This course provides an intensive conceptual and applied introduction to auditing in society. It focuses on concepts and applications related to financial-statement auditors’ professional responsibilities as well as major facets of the audit process including risk assessment and audit reporting. In the U.S. financial-statement audits and related services generally are provided by Certified Public Accountants (CPAs). To succeed in this course, you should anticipate engaging in critical thinking and thoughtful communication about audit professionals' decision environments, decision processes, and deliverables. Additionally, you should understand the macro-level learning objectives in each of the course's weekly modules.
Audit Quality Indicators Part II
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From the course by University of Illinois at Urbana-Champaign
Auditing I: Conceptual Foundations of Auditing
ratings
From the lesson
MODULE 8: Audit Quality
Meet the Instructors
Mark E. Peecher, PhD, CPAAssociate Dean of Faculty and Deloitte Professor of Accountancy
Department of Accountancy
You have to be vigilant when you guard
your integrity and your allegiance to the public interests.
I have here for you some very famous and now perhaps unfortunately infamous doors.
You may not recognize them but people who are 30 and older probably do.
These are the famous doors of one of the best auditing companies in the world,
arguably the best, Arthur Andersen and Company.
Now, these doors were originally at the headquarters of
Arthur Anderson in Chicago Illinois and now we are very
fortunate to have those in a wide collection of
Anderson memorabilia in the Geese College of Business instructional facility.
If you're ever in town I would be happy to show you these and
along with other really cool historical documents with respect to Arthur Andersen.
The doors there represent public trust and they also represent client confidentiality.
In other words, when you share something with your auditor,
you should be able to guarantee that the
auditor's going to treat client information in a very confidential way
only releasing it to the extent necessary to
render an audit opinion in compliance with generally accepted auditing standards,
AICPA if it's a private company,
Public Company Accounting Board PCAOB audit standards
if it's a public company in the United States or
if it's global company outside of the US,
IAASB International Standards Board Standards.
So, one of my heroes in the audit profession is Arthur Anderson himself.
He is quoted and you see here him in the background in the backdrop of this slide.
He is quoted when a CEO of a major railroad was trying
to pressure him to sign off on financial statements that had a material misstatement.
He said the following.
He said there's not enough money in the city of
Chicago for me to do that and he fired the client.
Instead of the client firing him,
he fired the client, and that was the brand of Arthur Anderson for the longest time.
He was the auditor auditor's auditor.
Now, unfortunately and I can provide
some readings are related to this as supplementary material, if you're interested,
what happened to Anderson very much appears that some greed,
basically some greed sort of took root in that organization
and they lost their way and that's one reason that Arthur Andersen no longer exists.
If you talk to very senior partners.
One is the late N. Great Art Wyatt,
he would tell you that what happened is that the auditing partners became
beholden to the consulting partners at Arthur Andersen who made
more money and there was a bit of a fight about turf but they started looking at
marginal cost equalling marginal revenue and forgot the principle of integrity.
So, that's a lesson you can be high integrity organization
today but unless you are vigilant you can lose that reputation very quickly.
So, let's drill down just a little bit more on incommensurable goods.
Auditors do get paid and they do get paid quite well.
I think starting salaries for the longest time have
been well above $50,000 even above 60,000
in US dollars in different cities
depending on where you're at and it could even be slightly more than that.
But more than that,
you're going to be expecting to get a doubling of that salary probably every six or
seven years maybe even five years in certain cities if you stay in the profession.
So, you're not going to be living in a poor part of town.
You're not going to be making the kind of money that a hedge fund manager would make.
But you are also deriving benefit from
knowing that you're creating value for the public interest.
So, your motivation should be intrinsic at the core.
You're trying to help financial statements be presented in a representationally faithful,
reliable and relevant way to users of financial statements helping our capital markets.
Auditing has stood the test of time,
the idea that if having an independent knower who
has integrity and who is only interested in
the truth and so far as it can be
determined and objective answers it has stood the test of time.
It's been around since ancient Mesopotamia.
People like to joke that it's the second oldest profession,
but as a profession is not quite 200 years old yet.
So, when you think of the big accounting firms,
you can think that these are the firms that you see today
the modern firms today are actually had
their seeds in modern auditing not quite 200 years ago.
So, just like Arthur Andersen,
as a profession, just like Arthur Andersen as a particular highly regarded firm,
the profession itself must be vigilant in guarding
its value proposition which is fundamentally to pursue
the truth and to state the truth
in ways that are clearly adequate for the circumstances at hand.
So, you don't go spilling the beans on client confidential information,
but if there's a footnote disclosure that needs to be more
crisp and articulate to be objective and representationally faithful,
you got to call management do the math and have them do that.
If management says no, you walk away.
That can be painful because you will lose a client you probably won't collect the fee.
So, think of yourself as a public watchdog if you are an auditor
and you therefore need to be alert for distortions caused by greed.
There's a very good book and I even have
an interview for some of you to check out by Mark Jeffers.
He works for an organization now that he helped found now called Audit Analytics,
it's a big database company.
But before that he has a very interesting story to share
with you I won't repeat it here about his life
as a public accountant particularly working for a private company in Australia.
He faced some ethical decisions right out of the gate and made some hard choices.
So, let's talk a little bit about the nature of the services that CPAs perform.
These services that CPAs perform are professional services.
These are all services requiring accountancy or
related skills perform for a client including accounting,
audit, tax bookkeeping, management consulting,
litigation support, business valuation and so forth.
What's interesting about auditing is that it's one of the few that and a test that
actually require the independence of the audit professional.
If I'm just doing management consulting,
I do not have to have independence from management in order to deliver that service.
So, as a result of this need to protect our capital markets,
the Securities and Exchange Commission together with
professional associations like the American Institute for Certified Public Accountants,
have set forth in writing a set of professional responsibilities for
all auditors and accountants who provide
professional services to the public their clients into their colleagues.
So, among these services and I'm going to go through a number of
these for you and you should be very familiar with these.
This will be helpful to you not only in the profession that you're about to enter,
but also when you sit around to take the uniform CPA exam.
I suspect that many of you will go on to try to take that exam which is
the benchmark hurdle on the technical side for getting into the profession.
So, one of the overarching professional obligations you would have as an auditor is to
cooperate with other auditors so that the public interest can be advanced.
One example of that,
suppose you lose an engagement and
that company you are auditing picks up a different audit firm.
Will you just say to that successor audit firm,
you know we're going to be completely silent even with
the client's permission we are just not going to
share anything we know about this entity.
You can't do that if you're going to be a CPA.
There's actually audit standards about communications between predecessor and
successor auditors which is a really good example of how CPAs must cooperate.
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