BUACC3741 Auditing

While professional standards require auditors to maintain objectivity, integrity, and not knowingly misrepresent facts (American Institute of Certified Public Accountants [AICPA] 1998), research suggests that various chronic environmental, occupational, and role pressures can influence auditors’ attitudes, intentions, and behaviours (DeZoort and Lord 1997). Much of the extant research (e.g., Hackenbrack and Nelson 1996; Ng and Tan 2003; Hatfield, Jackson, and Vandervelde 2011) has focused on client pressure, which suggests that client pressure biases auditors such that auditors will typically justify client-preferred treatments.

Client pressure can come in two forms—explicit and implicit. Explicit client pressure occurs when a client clearly articulates his or her position and desired outcome, as is common in auditor client negotiation contexts (e.g., Bennett, Hatfield, and Stefaniak 2015). Implicit client pressures are client pressures that are implied, but not plainly stated.

Required. 

Please expand on what is meant by both explicit and implicit client pressures as it relates to the auditor / client relationship

Explain and describe auditing and its auditor going forward.

The title of the report is Client Pressures on Auditor and how auditor goes with the auditing. Auditing plays very important part in the finance field as the stakeholders of the company relies on the opinion framed by the auditor with regard to the financial statements of the company as to the financial position and the financial performance of the company. The title of the report suggests that the work of the auditor can be affected by the pressures that may be imposed by the client in respect of whom the auditor of the company is conducting the audit. Thus, there are certain circumstances that prevail in the market which induces the auditor of the company to sometimes work beyond the objectivity and integrity coupled with the independence of an auditor as defined in the standards and the code of conduct issues by the Institute of Certified Public Accountants. With this the main body of the report has been divided into two sections.

First section details out the types of pressures that are created by the Client over the auditor in order to get the financial statements of the company authenticated in the manner as they desire. The second section deals with the meaning of the auditing and details how the auditor has gone with the auditing work keeping in view the method adopted by an accountant to manipulate the figures presenting the financial statements. In this section the role of accountant and auditor has been described with reference to dinosaurs and aregntinosauruses respectively. The report is then concluded with the findings and the recommendation has been given thereon.           

Client Pressures on Auditor

The client is referred to the person whose accounts are going to be audited by an auditor. The client prepares the books of accounts and makes them available to the auditor for checking and verification of the books of accounts and in case the auditor found some discrepancies and discrepancies are so material which requires the disclosure then auditor will issue the qualified report accordingly. In order to get the clean chit auditor report, the client places pressures on the auditor to accept the accounting done by the auditor in the manner it has been and make the report in that manner (Awadallah, 2006). The pressures so created by the client have been bifurcated into two – Explicit pressure and the implicit pressure.

• Explicit Pressure– The word explicit means the statement which is clearly said or the indication which is clearly passed on. Thus, the explicit pressure created by the client means the pressure which the client creates clearly exhibits to the auditor to accept the accounting made by their accountant or accept the leniency in accounting and thus interprets the Generally Accounting Accepted Principles in the lenient manner. For example the company says to the audit partner that the future assignment for audit will be given only when the company will receive the clean audit report from the audit firm. In this manner, there leaves the gap which is filled through the negotiations between the client and the auditor. These negotiations are either completed with the increment in fee or with the commitment for future years of the assignment. But due to the professional standards developed by the institute, the auditors are regarded as the guards for ensuring the compliance with the accounting standards and the other provisions of the act (Hatfield, Jackson, and Vandervelde, 2011). Thus, following the professional standards, auditor will reject such an offer and will advise the company to do accounting as per the required principles and standards else rejects the accounting work. In this way, the explicit pressure is created on the auditor (Thahir Abdul Nasser, 2006).
• Implicit Pressure- The word implicit is defined as the meaning of the action which is implied itself or which is not required to stated clearly rather is understood by the reader of that statement. The implicit pressure is created on the auditor by the client when the client management instead of saying directly made the statement which gives the auditor an impression that by accepting the client terms and conditions the audit firm will be in benefit for future years. For example company indirectly states in front of the auditor that new demerged company will be required to be audited along with the current company audit for future years (Lin and Fraser, 2008).

Under both the pressures, the auditor needs to obey the professional standards for code of conduct and shall make the decision after observing all the advantages and disadvantages of the work undertaken.        

Auditing and Auditor Going Forward

Auditing is the process taken by the auditor to check and verify the books of accounts of the client and to issue report thereon. Accountant is the person who prepares the books of accounts and auditor is the person before whom the books of accounts are presented by the auditor to issue there report thereon (DeZoort and Lord, 1997).

As per the first image given in the case study, the accountant has been regarded as the Dinosaurs. The word has been so used to describe that the accountant of the company thinks themselves as the master of the accounting and think that the auditor will not be able to find any mistake and in case he has been able to find the mistake then he will not be able to report that matter in their report and thus stated in the case study that the accountant can tear off the clothes of Zara and Vanu Huesen wore by the auditor of the company..

As per the second image given in the case study, the auditor of the company has been regarded as the Aregntinosauruses. It is so mentioned because these animals are much bigger in size and everything than the dinosaurs and can even look the whole cloud from single space. It therefore depicts that the auditor of the company can look all the discrepancies from each and every angle and can even identify the minute manipulations if any committed by the accountant (Samelson, 2006).

Thus, auditor shall behave like aregntinosauruses and shall perform the auditing work in accordance with the professional standards and the accounting and auditing standards and in accordance with the provisions of the Corporations Act 2001. In this way the auditor shall carry on his function.  

Conclusion

Accounting and auditing are very important for every business organization whether it is related to profit making entity or nonprofit making entity. Auditor gives opinion on the financial statements of the company which enable its users to formulate their decision in an efficient and effective manner. The company usually creates the implicit and explicit pressure on the auditor to accept their method of accounting for their interest. To conclude, the auditing shall be done.

It is recommended that the pressure of the client shall be treated objectively and independently and shall not form wrong opinion on the basis of the client pressures.   

References

Awadallah, E. (2006), “Investigating professional auditors' perceptions of factors affecting their

Ability to resist client management pressure in audit disputes- International Journal of Accounting, Auditing and Performance Evaluation, 3(2), 220-239

DeZoort, F. T., & Lord, A. T. (1997), “A review and synthesis of pressure effects research in

accounting- Journal of Accounting Literature”, 16, 28

Hatfield, R. C., Jackson, S. B., & Vandervelde, S. D. (2011), “The effects of prior auditor

Involvement and client pressure on proposed audit adjustments- Behavioral Research in Accounting, 23(2), 117-130.

Lin, K. Z., & Fraser, I. A. (2008), Auditors' ability to resist client pressure and culture:

Perceptions in China and the United Kingdom- Journal of International Financial Management & Accounting, 19(2), 161-183.

Samelson, D., (2006), “The determinants of perceived audit

Quality and auditee satisfaction in local government- Journal of Public Budgeting, Accounting & Financial Management, 18(2), 139

Thahir Abdul Nasser, A, M. (2006), Auditor-client relationship: the case of audit tenure and

 auditor switching in Malaysia. Managerial Auditing Journal, 21(7), 724-737.