existence of account balances that do not exist. Companies being audited might have furnished the auditor with a document confirming the account’s existence and balance as at the reporting date. Unfortunately, according to allegations, such balances turn out to be either an overstatement or an understatement and the auditor failed to detect a material overstatement of both assets and revenues. Such cases undermine the credibility of auditors and external audit generally in the eyes of users of audited financial statements.
Required:
Explain whether you believe it is possible for such events as the one described above to completely undermine the credibility of external audit. Your explanation should consider the responses that the accountancy profession can put in place in response to such criticisms. (10 marks)
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