Key Auditing Concepts

Key Auditing Concepts

Introduction

The concept of auditing has been present since may years, but the real development of this process was by the end of the nineteenth century, as that was the era when joint stock companies were newly introduced in the business sector and led to a wide spread of the concept of auditing worldwide. With the passage of time, this process has become better and more developed as various professional accountancy regulatory bodies have designed guidelines for the procedure to be followed to attain perfect and accurate results. This process is rigidly followed in all businesses as it helps to owner to keep a check on the operations of all the departments and also allows gives a chance to detect and correct errors and limits fraud (Singleton & Singleton, 2010). The process also eradicates irregular behavior of the employees as it maintains thorough checks on business's accounts.

Discussion

It is very essential for an audit team to understand the culture of the organization they are about to audit e.g. how things are done in the organization. This assists in the process by making it fast and effective as the team would know how to get the required information from the employees and therefore fasten and ease the process. Auditor should also be able to create a global vision of the business, to reduce risks and to encourage setting up tools of monitoring and evaluation (Brousseau, 1993).

Tyco a very successful conglomerate of various diverse businesses combined together through acquisitions. It specializes in provision of electronic appliances, fire and security services and in the production of healthcare products. Tyco is also very popular for its acquisition of various companies for example in a span of 3 years 700 acquisitions worth $ 8 billion took place. Criticisms were also made against Tyco, which led to a negative impact on its goodwill reflecting a decrease in the stock value in the stock markets. And it was until few years back when Tyco's CEO was accused for tax evasion of more than $ 1 million (Hartocollis, 2006).

Therefore this makes it evident and indicates the crucial use of auditing process to curtail the downfall of any company. If an external auditor is auditing a company like Tyco various factors will have to be taken under consideration. The fraud at Tyco actually led to a new legislation SOX, that tend to eliminate the factor of fraud from businesses and makes auditing ethical. It mainly focuses on the liberty and freedom granted to an auditor to make any necessary changes in reporting authorities for management and even gives the right to oversight auditors along with the audit committee. It also makes the creation of complement audit committees and reporting of the fraud to those committees mandatory. This legislation is said to cater almost all financial misconducts except for few for example the knowledge of fraud is only shared between the auditing committee making this knowledge restricted. This makes it certain for audits to give more ...