Auditing Practice

The aim of this report was to investigate the likely changes that are expected to occur in the medium-term as well as long-term future in the function of auditing. A survey was conducted on the recent past trends that are being observed in the field of auditing. The results indicated that the auditing field is experiencing high changes that are caused by the rapid dynamics in contextual factors such as Information Communication Technology, governmental regulations, court verdicts and critical historic economic events.

The report concludes that the changes that ere likely to occur in the medium-term and long-term are many and diverse and can not be outlined with certainty. Introduction; The field of auditing practice has been evolving with times. This has been happening since the early times of auditing recorded history. The developments and changes in the practice have been a reflection of the peculiar characteristics of each of the society at each stage of human civilizations (American Accounting Association, 2007).

The history of auditing can be traced back to the ancient civilisations of China, Egypt and Greece (Lee, 1994, pp. 36). The ancient chequering activities found in these ancient civilisations are the closed activities recorded which appear to be similar to modern day auditing practice. The next significant historical changes occurred in the period before the industrial revolution. In this era, auditing was had no commercial applications and was meant to assess the accounts of government officials in order to establish whether or not there was defalcation (Porter, et al, 2005, pp. 71).

The concept of sampling or testing was not incorporated in the procedure of auditing in those times. The advent of the industrial revolution (the period from 1840s-1920s) saw the practice of auditing become firmly established (Gill and Cosserat, 1996, pp. 9). The corporation form of business enterprise was catapulted to the foreground due to the large scale operation that came with industrial revolution. The share market prices were highly speculative and unregulated. As a result the rate of corporate failures was high yet the liability of shareholders for the debts of businesses was unlimited.

An urgent need for small investors to be protected arose, thereby creating a perfect, fertile ground for the tremendous growth experienced in the practice of auditing during this period (Porter, et al, 2005, pp. 42). According to porter, et al (2005), the auditors in this period were merely chosen from among the shareholders by the members themselves. Auditing continued to grow, and in the period between 1920s-0960s which saw the development of capital markets and more separation of business ownership and management.

The role of the auditor expanded in that he became more and more entrusted with the responsibility of ensuring the financial statements published by companies reflected the actual financial form of the companies. Materiality concept and application of sampling techniques became more entrenched in the auditing procedures. In the next phase of major developments in auditing (1960s-1990s) companies grew in complexity and size, driven by the huge technological advancements that were witnessed at the time.

Consequently, the auditing firm experienced changes such that auditors were required to play an important role in enhancing credibility of published financial statements and information as well as furthering operations of an effectively functioning capital market. In addition auditors had to adjust to auditing around and about computers as most companies were increasingly introducing computers in their work processes (Porter, 2005, pp. 9). From 1990s up to date, the function of auditing has been expanding beyond the traditional financial statement attest functions (Trent, et al, 2008).

Present day auditing has been incorporating other functions in its processes such as business risk analysis and provision of consultancy services, and more other developments are still coming up. Methods; This research was conducted by questionnaires and investigated PWC (UK) Auditing Department staff members opinions about the expected changes in the auditing function in the medium-term and long-term future. A total of six hundred questionnaires were distributed via the employees e-mail accounts (see appendix 1).

The questionnaire used Likert scales to assess auditors’ opinions about the expected changes in the auditing function in the mid-term and long-term future. A special survey collection e-mail account was opened for a period of three weeks. The survey was voluntary and no personal information was collected. Results; There was 68% response rate to the questionnaire. Table 1 lists a breakdown of the responses. The results clearly show that the expected changes that are likely to occur in the medium-term are many but cannot be forecasted with absolute certainty.

It can be seen clearly from the results in table one that many practitioners in the auditing field think that the function will continue to evolve with many developments and changes expected especially with regards to the areas of the application of ICT new legislations to regulate the practice. However it was acknowledged that most of the framework of current practice will remain in place in the next foreseeable future. 82% of the respondents were of the opinion that the auditing practice would undergo many changes that would have significant effects on the way auditing procedures are performed.

Respondents were also asked to state where they thought most changes if any would come from. Majority thought ICT (78%) and governmental legislations (40%) would be the major sources of the expected changes. Only 14% thought that the auditing practice has reached the peak of development and as a result they expected no changes in the in the current framework of the current practice. 6% of the respondents reported to as having no idea of the trend that auditing will take in the next decade. These findings are consistent with other findings from research carried out on topics touching on issues concerning the development of auditing.

According to Sherer and Turley (2007, pp. 12), many researches conducted or sponsored by accounting bodies in Europe and Northern America have established that the future of audit profession holds in store many changes as the audit environment keep changing at a rapid rate. Conclusion; It is evident from the findings of this report that the objectives of auditing as well as the roles of auditors are rapidly changing and they are highly influenced by contextual factors such as technological developments, critical economic events, and the verdicts of the courts.

As these contextual factors are highly dynamic, major change in them are likely to result into significant changes in the role of auditors and the audit function at large.


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