Quiz 8: International Cases
The key conditions which are essential for a company to be auditable are: 01. The control environment prevailing in the company: In order to conduct an audit successfully an auditing company needs to look into the control environment existing in the firm. The existence of a control environment means that the company is abiding by the rules of SEC and the financial and accounting information provided can be audited. 02. The risk management initiatives used by the company : It is important that the auditor needs to evaluate how the company is managing the risk inherent with its operations. If the company is following unethical ways to minimize the risk then the auditing firm cannot audit the firm's results. 03. The internal control activities performed by the company : These activities are to be assessed by the auditing firm. If the internal control activities are on par with the SEC recommendations then auditors can perform the audit operations without any trouble. 04. The Information and communication activities of the company: The auditing team needs to assess the internal communication and information exchange system prevailing in the company. If the company is having a free flow of information exchange across the company it can reveal important information to outsider, thus causing a security breach which indicates that the auditing company cannot accept auditing of the firm. 5. The monitoring activities performed by the company : It is also important for the auditing firm to assess the various monitoring activities used by the company. Lesser number of activities is a threat for the security of the data and thus brings a peril for the firm. These are the necessary conditions which are necessary for the company's auditability. Challenges posed by Chinese companies to auditors: Auditors face several challenges in conducting audits in Chinese companies. It is because Chinese companies normally form into large conglomerate which do not offer the necessary permission to auditors to enter into their premises to gather information. They discourage the practices such as gathering of information from bankers, suppliers or customers as they are all a part of the group. The company does not allow the auditors to gain access to the financial information and hence gathering the much needed audit evidence will be very difficult for the auditing firms.
International auditing firms do have the responsibility to offer audit services which are uniform in nature. It is because all the international organizations of accounting and auditing practices recommend methods which are commonly accepted by the countries across the world. International auditing firms which offer their services across the globe maintain uniformity in performing their audit procedures across the globe by following guidelines given below: • They frame their procedures based on the international audit procedures recommended by AICPA and International Accounting standards. • They frame their procedures in such a way that the auditors will be able to gather all the necessary information and evidences to perform the audit procedures. • The audit procedures top auditing firms use are based on the professional recommendations mandated by AICPA and other International firms which offer accreditations to auditors. The methods used for auditing firms should not deviate from the accounting and auditing standards recommended. If the methods used for auditing are different from one Audit Company to another then it causes a great deal of confusion. Therefore, audit companies do have the responsibility to maintain common standards worldwide.
Acting as a supervisor of the auditing services rendered by the Chinese auditing firm, the firm's responsibilities will be as mentioned below: • The audit supervisor is responsible for communicating the roles and responsibilities of the subsidiary that audit team members have to perform. • Direct the audit team members in such a way so that they do not deviate from the audit objectives. • See that the audit is conducted as per the AICPA guidelines. • Review the audit process and the audit procedures used by the subsidiary audit company. • Determine whether the audit process and procedures used are able to achieve the objectives and the information is recorded properly as per the guidelines. The supervisory duties and responsibilities performed by the U.S auditing firm are complied with the responsibilities recommended by international standards of accounting. It is because both AICPA and the international standard of Accounting recommend similar roles and responsibilities for auditing firms which includes supervision of the activities of the audit engagement team. Thus, the supervisory duties and responsibilities performed by the U.S firm are in compliance with the International Accounting Standards.