ISSUES AFFECTING ACCOUNTING PROFESSION
As Price Waterhouse states: [I] The public accounting profession today faces a crisis in public confidence in its ability to perform its independent audit function…” It is recommended that a significant improvement be adapted to look for fraud and to assess processes of internal controls.
Another recommendation is the establishment of a constitutional self-administering body for all independent financing firms that audits public companies. It also suggests means to lessen the extent of auditors’ liabilities.
Another group of major accounting firms are calling for the revamp to the approach of financial reporting. Among these are the calls to alter the current laws that obligate government companies to include in the regular reports the risks that are currently faced by the operations; autonomous audits of analysis and discussion; and promote some ways to improve public confidence.
The accountant or the accounting professional carries a critical role in guaranteeing the dependability and preciseness of disclosures made on the financial statement of a company that is depended upon by the investors. The main issue here is how to develop more the dependability and trustworthiness of financial reports.
Progress should include the following: greater responsibility imposed on a professional, additional efficient measures of disciplinary approach, and methodology on how to implement these inclusions on those who prepare the financial reporting including the auditors.
Professional responsibility involves an awareness of duties and obligations. While stressing the significance of independent firms to audit the reporting process, the Securities and Exchange Commission also stresses the important role the audited firm’s accountants and professionals play in the audit as they have the knowledge of transactions and situations which are behind the financial statements.
They should guarantee that the organization’s each and every transaction are properly recorded and accounted for. The obligation to sustain internal controls to guarantee correct and exact books and records and its strict enforcement, is also a means to ferret out corrupt and illegal practices, as well as fraud and other disclosure-related problems.
The Wyden bill necessitates auditors to implement processes and systems to spot and identify fraud, and to immediately file notices of illegal practices to involved authorities. However, as testified before the Dingell committee, the Commission is not in accordance with the Wyden bill, due to its unfavorable effect to an auditor/client relationship.
The Commission however expressed that it is favorable in working around an involvement by the auditor in risk disclosure. Yet, an auditor’s involvement may only be justified if: the auditor can be relied on for a complete and adequate information, it the involvement of an auditor is cost effective, and if the involvement would not diminish the disclosure item’s expansiveness.
Auditors are sometimes placed in a position to make personal assessments on what is not legal without a guarantee that they have at their disposal sufficient information to base these assessments. On the contrary, steps are being taken to put a greater amount of responsibility to the accounting professionals who will prepare and file financial reports that are incorrect and misleading.
From time to time, there are accounting professionals and firms that have been found to err in their profession and are disciplined through various forms. Deliberate engagements to violate laws on federal securities bring about criminal prosecution. Injunctive actions are filed in the courts to those who violates law on securities or who assisted others to commit the violation. The privilege of practicing the profession may be denied by the Commission if accounting professional is found to be incompetent, with questionable character and integrity, or to have dealt with unethical demeanors, and has deliberately defied the laws on federal securities.
The Sarbanes-Oxley Act necessitates external auditors to assess the processes the management of a public company utilizes to organize the financial reports. These external auditors should also collect proofs of the effectiveness of the company’s internal operations and controls. Evaluation of these evidences will establish if the company’s internal controls are effective. It also evaluates the audit committee’s effectiveness. If found to be ineffective, a report is required to be submitted by the external auditor to the organization’s board of directors.
This places a greater demand and expectations on both auditors and companies. However, higher standards will promote reliability that will recover the public’s confidence on the financial industry.
[i] www.sec.gov
Credit:ivythesis.typepad.com
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