The Business Risk Assurance Model

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There are many factors which have led to the development of the business risk assurance model or ‘The Audit of Tomorrow’ (Stewart, 2001:1) these include: Fee pressure As outlined above increased competition and the introduction of competitive tendering has put severe downward pressure on audit fees. For standards to be maintained and auditing to remain a viable commercial enterprise to the professions practices had to be altered.

Technical advances The last 20 years has seen significant improvements in technology. As this gathers pace the systems which hold… directors as agents of shareholders and in this case showing that the directors were giving a too favourable picture of the accounts and the is-use of shareholders money. Auditor Liability An issue which is significantly confusing in auditing terms is auditing liability. In auditing terms “an auditor must approach his work with an inquiring mind, not suspicious of dishonesty, but suspecting that someone may have made a mistake and that a check must be made to ensure that their has been none (Per Denning).

In the case of the Kingston Cotton Mill (1896) the auditors had taken an assessment made by management on trust as to the amount of cotton they had in stock, and therefore failed to make an independent and physical check themselves. Assessments made by management were fraudulent – which in turn made the company better off then it actually was. In this case even though the Mill did not collapse because of the irresponsible judgement of the auditors based upon trust, the auditors were not held liable on the basis that they were entitled to “rely on the statements made by management of the company. Certainly, from the above evidence auditors can be perceived to be liable but their independence can be compromised based upon management, director’s trust and ill judgement hence being auditors being declared non responsible if a business collapse was to occur.

A Detailed Look – Andersen V’s Enron As touched upon earlier in this report, the collapse of Enron was the biggest bankruptcy in U.S history. The company had dramatically re-stated its value, and the after effect was the loss of 4000 jobs of its employees. $70 billion of shareholders investments and employees pension funds were wiped away in an instance, but surprisingly Andersen the auditor of 16 years was not liable for the collapse (with an ongoing investigation) but the Enron demise was blamed on the top executives who gained themselves by securing their “long term financial status” (BBC UK Enron Auditors quizzed, 2002)

The main argument that arised in this case was “Anderson also responsible?” Evidence suggests that he may have been perceived to be more at risk and therefore would benefit most from a rigorous audit are simply being refused by audit firms. The danger is that, ultimately the objective of an audit – that of serving the public interest and supporting the running of the economy will no longer be achieved.

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