Analysis of Audit Quality in Australia and India Essay

Recent experiences of large corporate failures in different courtiers have brought consciousness about the quality of the independent audits of companies. Examples are laid by major states that are Australia and India. Australia had experience corporate failure of HIH and One Tel and India had experience of failure of large package company Satyam Computers Limited in 2008. These failures brought the attending of the regulative governments and criterions compositors to do the amendments in the ethical and choice environment of audits of the companies to do them independent plenty, so that audit sentiment should be indifferent and free of mistakes. This treatment is based on comparative survey of regulative, ethical and quality environments for hearers in India and Australia. The first portion of the study addresses the regulative environment of both states and represents the brief comparing every bit good. This portion moves farther to demo the comparing of scrutinizing criterions in both states. Second portion of study shows the ethical environment for the hearers in both states. Last portion focuses on overall quality of scrutinizing and experience in both states.

Regulations for auditing:

As stated in ‘eStandards ‘ , ( 2010 ) in India auditing criterions are knows as Auditing and Assurance Standards ( AAS ) and Auditing and Assurance Board ( AASB ) is the criterions puting organic structure in India. It is regulated by Institute of Charted Accountants of India ( ICAI ) . If compared with Australia, India has Companies Act 1956, which provides the basic guidelines and demands for fiscal coverage criterions to all companies in India. Besides Companies Act 1956 has mandated for hearers for all companies to be ICAI-Certified. As amended in 1999, Companies Act requires statements from hearers saying in audit study that fiscal statements comply with national accounting criterions. Through Ministry of Company Affairs, the Central Government has enforced the Companies Law, besides known as Department of Company Affairs ( DCA ) . As per DCA ‘s demands it is compulsory to closely supervise general purpose fiscal coverage exercised throughout the statutory audit. India has two stock exchange that are Bombay Stock Exchange ( BSE ) and National Stock Exchange ( NSE ) . These are regulated by Securities and Exchange Board of India ( SEBI ) . SEBI issues demand for listed companies under Securities Contract ( Regulation ) Act and it is compulsory for the listed companies to follow with these demands. Banking and fiscal establishments are regulated by Reserve Bank of India ( RBI ) , under Banking Regulation ACT 1949. This act has mandated all banking and fiscal establishments ‘ hearers to follow with general purpose fiscal coverage. Under this act, Private and Foreign Bankss need to seek the anterior blessing from RBI before naming external hearer, whereas populace sector Bankss can name hearer recommended by RBI. Insurance companies are regulated by Insurance Regulatory Development Authority of India working under IRDA Act. It maintains the scrutinizing ordinance in India for insurance industry. ( ‘eStandards ‘ , 2010 )

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Harmonizing to Jackling et Al ( 2007 ) , Auditing criterions of Australia ( ASA ) are issued by Auditing and Assurance Standards Board of Australia ( AuASB ) . AuASB is required to run into the standards set by Corporations Law 2001. Arens et Al ( 2010 ) states that harmonizing to scrutinizing criterions set under Corporations Act 2001, scrutinizing and reappraisals of the fiscal statements should be conducted by hearers. This act applies to all corporations in Australia. Australia Stock Exchange ( ASX ) has listing regulations for all the listed companies. It is compulsory for all the listed companies to follow with these ordinances. These regulations fundamentally are concerned with Principles of Good Corporate Governance and Best Practices Recommendations. These are enforceable by jurisprudence and it takes attention of independent corporate administration of the corporations to keep the unity and objectiveness of the audit studies.

Auditing criterions in both states:

Comparing the state of affairs with Australia, as stated in Auditing, Review and other Standards, ( 2010 ) , India besides has set of scrutinizing criterions, known as Auditing and Assurance Standards ( AAs ) , regulated by ICAI. These criterions are formulated in Engagement Standards, Standards on Quality Control, General Clarification, Standards on Auditing and Guidance. Standards on Quality control are abbreviated as SQC 1 and these are fundamentally concerned with keeping the quality of the audit. Auditing criterions under the General Clarification are derived from ISA ‘s and resemble with Australian Auditing Standards. Auditing criterions ( AAS ) 100-199 to 800-899 are precisely similar to ASA 100-199 to ASA 800-899. In add-on India has 2000-2699, 3000-3399, 3400-3699, 4000-4699, which are about criterions on reappraisal battles ( SREs ) , criterions on confidence battles ( SAEs ) , applicable to all confidence battles, capable specification criterions and represents criterions on related services respectively.. These all criterions are based on international criterions of scrutinizing. ( Auditing, Review and Other Standards, 2010 )

As stated by Arens et Al, ( 2010 ) Australia has 7 set of scrutinizing criterions know as Australian Auditing Standards ( ASA ) . Australia adopted these set of criterions in July 2006, and these are based on International Standards of Auditing ( ISA ) issued by International Federation of Accountants ( IFA ) under FRC. ASA 100-199 is about introductory affairs, ASA 200-299 refers to general rules and duty, ASA 300-499 are about hazard appraisal and response to assessed hazard, ASA 500-599 represents Audit grounds, ASA 600-699 are about utilizing work of others, ASA 700-799 show audit decision and coverage and ASA 800-899 are about specialized countries of audit.

Code of Ethics for Professional Accountants – Comparison

In Australia, as per Jackling et Al, ( 2007 ) , APES 110 Code of Ethics for Professional Accountants gives the five cardinal rules of professional moralss, which are Integrity, Objectivity, Professional Competence and due attention, Confidentiality and Professional behavior. Arens et Al, ( 2010 ) all professional comptrollers are required to follow with these rules and they need to give conformity with these criterions in engagement missive every bit good. These rules are meant to safeguard the unity of audit studies by cut downing the menaces to independency of the auditing and safeguarding the lower limit acceptable hazard in scrutinizing and by deciding other struggles excessively. APES 110 are enforced by jurisprudence under s 40 – 42 and by professional organic structures that is Institute ‘s Supplemental Royal Charter 1988 and CPA Australia. Hence APES 110 aid in maintain and bettering the audit quality in Australia.

Comparing state of affairs in Australia, India does hold codification of behavior for professional comptrollers. It is regulated by Charted Accountants Act 1949, in which all the professional comptrollers are required to keep the objectiveness and unity of audit and fiscal studies. This act is administrated by ICAI. This act formulates the agendas of sets of behavior. It gives the definition of “ misconduct ” under jurisprudence, which is non acceptable from Charter Accountants. This is besides called ‘Other Misconduct ‘ . Besides ICAI gives different guidelines for CA ‘s to adhere to supply right studies on auditing and other attestation services. These studies should give stuff information. If CA fails to follow with these guidelines so he is considered dispatching responsibility of professional behavior and is lawfully apt under professional misconduct, which can ensue in penalty under act such as suspension for a period of 5 old ages and send oning him to High Court. The intent of this act is to keep the quality and professional behavior of the professional comptrollers. ( ‘Harvard manner ‘ , 2010 )

Overall comparing of quality of audit in India and Australia:

Overall quality of scrutinizing has differences in India and Australia. Comparing overall scenario with Australia, it can be observed that Australia has got Corporations Act 2001 and ASX listing regulations to modulate the auditing criterions ( He et al, 2009 ) . Australia besides has scrutinizing criterions based on ISAs. But differences arise on the enforcement of the Torahs and ordinances. Professional comptrollers are enforced by jurisprudence to follow with all the criterions to keep the ethical and professional behavior under APES 110. An hearer can be held condemnable apt excessively in worst instances ensuing in imprisonment ( Arens et al, 2010 ) . Australia excessively did hold bad experiences of large corporate failures such as HIH and One Tel due to hapless corporate administration and audit failure. But Australia has taken disciplinary steps to better this. These corporate failures had resulted in CLERP 9 reforms which made amendments in Corporations Act 2001. These reforms were fundamentally concerned with doing hearers more independent and to better the quality and professional behavior of the hearers ( Dellaportas, Yapa and Sivanantham, 2008 ) . This is non in instance of India.

In India regulative environment is strong plenty to modulate and keep the quality of audit as Companies Law 1956, Banking Regulation Act 1949, IRDA Regulation Act and Securities Contract ( Regulation ) Act ( ‘eStandards ‘ , 2010 ) . These all Acts of the Apostless are modulating and keeping auditing criterions and quality in several countries. But still there are issues related to quality of scrutinizing and attestation services in India. SEBI has given its listing regulations for all the listed companies listed in BSE and NSE. It has been depicted that SEBI has failed to proactively supervise the conformity with fiscal coverage demands and it merely reviews fiscal statement at the clip of public offering or if there is any ailment against a listed company. Harmonizing to Rama Verma, ( 1997 ) , SEBI has given listing regulations for listed companies related to corporate administration. Indeed, corporate administration construction is non efficient in India. He suggests this is because dominant portion holders in India which creates the jobs in three big classs which are Public sector units ( PSUs ) , Multinational Companies ( MNCs ) , and Indian Business Groups. In PSU ‘s authorities is the major interest holder and reserve the rights to put up the CEO and Board member. So far audit is concerned, in such political intervention, Audit Committee can non play an independent and of import function unlike Comptroller and Auditor General does. It reduces the quality of the audit. In the instance of MNC ‘s job of accurate and effectual corporate administration is more terrible as in this instance Indian subordinate hold more than 70 % of the stack and foreign subordinate holds the remainder of the part. In the instance of Indian Business groups ‘ state of affairs is much more complex as compared to PSUs ‘ and MNCs ‘ because major portions held by province owned fiscal establishment, which dampen the melting pots of effectual corporate administration. SEBI has tried to command these jobs but these are non much effectual. In India, quality of the audit besides varies because of the corruptness and black money, as in many organisations concern and minutess are carried on hard currency footing, and they are non recorded in books of histories. Harmonizing to Chakarbarti and Sarkar, ( 2009 ) , India has experienced major corporate failures because of hapless corporate administration and audit failure. Fresh illustration is Satyam Computers Limited, which collapsed in December 2008. They have suggested that due to hapless corporate administration and accounting processs Satyam had been manipulating its histories more than 7 old ages and when disclosed it was non keeping any hard currency as shown. Their analysis shows that Indian market barely has any attention about composing and proportion of independent managers, SEBI ordinances. This major corporate failure in India has raised the inquiry about the quality and patterns of accounting and attestation services in India. SEBI and other regulative organic structures have taken many disciplinary steps to better the quality. But in India it is traveling to take some clip to come up to degree.

Decision

In drumhead, it can be concluded that ethical and professional behavior of the hearers play an of import function in keeping the quality of audit. This comparative treatment on audit quality, regulative and ethical environment in India and Australia shows that both states have got sufficient plenty regulative environments for the auditing criterions. Both states ‘ auditing criterions are based on international criterions of scrutinizing. Both states have bad experiences of major corporate failures due to hapless corporate administration and audit failure. Discussion reveals that both states are lawfully implementing ethical ordinances to keep the professional behavior to keep the unity of the audit studies. But differences arise because of grade of enforcement. India is missing to keep the quality of the audit because of political intervention and corruptness, whereas state of affairs is contrast in Australia as it is purely keeping the quality if audit. Besides Australia has taken proper stairss after the corporate prostrations in the signifier of CLERP 9 reforms, whereas India has lacked in making so. Hence in decision it can be said that though audit criterions and ordinances are at par for both states, but because of grade of enforcement of Torahs Australia is executing better. India needs to cut down the corruptness and political intervention to do the professional more independent, therefore to increase the quality of professional comptrollers.