Nature and Functions of Auditing Standards

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Introduction

Auditing refers to processes of examination and verification of company financial records/documents for reasons of attracting investors or selling the company or obtaining loans by offering audited records and also to ensure compliance to regulations. The objective of this presentation is to relate to audit functions in Coca-Cola Company including compliance audit which is the verification that company practices are following policies, procedures, and regulations hence audit process involves the gathering, evaluation, and reporting on truth and fair view of financial reports (Frederick).

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Generally Accepted Auditing Standards (GAAS)

The American Institute of Certified Public Accountants adopted GAAS in 1947 to establish standards and uniformity in auditing and involves elements like general standards which relate to technical and professional competence, independence, and due care in the profession. The element of fieldwork standards relates to the planning of the audit, evaluation of internal controls, and obtaining sufficient evidence to make audit opinions by the external auditor. Finally, the element reporting standard relates to the adequacy of disclosure of opinion in reports and compliance to audit guidelines and it relates to what must be performed during auditing. Adequate planning alongside proper supervision is essential, understanding the firm and the environment is also important and sufficient audit evidence should be sought.

How the standards apply to financial, operational, and compliance audits

Legislations as interpreted by the institute of internal auditors implies that a company uses a variety of techniques in reviewing its resources and includes operational audits which entail the examination of the use of resources, evaluation of their efficiency and effectiveness in fulfilling company objectives. The financial audits focus on accounting and reporting of financial transactions like authorization, commitments, disbursement, and receipt of funds thus the main aim in Coca-Cola is to verify the presence of adequate controls processes over resource acquisition and utilization. The external auditor would therefore prepare professional opinions on the presentation and fairness of financial reports. Compliance audits reviews adherence to policies, procedures, regulations, laws (such as state, federal and trustee principles) and the auditor gives recommendations for improvement in control processes to ensure compliance to regulations (William).

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve operations of the organization and help accomplish objectives by bringing a disciplined, systematic approach in evaluation and improvement of the effectiveness of risk management, control, and governance processes and this regard the section 2100 of the International Standards for Professional Practice of Internal Auditing outlines the nature of work of public companies like Coca Cola and it provides that internal audit activities contribute to improved risk management, governance and control systems. The compliance is thus attained through the reliability and integrity of the financial and operational information, assets safeguarding, compliance with regulations and effective operations. It’s also obtained by promoting values and ethics in the organization, ensuring effective performance management and accountability, effective risk and control communication to appropriate individuals and coordination of activities and information communication among the board, internal & external auditors and management as well as evaluation of design, implementation and effectiveness of programs and activities.

Effects of Sarbanes-Oxley Act of 2002 and the Public Company Accounting Oversight Board (PCAOB) on audits of publicly traded companies

The public company accounting oversight board (PCAOB) was instituted in 2002 by the Sarbanes-Oxley Act to have the rights to set public company auditing standards and they require the CEO and CFO in a company to certify all financial statements and should provide comprehensive reports on internal controls. They should also institute an audit committee to approve all activities and report to the public as well as discuss the requirements by Acts and actions of PCAOB. Their prime objective is to protect the investor and public interests in the preparation of fair and true independent audit reports and has many legislative duties on stock exchange markets (Sandra).

The body also has the power to regulate auditing industry like the regulation of non-audit services and activities that audit firm offers to clients like tax and consultancy services. They also investigate audit firm documents and may suspend a firm if it fails to offer the needed documents. The board would regulate financial and compliance auditing and require financial statements to be presented in fair manner and results of operations as well as a financial position at end of the period be stated. They require financial statements to be by the accounting principles as stated in their statutes and they should be consistently applied.

Additional requirements that the Act places on auditors and the actions of the PCAOB

The additional requirements that are imposed on Coca-Cola Company by the Act to eliminate audit risks are to obtain an understanding of the client company and its environment to assess risks of material misstatements and should include information on management, objectives, governance, and strategies of the business. The auditor should identify risks that result in material misstatements that threaten the company’s stability. He should also evaluate organizational response to risks and should obtain evidence on such risks. He is also charged with the responsibility of assessing misstatements based on knowledge obtained in evaluation responses of management and he should evaluate results and draft audit reports which may be qualified or unqualified.

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The PCAOB has powers under section 101 of the Sarbanes-Oxley Act that includes the rights to register public accounting firms that prepare audit reports for clients, the right to set auditing, ethics, quality control, independence standards, etc that relate to the preparation of audit reports. They also conduct registered audit firm inspections and conduct disciplinary procedures like imposition of sanctions as appropriate. They also perform functions to promote audit quality of services and high professional standards by public audit firms and also perform duties of allocating, assessing, and collecting accounting support fees that are used to run/fund the board. They can be sued and they can also sue using the corporate name and through its counsel and also conduct operations and exercise rights without regard to licensing or qualification in whole of USA. They also employ staff like attorneys, accountants and agents with remuneration set at market level. PCAOB also executes instruments, enters into contracts, incurs obligations and performs other activities while executing its rights under Sarbanes-Oxley Act.

References

  1. Frederick Gallegos, Sandra Senft, et al (2003). Information Technology Control and Audit, 2nd Edition, page 577
  2. William F. Messier, Jr ( ) Auditing & Assurance Services. 3rd Edition, page 55
  3. William F. Messier, Jr. Auditing & Assurance Services. 3rd Edition, page 60
  4. Frederick Gallegos, Sandra Senft. Technology Control and Audit, 2nd Edition, page 72

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BusinessEssay. (2022) 'Nature and Functions of Auditing Standards'. 26 February.

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BusinessEssay. 2022. "Nature and Functions of Auditing Standards." February 26, 2022. https://business-essay.com/nature-and-functions-of-auditing-standards/.

1. BusinessEssay. "Nature and Functions of Auditing Standards." February 26, 2022. https://business-essay.com/nature-and-functions-of-auditing-standards/.


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BusinessEssay. "Nature and Functions of Auditing Standards." February 26, 2022. https://business-essay.com/nature-and-functions-of-auditing-standards/.