University Of Teesside

Module:
PROFESSIONAL SKILLS AND
PRACTICE IN ACCOUNTING AND AUDIT

Assignment On:
A report highlighted the issues that should be
considered in the process of selecting auditors
HRM4011-N-YEAR2009
Submitted to:
Professor Fred Hutchinson
Submitted by:
Ashish Kumar Gupta (J9109405)
MSC Accounting and Finance
Submission Date:
19/05/2010

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 Contents
Statutory issues.....................................................................................................2
Qualification and Work experience.....................................................................2
Competence.......................................................................................................3
Ethical Issues.........................................................................................................3
Code of ethics.....................................................................................................3
Integrity...........................................................................................................4
Objectivity.......................................................................................................4
Confidentiality.................................................................................................4
Competency....................................................................................................4
Background check..............................................................................................4
Independence.....................................................................................................4
Independence of mind.....................................................................................5
Independence in appearance..........................................................................5
Theoretical issues..................................................................................................5
Friendly Audit.....................................................................................................5
Understand the need of the University...............................................................6
Detection of fraud...............................................................................................6
Liability of Auditor..............................................................................................6
Conclusion.............................................................................................................7
Some important term............................................................................................8
References.............................................................................................................8
Error: Reference source not found

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 MAY 19, 2010
Mr. Graham Henderson
Vice- Chancellor and Chief Executive
Teesside University
Middlesbrough
Tees valley
TS1 3BA, UK

Dear Mr. Henderson,

We have consider that we have got a strong group of Audit team members at present, instead
of this we need to recruit a number of additional auditors because of the turnover and
expansion of the university. All the participants in the recruitment of audit process recognised
importance of the calibre to the success of the University audit process, but there are more
than a few issues which, we have faced at some stage in the course of recruitment of auditors.
There are many issues which should be taking into consideration while recruiting auditors but
the main issues on which we have considered are statutory, theoretically, and ethical issues.(,
2010)

Statutory issues
Statutory issues are very important while recruiting internal and external auditors, because
these issues are forced by government and law, such as qualification, professional work
experience and competence, which we demonstrate below.

Qualification and Work experience

One of the basic and important aspect, which should be consider in mind while recruiting
auditor (specially for the external auditor) is the education qualification and professional
work experience in any other educational institutions, because work experience in the same
sector could help for carried out the work efficiently and fast. Internal auditor is basically
examining the university or department policy, procedures possibly its finance also but for a
view of advising on how could efficiency could improved, so a person with normal
awareness and qualification can be taken (such as GIA, CISA*) in consideration, Whereas
external auditor deals with finance and accounts of the whole university, for which he has to
be qualified charted accountant under professional bodies (either in ACCA, ICAEW, ICAS,
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ICAI, AIA*). An internal auditor is not compulsorily appoint from outside like accounting
firm or charted accountant, it can be easily performed by the employee of the university who
has accounting background or working in finance section, Whereas external auditor must be
from outside either from financial firm or a charted accountant.()()

Competence
Another point to be consider at the process of recruitment of Auditor is competence, that
means, Do auditor has a capability to do audit of such a big firms or institutions or not? We
have shortlisted several auditors on the basis of competence also; in this process we
considered the previous auditor’s competence level and compare it with these auditors, along
with this we have considered international standards also such as International Federation of
Accountants (IFAC), which is one of the biggest institutions which maintain international
standards and is running in more than 124 countries with the same standards. A competent
auditor must be able to assess a quality standard adherence system on its own merits and
compliance to the standard, even if it takes the auditor out of his comfort zone. An audit firm
need to know the principal and rules of university, department and to government enough to
pass judgment on the specific approach.()

There are some main issues which should be mandatory, while doing recruitment of the
auditors under statutory issues. Some of these issues we have already described earlier in the
above headings, still there are some more issues which we need to discuss, which comes
under ethical issues.

Ethical Issues
These are issues which are not mandatory or not forced by law, but these issues are also
important while doing recruitment because it gives more reliable result and help to judge the
auditor in the best possible way.

Code of ethics
This issue is one of the important issues under ethical issues. An auditor or any account head
must be aware of the standards of code of ethics. The code of ethics basically deals with four
principal which are integrity, objectivity, Confidentiality and Competency. This code of
ethics is directed at both the auditors whether internal or external auditors more over all other
individuals working on a company audit. This theory is very big to read and understand, but
some of the basic principals are easy and simple to use in work place. Such as

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 Integrity Auditor’s integrity will institute trust and that trust provides the basis for
confidence on their judgment.
Objectivity Internal auditors demonstrate the maximum level of professional
independence in analyzing, gathering and communicating information about the particular
activity or process being examined by him. Auditors always make a balance assessment
of all the relevant circumstance and are not unduly influence by their own interest or by
others in form judgments.
Confidentiality An auditor must respect the value and ownership of information
which they receive and do not disclose information with appropriate authority unless
there is a legal or professional obligation to do so.
Competency An auditor can apply the knowledge, skills, and experience needed in the
performance of audit services.
An auditor must need to follow all the four rules, they should not give priority to any
particular rule, because every rule have its own importance and applicability to bring the
transparency in audit work and make the work of audit simple and fast.(, 2009)(ICAI,
2008)

Background check
As auditor is to be considered as professional liability insurer for the institutions or company,
which are look after by him, auditor’s duty is not detect the fraud but the procedure of
auditing includes detecting of fraud, hence the person who will detect the fraud of the
university or the institutions must be authentic and trustworthy, for checking this we need to
check auditor’s background. We have shortlisted many of the auditors on the basis of their
background check by mean of recognizing and cross check with the institutions, where
auditor has already worked and simultaneously with the professional bodies (such as ACCA,
CAEW*) to ensure that the auditor is authentic and is capable to manage audit of a big firms
and institutions. Background check is also important to maintain the stability and smooth
growth of the university, because one false step by auditor may make university to lose its
standards and creditability. ”Prevention is better than Cure”.(, 2009)(Philmore Alvin
Alleyne, 2006)

Independence
An auditor must be independent whether internal or external auditor. Independence is just an
attitude of mind characterized by objective approach and integrity to the audit process. The
concept behind this that auditor carry his job in objective manner and with free of mind (Not
under any compulsion). The rules cannot be created or ensure the existence of independences.
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It should not be confused with superficial and visible standards of independence; generally it
is forced by law. Their mainly two perspectives of auditor’s independence, one is
independence of mind and another one is independence in appearance. International
Federation of Accountants describes independence under the code of Ethics for professional
accountant as:

Independence of mind – the state of mind that permits the provision of an opinion
without being affected by influences that compromise professional judgment, allowing an
individual to act with integrity, and exercise objectivity and professional scepticism.
Independence in appearance – the avoidance of facts and circumstance that are
so significant a reasonable and informed third party, having knowledge of all relevant
information, including any safeguards applied, would reasonably conclude a firms’, or a
member of the assurance team’s, integrity, objectivity or professional scepticism had been
compared.
Independence is not meant that it only exist on auditors face but it should be in there nature
and relationship, between client and auditors. The feeling of satisfaction should come from
itself of independence and secondly, no unbiased person would be forced to do the
conclusion that, on an objective assessment of the circumstances, there is likely to be an
abridgement of the auditors’ independence.(Griffiths, 2006)(Inshik Seol, 2005)

Theoretical issues
Friendly Audit
The potential problematic in the audit knowledge may become exceedingly tacit and
insufficiently formalised or in other words there is lack of auditor interaction, that give rise to
unnecessary repetition in what is done from year-to year. Audit needs such developments
which appear to be face-to-face interaction among auditors, at least among those who are
operating in same institutions or firm but at different locations. Such interaction provides a
forum for tacit knowledge transfer. “Even the most junior auditor was expected to wander
around and be friendly, not so much to check details of the auditor per se, but to ensure the
client has a positive attitude about the audit team”(ICAI, 2008). These lines described and
give rise to new consequences of ‘friendly audits’ or can say paperless friendly audit. A
paperless audit can save Andersen hours of alleged shredding time!

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Understand the need of the University
This is also an important aspect for the auditor, who is going to join the universities office; an
auditor must have to learn the work pattern of previous auditor to understand the need of the
university from them, because every institution or firm may look for some other calculations
and financial result also to analyze with other or for any other reasons. Even an auditor
(especially internal auditor) must have to keep a sound relationship with the management
team and other department because, the auditor is going to work on those report which is
presented by management team member, so at some extent we can save from fraud and
negativity in the work place and on reports. (Inshik Seol, 2005) Number of studies state there
are so many differences between what university or the institutions anticipate from an auditor
and what auditing profession believes that auditor should do. This expectation gap out
coming, create major problems for auditors because of the greater the gap in expectations,
which may affect the reputation and credibility associated with their work. It is an issue for
the public at large, because the proper implementation of a market economy depends
profoundly on confidence in audited financial statements.(Marco Allegrini, 2006)

Detection of fraud
Auditing has primarily decisive on the validity claim of the truthfulness from ancient times
until the end of 19th century, the responsibility of management was became detection of fraud
and truthfulness is objectives. After that, the auditing profession is claimed it verified the
validity claim of truth, either the correspondence between accounting reports and an objective
external reality. When audit profession realized that giving a true and fair view and faithful
representation were too difficult if not impossible in practice, it started to focus on the
validity claim of rightness, i.e. compliance with accounting and auditing standards,
principles, and conceptual frameworks. () Earlier in 1989 one survey carried in United
Kingdom and the result of that survey state that 75% of the general public, including several
financial knowledgeable people, they all think that auditor’s statutory duty or responsibility
to detect fraud of all kinds, and in the same survey it is also found that 61% of public think
that, search for fraud and detect is the legal responsibility of the auditor.(LawrenceJ. Abbott,
2007)(Zamzulaila Zakaria, 2006)

Liability of Auditor
International Federation of Accountants (IFAC) adopt the definition of auditor as, The
objective of an audit is to enable the auditor to express an opinion on whether the financial
statements are prepared, in all material respects, in accordance with an identified financial
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reporting framework, but now a days the auditor who made the statements of finance is
responsible for any fraud. It is not an auditor (statutory) who determine the treatment and
disclosure of accounting and practices, which is to be adopted in the financial statements, it is
directors only. Directors are seated at best position from where they can know the affairs of
their company, so they prepare its accounts and maintain its records. Auditors must be
independent and should be separate from the management and supervisory boards of their
clients. (Michael Firth, 1992) There responsibility would be separate from others managerial
staff. For this sake, directors must have to take responsibility for setting up and maintaining
systems of internal control that minimise the opportunities for committing illegal acts in the
name of the company and that maximise the likelihood that any such illegal acts will be
quickly detected.(, 2008)

Conclusion
The above report has covered several areas of internal and external auditor’s appointment and
expectation from them with a use of internet and journals for giving complete and clear
information to the high authority for selecting the auditor. The main key points of the report
for recruiting the auditor whose is qualified, got same job work experience and the person
who can perform his job with full passion and make university also at good position by
providing true and fair results and by giving some extra analysis and suggestions for long
term growth.

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Some important term

GIA Compliance and Group internal audit

CISA Certified information system auditor

ACCA The Association of Charted Certified Accountants

ICAEW Institute of Charted Accountant of England and Wales.

ICAS Institute of Charted Accountant of Scotland

ICAI Institute of Charted Accountant of Ireland

AIA Association of International Accountants

IFAC International Federation of Accountants.

References

Auditing resources. (n.d.). Retrieved May 15, 2010, from Institute of charted
Accountant of india:
http://www.icai.org/resource_file/8296final_advaud_nov06.pdf

Auditor Job profile. (n.d.). Retrieved may 15, 2010, from career advise :
http://careersadvice.direct.gov.uk/helpwithyourcareer/jobprofiles/JobProfile?
jobprofileid=719&jobprofilename=Auditor&code=591862815

Auditor's report of Teesside unviersity. (2010, jan 15). Middlesbrough, Cleveland,

United kingdom.

Barry J.cooper, P. L. (2006). The Asia Pacific literature review on internal auditing.
Managerial Auditing Journal , 822-834.

Code of ethics. (2009, january). Retrieved may 15, 2010, from the institute of
internal auditors.

Commision issues Recommendations to strengthen Confindence in statutory

audit. (2008, may 14). Retrieved may 15, 2010, from EU business:
http://www.eubusiness.com/topics/finance/statutory-audit.24

Companies Act, 2006. (n.d.). Retrieved from

http://www.opsi.gov.uk/acts/acts2006/pdf/ukpga_20060046_en.pdf

Griffiths, D. (2006, March 15). Retrieved may 15, 2010, from Internal Audit:
www.internalaudit.biz
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ICAI. (2008). Guidance Note on Independence of Auditor. Retrieved from caalley:
http://www.caalley.com/gn/rv_ind_aud.html

Inshik Seol, J. S. (2005). A multi - attribute model for internal auditor selection.
Managerial auditing journal , 876-892.

LawrenceJ. Abbott, S. P. (2007). Serving Two Master: The Association between

Audit committe internal audit oversight and internal audit activities. Accounting
Horizon , 1-24.

Marco Allegrini, G. D. (2006). The European literature review on Internal Auditing.

Managerial Auditing Jounal , 21 (8), 845-853.

Michael Firth, A. s. (1992, 04 05). Selection of auditor firms by comapnies in the

new issue market. Wellington, Univerist of wellington, New Zealand.

Mohammad J. Abdolmohammadi, P. B. (2006). A review of prior common body of

knowledge (CBOK) studies in internal auditing and an overview of the global
CBOK 2006. Managerial Auditing Journal , 811-821.

Onza, M. A. (2006). The European literature review on internal auditing.

Managerial Auditing Journal , 845-853.

Philmore Alvin Alleyne, D. D. (2006). Perceptions of auditor independence in

Barbados. Managerial Auditing Jounal , 0268-6902.

Sleeping watchdogs. (2009, january 14). Retrieved May 15, 2010, from Guardian:
http://www.guardian.co.uk/commentisfree/2009/jan/14/corporatefraud

The role, the position and the liability of the stautory auditor within the European
Union. (n.d.). Retrieved May 15, 2010, from Europa:
http://europa.eu/documents/comm/green_papers/pdf/com96_338_en.pdf

Zamzulaila Zakaria, S. D. (2006). Internal auditors: their role in the institutions of

higher education in Malaysia. Managerial Auditing Journal , 892-904.

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