Scribd Logo
Upload

Welcome to Scribd!

  • 315 views

    Modern Auditing and Assurance Services 6th Edition Leung Solutions Manual

    Uploaded by

    Sonam Chophel
    This document discusses the role of internal and external auditors, and why audits are demanded. It focuses on the agency theory, where management acts as agents for shareholders as principals. Problems can arise due to different interests and lack of trust between principals and agents. Audits provide a monitoring mechanism to help align interests and address this agency conflict by providing an independent opinion on the financial statements. The document outlines the agency relationship in the audit process and how auditors also act as agents for shareholders.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Modern Auditing and Assurance Services 6th Edition Leung Solutions Manual

    Uploaded by

    Sonam Chophel
    315 views6 pages
    This document discusses the role of internal and external auditors, and why audits are demanded. It focuses on the agency theory, where management acts as agents for shareholders as principals. Problems can arise due to different interests and lack of trust between principals and agents. Audits provide a monitoring mechanism to help align interests and address this agency conflict by providing an independent opinion on the financial statements. The document outlines the agency relationship in the audit process and how auditors also act as agents for shareholders.

    Original Title

    modern-auditing-and-assurance-services-6th-edition-leung-solutions-manual

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses the role of internal and external auditors, and why audits are demanded. It focuses on the agency theory, where management acts as agents for shareholders as principals. Problems can arise due to different interests and lack of trust between principals and agents. Audits provide a monitoring mechanism to help align interests and address this agency conflict by providing an independent opinion on the financial statements. The document outlines the agency relationship in the audit process and how auditors also act as agents for shareholders.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    315 views6 pages

    Modern Auditing and Assurance Services 6th Edition Leung Solutions Manual

    Uploaded by

    Sonam Chophel
    This document discusses the role of internal and external auditors, and why audits are demanded. It focuses on the agency theory, where management acts as agents for shareholders as principals. Problems can arise due to different interests and lack of trust between principals and agents. Audits provide a monitoring mechanism to help align interests and address this agency conflict by providing an independent opinion on the financial statements. The document outlines the agency relationship in the audit process and how auditors also act as agents for shareholders.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 6

    ACT307 Audit and Assurance

    Introduction to Financial Statements


    Audit
    Presentation on Friday
    (28.02.2020)

    Note: You may prepare ppt presentation

    1. Role of internal auditors and external auditors - A case on


    accounting fraud at WorldCom

    2. Why is there a demand for audits? – mainly focusing on


    agency theory
    Agency theory

    • The role of external audit is often explained in relation to


    the economic model of agency theory.

    • Agents are people employed or used to provide a particular


    service. In the case of a company, the people being used to
    provide the service of managing the business also have the
    second role of being people in their own right trying to
    maximise their personal wealth.
    An agent relationship
    Principal Agent
    (Owners) (Management)

    • Engages another person to perform a


    service on their behalf.
    • Delegates some decision making
    authority.

    Problems
    • Principal may have concerns over motive of agents?
    • Principal may question the trust they have placed on agents?
    • Principal and agent may have different attitude to risk?

    Possible Solutions
    • Set up mechanisms to align the interests of agents with
    principal.
    • Monitoring mechanism (AUDIT)
    The agency relationship in audit

    • In the case of a company, management acts as the agents of the


    body of shareholders, the principals. Management are
    accountable for their stewardship of the company.

    • The shareholders have limited access to information about the


    operations of the company. They may lack trust in the directors
    and may believe that the information in the financial statements is
    biased.

    • The external auditor, therefore, performs a statutory audit to


    address a simple agency conflict between shareholders and
    directors.
    • In addition, the auditor can be seen as an agent of the
    shareholders. Under law, they report to and are appointed by the
    shareholders.

    • This raises more concerns with regard to trust and confidence.


    One key factor here is the importance that shareholders place on
    the auditors' independence from the directors.

    • Auditors have an important incentive to maintain independence


    and protect their reputation in order to keep and win more audit
    work. The profession also imposes guidance in relation to
    independence.

    You might also like