The Assignment describes and analyses the strengths and weaknesses of the oversight over the auditing profession in the UK and USA. Also different important points were examined and critically discussed.
In the film ‘Enemy of the state’ (2007) the American government wants to pass a law which allows wide observation which would endanger privacy. To reach this goal, Senator Reynolds
even kills an opposing politician who had tried to avoid this act. At the end of the movie a simple question can be asked: “who controls the controller?”.
The same issue was relevant when Enron became spectacularly bankrupt. This big conglomerate was audited by the accountancy firm Arthur Andersen. Andersen’s company also offered Enron non-audit services like book-keeping and consulting. Through this lack of independence, the auditors were trapped in a big conflict of interest and could not do their work.
Since this huge disaster many changes in the oversight of auditing have taken place. Especially in the USA and the UK, control of auditing was reformed by the government. The following sections will provide detailed descriptions of the oversight systems in both countries. Afterwards a discussion and a critical analysis will outline the pros and cons for each regulation scheme and a consideration of the best way to point out the advantages and chances for oversight profession will be presented.
Table of Contents
Introduction
The oversight system in the UK
The oversight system in the US
Discussion
Conclusion
Objectives and Research Themes
This academic paper examines and evaluates the regulatory oversight systems governing the audit profession in the United Kingdom and the United States. By analyzing the structural frameworks and operational mechanisms of these two systems, the work aims to critically assess their efficacy in re-establishing investor confidence and maintaining audit quality in the post-Enron era, while comparing them against the standards set by the PCAOB in the United States.
- Comparison of UK and US audit oversight frameworks
- Impact of the Sarbanes-Oxley Act (SOX) on auditing practices
- Evaluation of the Financial Reporting Council (FRC) in the UK
- Role and independence of the Public Company Accounting Oversight Board (PCAOB)
- Critical discussion on shareholder versus stakeholder orientation
- Effectiveness of regulatory measures in preventing corporate fraud
Excerpt from the Publication
The oversight system in the UK
After the huge fraud debacle of Enron, or even WorldCom, the government in London recognised that the oversight system of the auditing and accounting profession was obsolete. So the Department of Trade and Industry announced, in January 2003, wide changes for these financial businesses. The former Financial Reporting Council and the Accountancy Foundation merged into one big unit under the lead of the Financial Reporting Council (FRC) as an Ltd. Through this decision, the structure and the flow of information were much more simplified. The cabinet tried with this update to set up a world-class standard in corporate governance and audit quality (Gouernsey Society of Chartered and Certified Accountants, 2004).
The FRC’s responsibilities have been enlarged and now it takes a great role in the development of corporate governance, for example the Combined Code of Corporate Governance from 2003 and the review in January 2006 of the implementation of the code (Newcombe, 2007). In the position of an independent supervisor, the council has also other remits like: the introduction of accounting and auditing standards and therefore also the monitoring and enforcement of these regulations. Furthermore, the oversight of auditors and a permanent quality control of their work are important tasks of the FRC and the subsidiary boards. The council consists of up to 30 members who guarantee a wide representation from business, investors and other stakeholders. The five directors are nominated by the Department of Trade and Industry (Financial Reporting Council, 2007). The structure of the Council is illustrated in the figure below.
Chapter Summary
Introduction: Provides context for the study by discussing historical corporate failures like Enron and setting the stage for comparing auditing regulation in the UK and USA.
The oversight system in the UK: Details the transition to the Financial Reporting Council (FRC) structure and the specific roles of its subsidiary boards like the APB and POB in ensuring audit quality.
The oversight system in the US: Explores the legislative impact of the Sarbanes-Oxley Act (SOX) and the establishment of the PCAOB as a primary regulator for public accounting firms.
Discussion: Offers a critical analysis of both systems, weighing the costs of bureaucracy against the benefits of increased investor confidence and market integrity.
Conclusion: Summarizes the merits and weaknesses of both regulatory approaches, emphasizing that no single system is perfect and that ongoing professional education remains vital.
Keywords
Auditing, Oversight, PCAOB, FRC, Sarbanes-Oxley Act, Corporate Governance, Financial Reporting, Audit Quality, Regulation, Investor Confidence, Accountability, Compliance, Big Four, Transparency, Accounting Standards.
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on describing and analyzing the oversight systems of the auditing profession in the UK and the US, critically comparing them against the standards established by the PCAOB.
Which primary issues prompted the creation of these oversight systems?
The systems were largely reformed or established as a direct response to major corporate fraud debacles, most notably the spectacular bankruptcies of Enron and WorldCom.
What is the primary objective of this study?
The objective is to provide a detailed comparison and critical discussion of the pros and cons of the UK and US regulatory schemes, exploring how they strive to restore investor confidence.
What methodology does the author employ?
The paper utilizes a comparative analytical approach, examining existing literature, regulatory frameworks, and audit inspection models in both nations to evaluate their relative effectiveness.
What does the main body of the paper address?
The main body provides detailed descriptions of the FRC structure in the UK and the PCAOB framework in the US, followed by a discussion on market confidence, bureaucracy, and shareholder versus stakeholder orientation.
Which key terms summarize this work?
Key terms include Auditing, Oversight, PCAOB, FRC, Sarbanes-Oxley Act, Corporate Governance, Financial Reporting, and Audit Quality.
How does the UK approach to audit oversight differ from that of the US?
The UK model, represented by the FRC, is described as more cooperative and stakeholder-oriented, whereas the US model under the PCAOB is characterized as more bureaucratic and shareholder-oriented.
What role does the 'Big Four' play in the oversight process?
The 'Big Four' accounting firms are central to both audit markets, but their influence on funding and potential for lobbying are identified as challenges that both oversight bodies must manage.
What is the significance of the PCAOB's inspection process?
The inspection process serves as a quality control mechanism for auditing firms, aimed at identifying deficiencies and ensuring that auditors comply with established standards.
- Citar trabajo
- Roberto Niesing (Autor), 2007, Strengths and weaknesses of the oversight over the auditing profession in the UK and USA. A description, analysis and discussion, Múnich, GRIN Verlag, https://www.grin.com/document/92854
