Download The Auditor - Whose Agent Is He Anyway

The Auditor - Whose Agent Is He Anyway?
1. Introduction
This research paper is inspired by Peasnell (1982), who explores how a conceptual
framework would improve the quality of financial reporting. Failing this framework,
Peasnell questions whether the auditing function would be a viable alternative for
‘organising and policing’ corporate disclosure. He describes how there are those who
view external auditing as a largely useless legal imposition. He refers to Briston and
Perks (1977), who suggest that both financial statements and audits are of no practical
use as shareholders are forward looking. However, Peasnell (1982, p.296) takes the
opposite view, ‘agency theory suggests that published accounts are far from being
“largely irrelevant” to shareholders nor are audits of the same.’
The aim of financial statements is to report on the company’s financial performance
during the year and its position at the balance sheet date, to help the users make
economic decisions. The main users can be taken as shareholders, creditors, banks,
employees and the government. These users will only rely on what the statements
purport to represent if there is an independent assurance of their credibility. The audit
is this independent examination that verifies the credibility of the information
provided in the financial statements. But what if the auditor is also an agent to
himself, or to management?
This paper will now discuss the need for the audit, citing its statutory origins, and
emphasising user needs and agency theory as two of the main driving forces. Only
then can it be discussed whether the audit function as it stands meets these
requirements.
2. Introduction To Agency Theory
Limited liability encouraged the growth of companies in the twentieth century, with
productivity on a scale that was unlikely to happen with single entrepreneurs or even
partnerships. Today, the corporate vehicle is one of the most complicated legislative
areas. This is in part due to the principal-agent theory:
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Owners seek to maximise their return on investment by the most
efficient use of the organisation (including the workers). Agents,
on the other hand seek to minimise their efforts and maximise their
remuneration (Hodge, William and Lawrence, 1996, p.23).
Companies represented a separation of ownership from control as managers were
hired to look after the day-to-day affairs of the company.
Unfortunately, the
managers’ interests diverge from those of the owner. For example, share-options
encourage managers to strive to maximise the reported profit of the company; by
creating artificial profits they increase their own return. The downside is that a
perceived increase in returns prompts shareholders to increase their share in the
company, based on biased financial statements.
The auditor’s duty is to monitor the agent (i.e. management) and ensure his objectives
are aligned with the shareholders’. This paper will link the role of the agent to the
explanation of why the auditor’s performance may diverge from expected, and asks
whether more regulation and monitoring is required in that context.
3. Introduction To The Audit Function
The statutory audit was thought necessary, as there was an irreconcilable gap between
the objectives of management and the owners. A mandatory provision was made in
the Companies Act 1963:
… every company shall at each annual general meeting appoint an
auditor or auditors to hold office from the conclusion of that until
the conclusion of the next annual general meeting (Companies Act
1963, Section 160).
The auditor has rights of access to the books of account of the company at reasonable
notice as laid down by the same section. However, in practice external audits are only
performed annually (supplemented by the interim audit). The auditor then reports to
the shareholders on the accuracy of the financial statements, specifically on the
following:

whether the financial statements give a true and fair view
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
whether the financial statements agree with the books of account

whether a financial situation exists

whether all information and explanations have been received as necessary from
directors

whether all information from subsidiaries/branches complies with the final
accounts

whether the directors’ report is consistent with the financial statements
4. The Usefulness of Auditing
As the saying goes, it’s easy to part a fool and his money. Fortunately most investors
have enough intelligence to investigate an opportunity before investing, including
studying the published results. All the users identified earlier in this paper have
invested based on trust, and therefore rely on the financial statements. Shareholders
invest money, as do creditors and lending institutions. Employees join the firm,
hoping to have a secure long-term employment in most cases. The government needs
to verify profit figures for the purposes of taxation and subsidisation. The aim of
business is to maximise profit, and by ‘adjusting’ the reported figures management
can affect the return to these vested interests and subsequently retain earnings for
themselves. For example, a downward adjustment of profit results in a lower tax
payment to government, while management bonuses may be based on retained cash
flows instead.
It is of vital importance that confidence remains in the reported figures, as credit, both
through trade and lending capital, has been one of the main drivers of growth in the
twentieth century. An end to credit would herald the end of the corporate vehicle, as
shareholders wouldn’t be willing to take the risk due to the lower return:
Theoreticians have linked the use of trade credit to a transaction
motive - a desire to realise economies in cash management - and to
a financing motive - use of trade credit because credit from other
sources, particularly from financial institutions, is limited
(Elliehausen and Wolken, 1993, p.16).
In ensuring this confidence remains, the auditing industry is at a crossroads at the
moment:
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The accounting profession faces a variety of pressures … the
pursuit of international harmonisation of standards, increasing
competition between firms driving the development of more
efficient auditing techniques and the constant manufacture of
manipulative accounting policies (Dunn, 1996, p.13).
Dunn’s statement clearly emphasises the importance of the auditor playing a vital and
useful role as an independent verifier of the reported figures, acting as a watchdog
over management and providing assurance to investors who are not up to speed on
economic and regulatory developments. Empirical evidence from Peasnell (1982)
suggests that the quality of financial reporting has increased since the implementation
of the mandatory audit.
However, as Dunn (1996) suggests, these ‘pressures’ can also lead to the downfall of
some auditors, and therefore damage the profession as a whole.
5. The Pitfalls Of The Auditing Function
So far, the conclusion is that on paper the audit is useful. However it is far from a
precise science and is open to human judgement and frailty. An audit failure is ‘nonperformance of the auditor in achieving the objective of the audit role’ (Boyle, 2002,
p.20). Porter’s Audit Expectations Gap (1993) can be used to expand on this:
(i). Unreasonable Expectations: Society expects the auditor to guarantee that the
statements are true and correct.
There is an inherent danger in the auditor signing off on the financial statements.
Many users believe that audited statements are an accurate reflection of company
affairs simply because they have been audited. Many don’t even bother to read the
audit report where the details of the audit programme, responsibilities and liabilities
of the auditor and directors are held. A common misconception would be that the
auditor checks all transactions, which is impossible.
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To some extent the auditor relies on the internal control system of the organisation, to
ensure the raw data is accurate, as it is impossible to check all the data. However,
management is in charge of this control system and so can easily manipulate it to their
own advantage. This makes fraud very difficult to detect, and so to a large extent, the
auditor is not responsible for this area. But do shareholders realise this?
(ii). Deficient Standards Gap: This area follows on from above as in some cases the
standards aren’t detailed enough to fulfil the expectations of society. Reasonable
expectations are sometimes justified, but aren’t part of the audit programme. The area
of fraud is a classic example and has been much debated (Humphrey, Moizer, and
Turley, 1992). This task puts quite a burden on the auditor as Boyle (2002, p.12)
states, ‘tools that are used by the auditor are of limited use in the detection of a crime
of such an intricate nature’.
The Auditing Practices Board (1995a) doesn’t see fraud detection as a requirement of
the audit, although many users of reported accounts would presume that it was. But if
the auditor isn’t responsible for detecting fraud then who is? Gray and Manson (2000,
p.519) are of the opinion that the auditor isn’t liable for a failed audit, if fraud is
discovered post-completion, ‘it might be said that some companies are close to being
unauditable because of the nature of their business’. They go on to discuss
circumstances where top management was engaged in fraudulent activity, the
company having complicated interests and financial arrangements. They specifically
refer to Polly Peck, as discussed later, where the complex structure was combined
with a dominant person in management, whose various roles allowed him to override
all controls.
Due to the spate of tax evasion highlighted in the 1990s, under Irish legislation
(Company Law Enforcement Act, 2001) the auditor now has a duty to report any
fraud found during an audit. As fraud can cripple a company, such as the Enron case
discussed later, one would think this a reasonable piece of legislation:
Generally, integrity in financial statement reporting is one of the
linchpins of an efficiently operating business environment.
(AccountingMalpractice.Com, 2003, p.3).
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Perhaps the reluctance of the profession to fully adopt this reasonable expectation lies
in the commercialisation of the auditing industry:
… if auditors were to introduce procedures that would give a higher
chance of detecting fraud, the cost of the audit would inevitably rise
significantly (Gray and Manson, 2000, p.523).
It is unlikely that management (as profit maximisers) will want this extra cost –
perhaps the solution to this conflict is to take the decision out of the hands of
management, as discussed later in this paper.
A past concern was the going-concern basis, which had no structured responsibility
for the auditor until the introduction of SAS 130 (APB, 1994), which meant a
company could potentially be wound up without a qualified audit. Gray et al (2000,
p523) state:
… up to SAS130 being issued, auditors were not required to search
actively for evidence that the company was a going concern, but
merely to be alert to the possibility that the going concern concept was
not applicable.
At the moment, the compliance tests of the internal control system are not subject to
external reporting although the audit function relies on it to a large extent in giving an
audit opinion. The sample engagement letter in SAS 140 (APB, 1995b, p.9) states:
2.2 Our audit is not designed to identify all significant weaknesses
in the company’s systems but, if such weaknesses come to our
notice during the course of our audit which we think should be
brought to your attention, we shall report them to you. Any such
report may not be provided to third parties without our prior
written consent.
Perhaps these are more perceived than actual weaknesses, but any guidance issued for
auditors in this regard will heighten the perceived reliability of financial reporting in
the eyes of the users of accounts.
Consequently, auditing today is a complex function that has to constantly evolve to
keep up with the changing needs of users of accounts and the ease at which
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management can manipulate the data. At the same time, the auditor is expected to
cope immediately with these changes, although standards can take quite a large
amount of time to draft and implement. For these reasons, sound judgement on the
part of the auditor will be needed in expressing an ‘opinion’ of a true and fair view.
For example, the introduction of FRS3 (ASB, 1992) introduced a new layout for the
financial statements as well as some new reports. The new exposure draft issued in
2000, Revision of FRS3 ‘Reporting Financial Performance’, is still in the discursive
stage awaiting implementation.
(iii). Deficient Performance Gap: There have not been many cases in relation to
deficient performance of the auditor relative to other areas of the expectations gap
(see Enron discussed later for an example).
Before specific cases are looked at, it is useful to ask the question, ‘the auditor –
whose agent is he anyway?’
In legislation the auditor reports to the shareholders, however there are factors which
provide the opportunity for the auditor’s loyalty to lie elsewhere.
The auditing
standards and the literature put emphasis on the perceived independence as well as the
actual independence of the auditor, in retaining the credibility of the financial
statements. If the auditor is not independent then he is influenced by the company
and therefore is little more than an agent himself. This is apparent from Jacobson’s
and O’Callaghan’s (1996, p.35) definition:
… a principal who is usually the owner of an asset and the agent
who makes decision which affect the value of that asset, on behalf
of the principal.
This definition suggests that the watchdog (the auditor) may also be an agent with
diverging objectives from those of the principal (the shareholders).
One would
imagine that the auditor as a paid agent for shareholders, would see him holding their
interests in supremacy.
However, the auditor being charged with ensuring
management’s objectives are aligned with the shareholders, may find due to potential
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gain or otherwise, that working in the interests of the audit firm or management is
more beneficial (they are the two active partners in the contract after all).
If the auditor wants to keep his contract in a commercialised industry, he may feel it’s
more beneficial to cut corners on the audit, thereby allowing himself charge a
competitive fee (self interest threat). If the auditor is providing both audit and nonaudit services, he effectively is reviewing his own work. This conflict means he is
unlikely to report any mistakes that come to light in case of repercussions. Long-term
auditors will find themselves being ‘friends’ with management (familiarity threat),
and perhaps entering into providing management advice (advocacy threat). In rare
occasions a dominance threat may arise where management know the auditor fears
losing their contract, and can play this to their advantage; e.g. refuse to report fraud
found by the auditor (Porter, 1993).
Even if the opportunity but no actual problem is present, shareholders need to know
that they can rely on the financial statements– they only have the ‘outside view’:
The closer the perceived alignment of incentives between the
auditor and the client, the lower the value of the auditor’s opinion
of the client’s financial statements to consumers of audit services
(De Angelo, 1981, p.34).
Performance problems also exist that are specific to the auditing industry, and the
auditor has less control over them:
Inexperienced Staff: The Audit Assurance Area is generally where new graduates start
out. This means that audit-managers have to devote some of their vital time on the
job to training and aiding new employees. The vast majority of audit staff moves into
other areas after their three-and-a-half year contract is up, so a lack of knowledge of
the client’s business is likely. This greatly increases the inherent and detection risk of
the audit.
Pierce and Kilcommins (1996, p.12) investigate whether evidence exists that the
provision of auditing courses at third level business degree courses narrows the
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expectations gap in relation to audit regulations. These findings are outside the scope
of this paper, but it is interesting note that the:
… results did indicate a significantly better understanding of audit
regulations by those respondents who had gained some work
experience in either accountancy or audit related work.
As regards this study, it confirms the logical conclusion – duration of work
experience increases the knowledge of the mechanics of the business. Auditor firms
must try and create incentives to keep a higher proportion of their staff on after their
initial contract.
Lack of Time: Time management is of vital importance on the audit and often the
auditor is under pressure here. Management wants to minimise the cost of the audit or
need to publish their accounts as soon as possible. The auditor can have many clients
needing to be audited at the same time of year. These reduce the nature, scope and
effectiveness of the audit and it’s difficult to suggest how this could be improved.
The key to a successful audit is to do adequate planning:
Auditors should have or obtain a knowledge of the business of the
entity to be audited which is sufficient to enable them to identify
and understand the events, transactions and practices that may
have a significant effect on the financial statements… (APB,
1995c, p.2).
It could be argued that, as in the Polly Peck case as set out below, a wider knowledge
of the business would highlight suspicious transactions by management.
6. Case Study Analysis
One major audit failure in Western Europe in the 1980s was Polly Peck International
(PPI). PPI went into liquidation in 1990 with debts of STG£551m. This brought into
question the audited accounts of 1986, 1988 and 1989. BDO Stoy Hayward, senior
auditors, failed to check the suitability of the secondary auditors, Erdal & Co. They
also accepted unsubstantiated explanations regarding investments in the company’s
subsidiary in the Turkish Republic of Northern Cyprus. There was virtually no
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internal control system at its London office and huge sums of money were transferred
from the bank accounts by the managing director without question (Perry, 2003).
These areas are the responsibility of the auditor and therefore it is without surprise
that BDO Stoy Hayward were found negligent and fined STG£325,000 (costs
included). It took the collapse of the company to unearth its rocky foundations; it’s a
classic example of deficient performance on the part of the auditors (e.g. knowledge
of business, tests of controls and balances), which jeopardises the usefulness of the
financial statements.
In recent years with the Alfirst (AIB) scandal and the Enron scandal, auditor
independence has come into question again. In the case of AIB, the loss of US$691m
was compensated by the strong performance of the Irish management and
consequently the share price didn’t collapse. But this doesn’t excuse the auditor’s
failure to discover the lack of internal controls by management, or for not discovering
the trading-irregularities themselves. In Enron, the auditors not only did not report
the irregularities in the accounting presentation but instead were aiding management
on their implementation and cover-up. Boyle (2002, p.12) sums it up well as he says
the
apparent willingness of Arthur Andersen, the auditors of Enron Inc.
to conceal the occurrence of fraud through the destruction of
documents (Howe, 2002), … perhaps provides an indication of
why such perceptions of deficient performance are held.
The case studies suggest the monitoring of the auditing profession was inadequate to
avert the resulting auditing scandals of the 1990s. These are just a few cases which
highlight that the industry needs to urgently reshape its structure to maintain investor
confidence.
7. Efforts To Correct The Situation
Review Group On Auditing
The Review Group On Auditing was set up in February 2000 following the recent
DIRT scandal and the general ill feeling towards the auditing profession in Ireland.
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For the reasons set out earlier, it was seen as important to conduct a review so as to
maintain the general high standard of auditing in Ireland amid the favourable
entrepreneurial climate. The main recommendations of the group are summarised in
Table 1 below (Review Group On Auditing, 2000).
Table 1: Recommendations Summary Of The Review Group on Auditing

implement a framework for auditor independence

nature of non-audit fees paid to the audit firm disclosed in financial statements

explain why non-audit fees exceeds audit fees if applicable, and confirm independence is
not compromised.

audit firms cannot receive more than 15% of total income from one company (10% limit
for a listed company)

audit firm should not audit their own work, provide non-audit services that affect figures
in financial statements or provide internal audit services

there should be effective communication between the audit firm departments so all
knowledge relevant to the audit of the client is known

risk to auditor independence should be documented in the letter of engagement and
management letter

the audit contract should be awarded annually by the audit committee

Oversight Board should undertake a review after three years on the level of non-audit
fees paid to the audit firm
(Adapted From Chapter 12 Of The Report Of The Review Group On Auditing)
Director of Corporate Enforcement (ODCE)
The ODCE is one of the most radical new offices set up in recent times, set up under
the Company Law Enforcement Act 2001. The director has wide sweeping powers
including the power to investigate companies, prosecute directors for breaches of
company law, seize books of account and require auditors to report to them on any
fraud detected during the audit. While this may increase pressure on the auditor to
report fraud, it reduces a grey area and an ethical dilemma as disclosure is mandatory
above and beyond the auditor’s principle of confidentiality:
… [it] leads them [the auditors] to form an opinion that there are
reasonable grounds for believing that the company or an officer or
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agent of it has committed an indictable offence … notify that
opinion to the Director (Company Law Enforcement Act 2001,
Section 74, 3B(e)).
It is interesting to note that, although unhappy with some technicalities of the new
Auditing & Accounting Bill (e.g. auditing the directors’ compliance statement), the
profession admits the new arrangements were needed:
We believe this new regulatory model, which is already attracting
international interest, combines the best features of self and State
regulation (ICAI, 2003).
KPMG welcomes all of these recommendations which should
assist in re-building public confidence in the profession and in
improving overall audit quality (KPMG, 2003, p.5).
ICAI Ethical Guide For Members
The Institute of Chartered Accountants in Ireland has compiled a comprehensive
guide to maintaining ethical standards for members, which ranges from advertising
services, to minimising threats to independence and conflicts of interest. This is a
welcome aid to the process, but will only be of use if carried out and enforced.
Presently, it is difficult, if not impossible, to bring legal proceeding against auditors
not following the code.
Continuing Professional Education (CPE)
There is a need to instil in professionals the importance of being ethical and
competent. Mandatory attendance at courses and seminars can only be a good thing
for first-rate auditing. It keeps the auditor up-to-date on new audit practices to
provide the most efficient service possible. Auditing is changing at a rapid pace,
especially in the area of information technology. The auditor must be able to use
these facilities in his audit, to perform compliance tests on them and to monitor
reporting through this medium.
CPE also fosters an environment of personal
responsibility where the auditor must stand over his work. That is to say, the auditor
will be more aware of the high standards of other auditors and will feel more
compelled to conform.
Also, it gives him an opportunity to discuss practical
problems and possible solutions with other auditors.
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Members of the ICAI in practice now have a minimum of 20 hours of structured CPE
and supplemented by 50 hours unstructured each year.
8. Further Improvements
In the discussion of this paper so far, one would be of the opinion that the auditing
industry is far too important to take a reactionary approach to problems as they arise.
The following areas are regarded by the author, as necessary to cement the future
confidence of the users of accounts.
Internal Auditor
Internal Auditors may be more likely to activate and access
explanations that involve fraudulent financial reporting than
otherwise (Church, McMillan and Schneider, 2001, p.68).
This seems reasonable as:
1. The internal auditor is an employee of the company and can’t be dismissed easily.
Therefore, the self-interest and dominance threats are removed.
2. Any pay-off for hiding fraud/irregularities is likely to be paid through an increase
in salary. However, an external auditor will discover this and immediately query the
reason if out of order in pay increases.
3. The internal auditor is less likely to risk jeopardising the company and so the
advocacy threat is removed.
4. The internal auditor is an experienced staff member with in-depth knowledge of the
business and has the time and resources to find and investigate irregularities.
One can look to the case of Tony Spollen (Sunday Business Post, 2002) whom AIB
sought to remove from his position as internal auditor when he alerted the bank that
they faced a DIRT liability of approximately £100m. His in-depth knowledge of the
company allowed the fraud come to light, and was a good estimation on the £90m
approx. that was subsequently handed over to the Revenue Commissioners. Would
the external auditor have been able to unearth these bogus account holders (whom he
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wasn’t specifically looking for), and in the event that something was uncovered –
would AIB have attempted to remove the audit firm?
Consequently, an extension of the Supervisory Authority’s role (Auditing &
Accounting Bill, 2003) in appointing internal auditors would be useful. They would
be in charge of internal controls, fraud detection, and dealing with the external
auditors/audit committee. This was recommended by the ICAS in 1993, and was
similar to a system operated in Germany and the Netherlands. Baker and Wallace
(2000, p.183) summarise the recommendation:
Under the new [ICAS] financial reporting model, the work of the
external auditors would be less procedural and more judgmental
than under the accepted model of financial reporting.
External Auditors
In theory, it should be irrelevant to the shareholders who the auditors are as they
follow the same standard setting body.
The power to select the auditor is rarely used by the shareholder and, even more rarely
an informed decision. They are likely to be willing to lose this power if it safeguards
their interests. Companies should apply to the relevant Auditing Institute for the
appointment of an external auditor. The scope of the audit could be lessened but the
duration remaining unchanged. This would facilitate a more efficient audit through
consultation with the internal auditor, better time management, and being able to
concentrate on areas that have most inherent, control or detection risks. The internal
auditor can concentrate on minimising the internal risks, including the risk of fraud by
management or employees. Whether the audit firms would accept this proposal is
another matter, as it would involve a large re-organisation of their staff from external
audit duties to being sub-contracted as internal auditors. This would involve quite a
large retraining expense.
If management or the auditing committee wishes to replace the auditor, the reasons
for it should be disclosed to the Supervisory Authority. The Authority would then
have the power to deny or approve the replacement.
This would ensure that
management cannot manipulate the external auditor any more than the internal auditor.
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An Agent For The Shareholder
There is such a real physical gap between the auditor and the shareholder, being one
of the few contracts where the paid agent has little or no interaction with the principal.
The lack of accountability and liability of auditors through the courts also widens this
gap. The external auditor is not an agent for management, and should leave
interaction with them (that doesn’t compromise the value of the audit) solely through
the internal auditor and the audit committee. Instead, the external auditor should
present himself annually at a shareholders’ meeting, where he presents his report and
is available to answer any questions. This would go a long way to enhancing the
openness and transparency of the profession. Unfortunately, this process might only
be used by institutional shareholders to gain a further insight into the company over
individual shareholders who would fail to take advantage of the opportunity. There is
also the danger that any reluctance on the part of the auditor to answer certain issues
(due to confidentiality concerns etc.) could be perceived as hiding dubious
information.
Theory v Practice
The responsibility for the expectations gap in standards lies with the Auditing
Practices Board (APB). The board needs to urgently issue a general release to users
of accounts stating what exactly the statutory audit covers. This also acts as a
checklist for the auditor to make sure all areas are sufficiently covered. This may be
in the form of a conceptual framework for auditing. Only when auditors have clear
objectives, will there be uniformity and effective performance.
The APB must recognise the various pressures highlighted herein, which are yet to be
rectified. These include time pressure, lack of knowledge and inexperienced staff.
The regulatory framework must be changed to bring these issues into the remit of the
APB, perhaps in quantitative terms, as it strives to reach an adequate solution. They
are perhaps too important, as issues which influence the objectivity of the audit, to
leave the responsibility with the individual auditor.
9. Conclusion
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The audit is an essential part of financial reporting today. However, users of financial
statements in today’s business environment would be forgiven for questioning the
usefulness of the audit function. This is partly due to an information deficit on their
part, as they don’t investigate the substance of the audit. It is also due to the various
pressures that are put on the individual auditor:
These challenges must be dealt with in the light of a cohesive
theoretical framework, otherwise auditing will lose all credibility
(Dunn, 1996, p.13).
It is quite ironic that Peasnell (1982) suggested the audit function as a temporary
solution to a conceptual framework in accounting, when in fact the audit industry is
one of the most piece-meal and evolving industries, lacking any comprehensive
objectives that can provide assurance to users of financial statements and provide
assistance to auditors in their role. Judgement makes up large portion of the audit,
lacking any conceptual framework on what the audit ‘guarantees’ to users of accounts.
Statements of Auditing Standards, while useful, involve limiting the scope of the
audit due to time and money constraints, and also reducing the danger of the auditor
being exposed to litigation. Herein lies the expectations gap:
… no matter what action is taken to inform them otherwise, the public
will continue to assume that auditors are responsible for fraud
detection (Pierce and Kilcommins 1996, p.23).
Following the recent corporate scandals, regardless of who is to blame, the auditor has
to stand firm as the ‘watchdog’.
The implementation in the form of the Director of Corporate Enforcement, the
Supervisory Authority, the Audit Committee and heightened disciplinary procedures
should go a long to way instil confidence and act as a deterrent against malpractice.
But who knows what conflicts may emerge in the future of such a dynamic and
complex industry.
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In conclusion, some suggestions to further enhance the audit function were given,
perhaps somewhat radical but they would certainly give assurance to whose agent the
auditor really is.
In essence, the audit is very useful to users of financial reporting but the profession is
entering an era of change. The industry must embrace this change if it is to retain its
credibility.
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