A UDIT I NSPECTION R EPORT OF ASIC

Analysis

This paper is essentially aimed at disseminating the key issues that have been identified and highlighted in the report provided by the ASIC pertaining to audit/auditors for the financial year 2011-2012. Apart from just identifying and listing down the key issues of the report, various other elements like discussions regarding the key points highlighted, identifying and presenting the implications of the deterioration etc. have also been presented.

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THE ISSUE
The Australian Securities and Investment Commission (ASIC) is the sole authority in Australia that regulates the compliance requirements pertaining to financial reporting and auditing of all the business organization of Australia in accordance to the Corporations Act (2001) and offers all the entities relief from a few select requirements in certain situations (Australian Securities & Investment Corporation (ASIC), 2012). ASIC seeks to make sure that all the audit reports and opinions issued by the auditors are extremely relevant and consistent, and ultimately aides the users in making better and informed decisions. In the recent report that was issued by the ASIC as part of its 18 month long audit inspection program for the financial year 2011-2012, the ASIC inspected 20 different Australian audit organizations by focusing predominantly on the auditing of financial reports, specifically the public interest organizations that were prepared in accordance with the Corporations Act. Unfortunately, the ASIC declared that the results of the audit inspection were not very great and were actually disappointing due to the fact that the quality of audits have not at all improved since the last similar inspection that was conducted two years ago in the year 2010.

SUMMARY
The findings of the ASICs report predominantly highlighted three areas that needs a lot improvement. They are as under: the sufficiency and appropriateness of audit evidence,

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level of professional skepticism, and extent of reliance on other auditors and experts along with lack of sufficient evidence (Institute of Chartered Accountants, 2013).

Sufficiency and Appropriateness of Audit This aspect focuses on the adequacy and pertinence of audit evidence available in the engagement files. The evidence thus available on engagement files need to be such that it supports the audit opinion by demonstrating clearly various procedures and conclusions of the auditor pertaining to the key audit judgment or areas of risk. The areas that were identified to be improved include, instances when relying upon audits done by other auditors or experts in the field, validation of key balances, sorting the balances pertaining to material loan, contemplation of fraud risk, and the disclosure of the financial statement. Level of professional skepticism This aspect relates to the engagement files in particular. It has been identified that the level of professional skepticism needs to improve in specific areas of audit judgment. Such key audit judgment includes calculations related to impairment, fair value measurement of the companys assets among others (ASIC focuses for audit firms, 2011). Insufficient evidence Evidence pertaining to the files of engagement with specific relevance to the nature of entity, the duration of engagement and reviews of quality control etc., can be improved a lot, according to the ASIC.

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IDENTIFY
ASIC with the help of a risk-based review identified that most auditors are noncompliant to the actual processes or rules while obtaining reasonable assurance that states that the financial report which has been audited is not misstated. The finding of the report reiterate the significance of auditing as a profession and that this profession has considerable amount of work to be done in order to articulate the true value of the audit report and also the prominence of the service that auditors offer to the capital markets and also the entire Australian Corporate. The points highlighted in the earlier section relate specifically to the audit engagement files. In addition, the ASIC also highlighted areas for improvement pertaining to Quality Control as well. According to the ASIC report, quite a few organizations have a definite need for improving the quality control systems at their end in order ensure that they adhere to the plethora of independence requirements according to the Corporations Act and also various other professional standards of the land. Specifically, ASIC feels that organizations are required to manage the auditor rotation more resourcefully (Australian Securities & Investment Corporation (ASIC), December 2012). Even though many organizations have mostly fulfilled the Clarity auditing standards quite well, adherence relating to a few elements of these standards need quite a bit of improvement. Particularly, a few of the Other National and Network organizations and the smaller organizations have a large scope of improvement in terms of their human resources policies and structures, and the efficacy of their internal monitoring policies

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(Australian Securities & Investment Corporation (ASIC), December 2012). Moreover, it was also identified that superior auditors suitably balance commercial burdens with risks and thus do not compromise on the quality of the audit. Such auditors make sure that they comprehend the business model of the organization that is being audited, various risks of the business, both internal and external, and the impact of such risks on the nature and scope of the procedures of the audit. Furthermore, in case of better audits, the partners who are engagement bring together their expertise and experience and use the same in efficiently assessing the business model of the organization that is being audited, the risks of the business, both internal and external and also their impact on the nature and scope of the auditing process (Australian Securities & Investment Corporation (ASIC), December 2012).

DISCUSS
In the recent years, the rapid development of the global economy and the growing prosperity of the global financial markets have resulted in a new trend of global economic development in the form of economic integration. Moreover, the financial industry is gaining more significance in view of the modern economic development. In other words, the global economic integration simply translates to a unified global financial market. The uncertainty and volatility of the financial system started getting exposed with the rapid development of the financial industry (Hossein Jalilian, 2006). Financial regulation plays a key role in keeping economies financially stable and also helps evading economic recessions and financial crises (The Theory of Economic Regulation, 1971). Many of the global financial crises have time and again proved that

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markets have failed due to less and insufficient regulation in the market. The most important cause in addition to regulation issues is the discrepancies in the corporate reporting. The crisis in the European Union, remarkably in the Greek economy, had economies around the world fidgeting and bracing them for a global crash which got averted in the very last minute. Today, the relationships between economies, talent pools, and industrial resources are so great that a simple Brazilian frost can boost coffee prices in Coorg (India). Similarly, a downward spiral in crude prices sees a positive impact on economies around the world. Financial regulatory problems have actually become one of the most important issues in the contemporary era and they are constantly affecting the world economy as well as the financial stability of numerous economies all over the globe (The adoption of international accounting standards in Bangladesh, 2006, Vol: 18). Having said so, the point that is to be highlighted is that financial regulation plays a key role in keeping economies financially stable and also helps evading economic recessions and financial crises. In the overall analysis, it is safe to conclude that whatever the underlying cause be for the collapse of these institutions which eventually led to the 2008financial crisis it leads to the total collapse of the entire economic eco-systems. The underlying causes which start off in the holy pursuit of delivering higher value for shareholders ultimately in the name of professionalism is nothing short of excessive human greed, total alienation of organizational mission as well as the shareholders. Shareholders are reduced to mere spectators in the annual meets conducted by these voracious and greedy organizations. What starts off as an individual act leads to total collective failure.

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The ASIC feels that organizations can look at ways to dramatically improve and maintain the quality of the audit with specific focus being given to audit evidence, the degree of professional skepticism, and also the extent of evidence while also highlighting the using other industry experts or auditors for auditing. The report also indicated various instances where organizations have strong need to review their approaches while considering seeking the services or opinions of other auditors. This is to make sure that they attain adequate and proper independent substantiation which will support their opinions about the audits done. This is also applicable in the context of group audits (particularly in connection with business components in emerging markets), interests in joint ventures, and the use of service organizations. This work can include assessing the other auditors and reviewing their audit work. There may be a cost associated with this work (Australian Securities & Investment Corporation (ASIC), December 2012). Auditors are required to obtain independent declaration with respect to the work that company experts undertake and also related to the work that is taking up by the experts that companies engage. There were quite a few instances reported in the ASIC report where it would have been better to engage independent experts of their own because external auditors lack the sufficient and required skills and expertise and also the necessary experience. However, irrespective of the person hired for auditor, whether external expert or an internal person, it is highly essential that the audit must be carried out on all and every source information that the experts use in their audit.

RECOMMENDATION
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The following were few of the many suggestions that the ASIC offered in its report. According to the ASIC, it is regarded that organizations, by adhering to better practices would foster professional skepticism by adapting to the following measures: Fostering a strong organizational culture that promotes and supports professional skepticism. directing flawless, consistent and unpretentious messages from the top level management of the organization, and various other stakeholders that professional skepticism and the quality of the audit should not be compromised for the purpose of meeting organizational deadlines and budgets, or for supporting a specific consequence of the management, and/or lastly for saving on the auditor fees. By making sure that all the stakeholders of the organization and the staff assigned for the purpose of the audit are cognizant about the business of the organization that is being audited, possess sufficient and relevant industry knowledge, experience and a thorough understanding of the requirements of financial reporting. Offering relevant and adequate training to the personnel, strong direction and processes, consultation procedures, flawless technical support, and review which include review of the quality control of the engagement and the quality control of the organization as well. (Australian Securities & Investment Corporation (ASIC), December 2012)

CONCLUSION

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Globalization has brought in great many advantages to individual economies as well as global markets. Access to resources and manpower has virtually become seamless. A successful framework is what is required in order to decrease the flaws that have been identified to be present in the current audit procedures. While the issues highlighted in the ASIC report were genuine and comprehensive, there are critiques who claim that ASIC has indeed cast a clear and strong doubt over the entire audit profession and industry of Australia as a whole. It is believed that the risk-based approach or study of the ASIC has considered a very small sample for the study and also all the 20 organizations chosen for inspection were not of Australia. The minimal size of the riskbased sample chosen by the ASIC offers focus areas and understandings for use by the audit profession and practice for gaining continuous improvement along with highquality audits. It is believed by many senior auditors of Australia that, the audit inspection program of ASIC is not a illustrative sample of audits in the Australia continent, and hence Certified Practicing Accountant (CPA) Australia have their reservations and doubt pertaining to the obstinate statements indicated in the ASIC Report about the quality of audit in Australia.

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