Auditing and Assurance Services Convenient Interpretations

Question: Discuss about the Auditing and Assurance Services for Convenient Interpretations. Answer: Introduction: In an audit firm, the sceptical auditor trust only in the facts and data and also verifies everything and push the convenient interpretations of past of the business to find all the underlying issues of the organization. The sceptical auditor sounds very sensible and has to concern for the veracity of situation of the audit firm (ICAEW, 2016). On the other hand, when there is a wrong situation in the firm, the sceptical auditor can come across closed and disconnected. Along with this, the inner sceptic approach of the auditor can influence the business to strength and control framework of the audit firms and also harm the ability of the auditors. In the organization, it is not enough to be sceptical for auditor; the auditor has to demonstrate it in practices. However, if the auditor is not appropriately sceptical and only seeking to corroborate management assertions then the opinion of the auditor loses its value to the investors (ACCA, 2016). The auditor of the company is likely applying the inner scepticism at the various stages during the audit process. Moreover, the sceptic auditors have an attitude that includes a questioning mind and also alert for the condition which may indicate the possible misstatement due to fraud and error in the audit firms. An inner sceptic of the auditors is closely related to the fundamental ethical consideration of the auditor consideration for the objectivity and independence of auditors. Under the audit process, too much skepticism can lead to the over-auditing that leads to the overall economic problem of the audit engagement in the audit firms (Murray, 2012). Therefore, it is necessary to demonstrate the scepticism and to achieve the right balance in the organization it is important to ensure the level of scepticism in the circumstances. Under the audit firms, the auditors have a strong working relationship with the management that leads to develop a trust and it also reduced the inner scepticism of an auditor. On the other hand, the audit firms encourage the culture of the audit firms that build a strong relationship with the audited entities. Sometimes, it may convert into an argument that demonstration of audit scepticism is difficult but audit documentation is a mechanism for demonstrating the inner sceptic in practice by the auditors (Murray, 2012). There is a challenge for audit firms to identify and retain people with the skills that undertake audit with the inner sceptic mind-set. Audit Commoditization Audit commoditization is referred to a process in the audit world in which client use to reduce the selection decision of their audit firms to the lowest common denominator such as- price. Under this, the client assumes the audit as a commodity and wants to pay the lowest possible price but expect the better services. On the other hand, the client service does not work to win the client but also it works to keep the client. In the audit firm, all the efforts of the client are being viewed as a commodity and no special skills and training are required for a CPA to perform quality work (Parthasarathy, 2014). In addition to this, many audit firms will assign a particular person or set up a department that will responsible for the service offer by the client and also support the program and activities of the client. In the Auditing commoditization, every person of the audit firm links with the chain of client service. On the other hand, total client service that has been provided to the client that will promote the long-term client retention (Anderson, 2012). In this, the client expects the high quality of service that is delivered on time according to the schedule. It is important for the entire engagement team about all the service that is needed to complete for each client with the minimum cost. Along with this, the concept of treating the auditor as a service provider is making the profession of auditor more reliable and it could ultimately result for the commoditization process in the audit world. At the present context, the situation results for the various factors that include the major accounting scandals, complex business arrangements, financial failures of large companies and many more. In addition to this, the process of audit rotation is being introduced with the various changes in the audit firms and it will help in the demonstrating transparency and also remove the perceived biases (Hay et al., 2014). Hence, it will effect on the commoditization of audit by making the auditor run the business. The commoditization in the audit also increases the profitability and status of the auditor within the organization. The reputation of the auditor is built over a particular time period that is based on various factors like professional skills as well as personal qualities f or the effectiveness of the audit process. The core value of the audit profession includes honesty, objectivity, integrity, and professional competence. For example- when a person goes to a family doctor, the person trusts the doctor and the doctor knows about the health history and knows the entire factor how to deal with these factors. At this situation, money and competition have played a very limited role in this situation. On the other hand, competition is good for improving the quality of service at economic rates but it cannot replace the relationship between the auditor and client that built up over the period of time (Anderson, 2012). Furthermore, the value of the service that has provided by auditor to client always depend on the value that has been created by the users and the relation between the auditor and client is extent similar to the doctor and patient, where trust and integrity play a very important role. There are many driving forces of the commoditization in the audit world in which the auditor increase the complexity of the service and technology that offers by him and also make an incomprehensible solution to the client. In addition to this, for reducing the purchasing decision to the lowest denominator like price, the client feel to pressured to calculate the value of the good and service of the audit firm (Holmes, 2014). On the other hand, the key challenge that has been arisen from the audit commoditization is ongoing compliance with the requisite standards and low price elasticity in quality. In the last 20years, a rapid change has been seen in the auditing profession and cost cutting in the audit profession placed pressure on the auditors to done the audit on the effective basis for reducing the risk and generating rapid growth (Gullette, 2015). However, to manage these forces audit firms should increase the formal structure in the audit process for the consistency and cost c ertainty. Nature, size and scope of the big four accounting firms: The big four accounting firms namely KPMG, EY, Pwc, and Deloitte are the largest network of professional consulting services in the world. These firms offer audit, tax, assurance, consulting, actuarial, advisory, legal and corporate finance services. The vast majority of audits of public traded companies and private company are handled by these accounting firms because threes firma are capable in identifying accounting errors and adjusting them (Ghoul et al, 2016). Big four accounting firms have wider spectrum of services with flexibility in doing works of small and large projects. In addition, these firms have quality enhancement in their auditing services and are devoted to provide continuous improvement in their financial consulting services. Not only finance and taxation services are provided by these firms but also they help their clients to fix, people, and IT issues (Mahanta, 2013). In this way, the big four accounting firms also provide enormous development opportunities and employment to auditors and accountants around the globe. With US $35.9 billion, PwC is the largest professional accounting firm who is generating highest revenue through auditing, assurance, taxation and advisory services. This company has more than 420 global companies as clients to provide financial services. It has more than 208,100 professional employees with organizing its consultancy services around 157 countries of the world (PwC, 2016). This company was shaped by the merger of two big accounting firms namely Price water house and Cooper Lybrand to dedicate themselves for providing valuable services and upholding good customer relations. Moreover, Deloitte is the second largest financial advisory service provider firm in terms of earning revenue. It had around 225,400 professional employees which is the largest employees strength among the big four accounting firm. Deloitte earned $35.2 billion in financial year 2015. This firm is providing consulting, auditing, risk management, financial advisory and taxation services in more than 150 countries to its worldwide clients (Campbell and Loyland, 2013). Furthermore, EY (Ernst Young) company is founded in 1989 by merger of Ernst Whinney and Ernst Young Company. EY is demonstrating excellence its services with helping around 212,000 employees in more than 150 countries to achieve its potentials. This accounting firm offers advisory, assurance, tax, and auditing services to their global clients. EY earned revenue of $28.7 billion in the financial rear 2015 with professional skills and value of integrity. In addition, KPMG is the fourth largest accounting firm in terms of generating revenue in 2015. This accounting firm earned US $24.4 billion in financial year 2015. KMPG employs around 173,965 professionals to provide qualitative services in 155 countries of the world (Butcher, 2016). These big four accounting firms have a wider scope in the profession of account because at present time every firm want to get excellent advisory firm who can provide a flexible and qualitative services. In this way, these accounting firms have experts to make effective theirs services and provides auditing, taxation, and advisory services at lower prices that create wider opportunities in the global market. The availability of their firms in various countries also creates the efficiency of their clients. Additional these firms provide accounting services at lower prices that make them cost effective firms and economical for their clients. Hence, the nature and the advantages of their services generate many scopes to develop occupation across the world as well as for the accounting professionals and auditors. In last decade, it is identified that the big four accounting firms are not only accounting firms but also they are offering law services to their clients, which is an important component for a business solution. In order to increased demand for legal services, the big four accounting firms are morphing into legal services to their clients. As an alternate, these firms are converting themselves from audit firm to multidisciplinary professional service firms and offering the integrated legal solutions to the businesses. Evolution of these big four accounting firms and shifting to matrix model combines law with risk management and sophisticated data to generate value based business solutions for the clients through professional development strategies. The attractiveness of global market for legal services in emerging countries have affected to the big four accounting firms than even the most global law firms (Esteban and Wilkins, 2016). In such competitive world, the legal network of b ig four accounting firms may be vital for an organization than any traditional firm law. Furthermore, an organization also requires additional services to run its business in a smooth way. In this concern, these big four accounting have started many different services to IT and human resources to increase their marketing services in an effective way. Hence, morphing in something else make these big four accounting firms in the global market. References: ACCA (2016). professional skepticism. Retrieved from: https://www.accaglobal.com/lk/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/scepticism.html Anderson, W.A. (2012). total client service: did you deliver all of your services or just the audit?. andersons audit express, pp. 2-4. Butcher, S. (2016) Working for PWC, Deloitte, EY and KPMG. Whats the difference? Retrieved from: https://news.efinancialcareers.com/uk-en/204621/working-for-pwc-deloitte-ey-and-kpmg-whats-the-difference Campbell, K., Loyland, M. (2013). Video as a Recruitment Tool at" Big Four" Public Accounting Firms: Why Video Should Be Part of Accounting Curricula.Academy of Educational Leadership Journal,17(2), 95. El Ghoul, S., Guedhami, O., Pittman, J. (2016). Cross-country evidence on the importance of Big Four auditors to equity pricing: The mediating role of legal institutions.Accounting, Organizations and Society,54, 60-81. Esteban, M. J., Wilkins, D. B. (2016). The re-emergence of the Big 4 in law. Retrieved from: https://blogs.thomsonreuters.com/answerson/big-4-accounting-firms-legal-services/ Gullette, M.L. (2015). Accounting and Financial Management. American Bankers Association, 202, pp. 1120-1123. Hay, D., Knechel, R.W., and Willekens, M. (2014) The Routledge Companion to Auditing. UK: Routledge. Holmes, A. (2016). Commoditization and the Strategic Response. London: CRC Press. ICAEW (2016). Find your inner sceptic. Retrieved from: https://www.icaew.com/en/technical/audit-and-assurance/faculty/audit-and-beyond/audit-and-beyond-2016/audit-and-beyond-feb-2016/find-your-inner-sceptic Mahanta, V. (2013). Big four accounting firms Pwc, Deloitte, KPMG, EY back in consulting business. Retrieved from: https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/big-four-accounting-firms-pwc-deloitte-kpmg-ey-back-in-consulting-business/articleshow/msid-19756295,curpg-2.cms?from=mdr Murray, Z. (2012). The Pros and Cons of Professional Scepticism. Global accounting alliance, Retrieved from: https://www.gaaaccounting.com/the-pros-and-cons-of-professional-scepticism/ Parthasarathy, S. (2014). Auditing: Commoditized?. Moneycontrol.com, Retrieved from: https://thefirm.moneycontrol.com/story_page.php?autono=1034337 PwC (2016). Global Annual Review. Retrieved from: https://www.pwc.com/gx/en/annual-review/2016/pwc-global-annual-review.pdf