Podcast
Questions and Answers
What has severely damaged the reputation of the auditing profession?
What has severely damaged the reputation of the auditing profession?
What major action did ASIC announce for auditors recently?
What major action did ASIC announce for auditors recently?
Why are some calling for auditors to be banned from offering consulting services?
Why are some calling for auditors to be banned from offering consulting services?
Which firms comprise the 'big four' in the auditing profession?
Which firms comprise the 'big four' in the auditing profession?
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What is a key concern regarding auditors who provide both auditing and consulting services?
What is a key concern regarding auditors who provide both auditing and consulting services?
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What is the primary purpose of an auditing process?
What is the primary purpose of an auditing process?
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What aspect of corporate governance is considered highly contentious in the context of auditing?
What aspect of corporate governance is considered highly contentious in the context of auditing?
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What is a potential incentive for auditors when providing consulting services?
What is a potential incentive for auditors when providing consulting services?
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What is the primary purpose of hiring compensation consultants for executive pay structures?
What is the primary purpose of hiring compensation consultants for executive pay structures?
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How do big four consulting firms differ from smaller firms regarding executive compensation?
How do big four consulting firms differ from smaller firms regarding executive compensation?
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What is a potential risk associated with non-big four consultants regarding executive pay?
What is a potential risk associated with non-big four consultants regarding executive pay?
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What issue does the ‘pay for luck’ phenomenon highlight in executive compensation?
What issue does the ‘pay for luck’ phenomenon highlight in executive compensation?
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Which aspect of the big four firms' approach might ensure they recommend better compensation packages?
Which aspect of the big four firms' approach might ensure they recommend better compensation packages?
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What concern is raised regarding the big four's role in consulting services?
What concern is raised regarding the big four's role in consulting services?
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Why is transparency in performance metrics crucial in executive compensation?
Why is transparency in performance metrics crucial in executive compensation?
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What potential downside is associated with restricting the big four firms from consulting?
What potential downside is associated with restricting the big four firms from consulting?
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What factor contributes to the perception that consulting firms may obscure performance metrics?
What factor contributes to the perception that consulting firms may obscure performance metrics?
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One way to circumvent the issue of excessive executive pay is to implement what?
One way to circumvent the issue of excessive executive pay is to implement what?
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Study Notes
Auditing Profession
- Public trust in the auditing profession is under pressure due to scandals.
- The Australian Securities and Investments Commission (ASIC) will monitor auditor independence and conflicts of interest.
- Some suggest banning the "big four" from offering consulting services to their audit clients to prevent unethical practices.
"Big Four" Audit Firms
- The "Big Four" - PwC, EY, KPMG, and Deloitte, are the world's largest professional services firms.
- They offer auditing, consulting, tax and advisory services.
- Concerns exist about conflicts of interest due to their dual role as auditors and consultants.
- Auditing ensures financial statement accuracy and compliance with accounting standards.
Executive Compensation
- The "Big Four" are hired to set executive compensation.
- There are concerns about setting lenient targets that benefit CEOs and compromise shareholder value.
- Transparent performance metrics are crucial for accountability.
"Big Four" and Executive Compensation Standards
- A study found that the "Big Four" upheld more rigorous standards for executive compensation than smaller firms.
- The firms were more likely to include performance measures like relative total shareholder return.
- This reduces "pay for luck" where CEOs benefit from market factors, not performance.
- The "Big Four" have less reliance on individual clients and therefore may be more objective.
Regulatory Implications
- The Australian Competition and Consumer Commission (ACCC) questioned the potential conflicts of interest in the "Big Four" providing multi-service offerings.
- The study suggests that in some cases, "Big Four" multi-service offerings can actually enhance governance standards.
- Forcing the "Big Four" out of consulting could create unintended consequences like greater dependency on them for auditing services.
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Description
This quiz explores the current status of the auditing profession, focusing on public trust, independence, and the role of the 'Big Four' audit firms. It highlights the concerns surrounding executive compensation and the importance of transparency in performance metrics. Test your understanding of these critical issues in auditing today.
