Auditing and Auditors

By



ACKNOWLEDGEMENT

I am very grateful to God who has given me the grace to start this course and end it successfully. I would like to thank my family, who worked really hard and stood by me all the way. God bless my family who gave me full support and encouraged me. I would like to thank my supervisor, for her patience and support. Finally to my friends and all who have made the completion of this project a success, thank you and God bless you.

DECLARATION

I declare that the work in this dissertation was carried out by me. The project is my own original work and has not been submitted elsewhere in fulfillment of the requirements of this or any other award.

SIGNED: ............................................................. DATE: ..........................

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

1.1 Overview of the topic1

1.2 Statement of the Problem2

1.3 Research Questions2

1.4 Significance of the Study2

CHAPTER 2: LITERATURE REVIEW3

2.1 Background of SEC Enforcement Actions3

2.2 History of Auditing and Accounting4

2.3 Various Professional Accounting Organizations6

2.4 Important Functions of Audit Companies7

CHAPTER 3: METHODOLOGY10

3.1 Overview of the Research Methods10

3.2 Sampling Size10

3.3 Research Hypothesis11

3.4 Instruments for Data Collection11

3.5 Ethical Concerns for the Research11

REFERENCES12

CHAPTER 1: INTRODUCTION

1.1 Overview of the topic

Each year management's fraudulent manipulation of financial statements results in billions of dollars of losses for investors, auditors, creditors, and employees. Market losses decrease the value of an investor's portfolio; managers are fired or forced to retire; firms and auditors may be sanctioned by the Securities and Exchange Commission (SEC); auditors may be censored by the SEC; firms and their auditors may be sued by shareholders; auditors may suffer reputational capital; and firms may be unable to meet credit obligations. Given that the costs of manipulated financial statements are significant and affect many different stakeholders, a considerable amount of research has been devoted to understanding the characteristics of firms that commit fraud (Francis & Stokes, 1986).

The enactment of the Sarbanes-Oxley Act of 2002 was a response to perceived weaknesses in the capital markets, and a breakdown of the auditor, corporate-financial, and broker-dealer responsibilities. The numerous restatements of corporate earnings coupled with questionable corporate actions precipitated the Act. The result of the change enacted is an increase in the level of evaluation of the internal controls of the financial reports of the reporting company by the auditing firm. Furthermore, the consolidating has resulted in four major auditing firms and several regional auditing firms. The reduction in the number of audit providers and the mandated increase in audit firm responsibility, and mandates dictated to company which engage the audit service provided, together, result in greater audit fees. It is a clear that the importance of auditing and auditors has been quite high in the corporate world (Beattie, Goodacre, Pratt & Stevenson, 2001).

1.2 Statement of the Problem

There is a need to assess the importance of Auditing and Auditors and to demonstrate the effectiveness of their respective functions in the corporate world.

1.3 Research Questions

The research questions for the study are

Q1- What is the role of ...