Audit assignment
Features of an audit ............................................................................................................................ 2
Audit and independence ..................................................................................................................... 3
“Making things auditable”................................................................................................................... 5
Research methods used in the Green Paper ....................................................................................... 6
Summaries of the additional articles .................................................................................................. 7
Reflections and discussion .................................................................................................................. 9
Reference List .................................................................................................................................... 10
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Features of an audit
According to Kim Klarskov Jeppesen (1998) auditing is constantly changing moving from just
a technical matter with numbers transitioning into a combination of auditing, consulting and
advising the auditee in order to add value. The auditing concept is broadening in which the
transformation of the matter becomes less independent and subjective due to the fact that the
auditors responsibility and tasks are extended. Jeppesen brings up how auditing as changing
toward a more non- independent matter which is backed by Michael Power (1996) thoughts
from a more philosophical perspective how little auditing is independent and therefor loosens
it trustworthiness, as a problematizar rather than a criticizer. Power (1996) also talks about that
auditing is basically an activity that adds reliability to the financial statement and when the
auditor is hired he/she is a temporary visitor to an organization where he/she monitors their
relevant activities.
COM (2010) claims that audits is one of the key contributor to the company’s financial
stability. One feature of the auditing is to keep the company’s balance sheet in order to please
their shareholders and clients.
Sutton (1994) claims that the auditor’s role is to have an independent opinion about the
financial statement that the management of their client has prepared. The auditor should also
see to it that this statement fulfils the accepted standards and faithfully present the client’s
financial condition and their past performance.
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Audit and independence
“The auditor cannot be independent because auditing is no longer an independent discipline”
(Jeppsen, 1998 pp. 531). The independence matter is presented as a challenge since the society
is moving towards less independent auditing which is needed in order to secure auditing from
an objective point of view. Independence becomes harder when consulting and other subjective
decisions and advises will be made from the same companies supposed to focus on the auditee
(Jeppesen, 1998). Michael Power (1996) is someone who has similar thoughts when it comes
to the independence matter within auditing. He argues that companies act in a specific way to
please the auditor which affects the way people within a company's’ behaviour. In order terms,
Power means that people behave the way they know that they will be addressed. Due to this
Power enlightens the perspective of transparency within auditing which can only be achieved
through independent and external auditing.
In “Auditor Independence and Audit Quality: A Literature Review” by Nopmanee
Tepalagul and Ling Lin (2014) the authors argue that for the trustworthiness as well as ability
to correctly report irregularities auditors must remain independent. It is necessary for auditors
to remain independent for the quality of auditing. (Tepalagul, Lin 2014) However there are also
problems regarding the independence in auditing, according to Jeppesen (1998) many auditing
firms have recently increased their line of consulting services thus making auditing only a
marginal service and this contradicts with the independence of auditing. Thus independence is
understood as something necessary as well as problematic. According to Imhoff (1978) there
are three significant controversies regarding auditor-client relationships which interfere with
the quality and credibility of the auditor. In a case of auditor-client relationship the auditor may
see his/her client as a potential employer. Similarly the relationship between the two might
contradict the relationship between the auditors real employer; the shareholders. In the third
case stated by Imhoff, the auditor may have problems remaining independent due to a
relationship with former colleagues. (Tepalagul, Lin 2014)
Sutton (1994) has the similar opinion about the importance of auditor’s independence,
he says that the audit’s role is to have an independent view about their client’s financial
statement and that it fulfils the accepted standards. Independence is something that is necessary
for auditor if he/she wants to build a trust with for example the public, that is however difficult
when he/she is getting too close to the company. The effect that the non-audit is having on the
real audit service can become problematic. Sutton (1994) says it is difficult to find a solution to
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this complex issue but one solution could be that the management needs to understand that the
auditor must be independent for the interest of shareholders and the public.
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“Making things auditable”
Michael Power (1996) announce the significance of making things auditable. By this, he means
that some subjects are simpler to audit than others, it is easier to audit a system since there are
clearer rules, than an actual conduct. From this he argues that things that are hard to audit, we
can make auditable. “Auditable surfaces”, created by the organizations are control systems
which make information easier and more efficient to audit. Power claims that people act the
way they know they will be addressed, similar to when going to a working interview you
prepare yourself in order to answer the questions in line with the company's goals, objectives
and match the person’s qualifications and features they wish to hire.
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Research methods used in the Green Paper
In the Green paper by the European Commission (2010) they state a formulated research
question with both practical and theoretical relevance. Thus creates a theoretical framework for
the analysis. The sources they use throughout their report creates ethos, logos and pathos in the
way that they all come from previous studies made by the commission or by trustworthy
organizations or committees. By using both quantitative and qualitative data they give a broad
picture of the environment. They reference them by using footnotes instead of in text references.
Using the footnote system fits well in the text as they also ad explanations in the footnotes as
well as they time to time cite them self. Disadvantage may be that the footnotes takes a lot of
space on each page instead of having a full reference list in the end. The research method overall
is otherwise well thought through.
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Summaries of the additional articles
Summary of Auditor Independence and Audit Quality written by Tepalagul, Nopmanee, and
Lin, Ling in 2014. The article outlines the importance of auditor independence and its problems
in modern auditing. To support its arguments the authors use research articles such as
“Employment effects on auditor independence” Imhoff (1978), as well as multiple other
research papers from 1976-2013. This is done to evaluate the different views and researches of
auditor independence and thus to create a thorough and more unbiased understanding of what
auditor independence is, why it is important and how it affects audit quality. The article is
organized into four main parts; client importance, non-audit services, auditor tenure and client
affiliation with audit firms.
Summary of Sutton (1994) addresses that the auditor’s role should express an
independent opinion to the financial statement that is prepared by the management of their
client, the auditor should then see to it that the statement fulfils the accepted standards. Similar
to Jeppsen (1998) this article argues that the non-audit service has the possibility to chance the
auditor’s independence objective, which is to have a second look at the client’s financial
statement that gives the shareholders assurance that those statement are reliable. The questions
are asked how close the auditor and the management can become before it damage the auditor’s
independence and at what point does the auditor become so caught up with the company that
he/she are involved in its success. A solution for theses complex issues are not easy to find but
one step is that the management needs to understand that the auditor must be independent for
the interest of shareholders and the public.
Summary of Glover, Taylor and Wu (2017) addresses the current practices and
challenges regarding auditing FVM’s. The three main objectives of the report are: the use of
multiple substantive approaches, the use of different types of specialists and the challenges
between financial and nonfinancial FVM’s. Using both qualitative and quantitative data
(through surveys) the authors provides conclusions, thus stressing that further research on the
subject needs to be done. The authors state that PCAOB and other international regulators
should clarify their standards since many auditing firms use management assumptions instead
when dealing with high risk FVM. Further provided conclusions to their main objectives are
that auditors are likely to use first substantive approach often thus more related to low risk
estimates. The use of third-party evaluations is more common for financial FVM’s rather than
nonfinancial. Lastly the lack of verifiable and corroborative evidence combined with the high
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degree of subjectivity involved in estimates, making nonfinancial FVM’s extremely
challenging.
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Reflections and discussion
All articles we have worked with throughout this assignment highlights the significance of
independence in auditing. Interesting, since they are written from the years of 1996 to 2017 the
same discussion is being held. The independence matter has its advantages and
disadvantages. From an auditing firm’s point of view, making the auditee and consulting can
be an advantage since they are well aware of the other company’s objectives and goals. On the
other hand it is a disadvantage since the companies ordering these audits might not develop
their fullest potential when audits are made in order to please the auditee.
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Reference List

- European Commission Green paper, Audit Policy: Lessons from the Crisis. COM
(2010) 561 final. 13.10.2010. http://www.ey.com/Publication/vwLUAssets/EYeuropean-commission- green-paper-audit-policy- lessons- from-the-crisis/$FILE/EYeuropean-commission- green-paper-audit-policy- lessons- from-the-crisis.pdf

- Glover, Taylor and Wu. “Current Practices and Challenges in Auditing Fair Value
Measurements and Complex Estimates: Implications for Auditing Standards and the
Academy.” Auditing: a journal of practice and theory, 2017, Vol. 36(1) 63-84.

- Jeppesen, Kim (1998) Reinventing auditing, redefining consulting and
independence. European Accounting Review, 7:3, 517 – 539.

- Power, Michael. (1996). Making things auditable. Accounting, Organizations and
Society, 21(2-3), 289-315.

Sutton, Michael. (1994) ‘Auditor Independence: The Challenge of Fact and
Appearance’, Accounting Horizons, 11(1), pp. 86-91.

- Tepalagul, Nopmanee, and Lin, Ling. “Auditor Independence and Audit Quality: A
Literature Review.” Journal of Accounting, Auditing & Finance 2015, Vol. 30(1) 101–
121, SAGE, 2014.
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