External Audit Function in Corporate Governance

Expansion of services = Expansion of audit services only Creation of PCAOB = Non-audit services (e.g., consulting, tax, accounts) SOX Act = Internal control outsourcing Big Four accounting firms = Non-audit services (e.g., consulting, tax, accounts)

Hiring external auditors = Overseeing the work of internal auditors Firing external auditors = Hiring external auditors Overseeing the work of external auditors = Overseeing the work of external auditors Monitoring auditor independence = Monitoring auditor independence

Weakened auditor independence = Connected the audit function to the corporate governance structure Strengthened auditor independence = Connected the audit function to the corporate governance structure Created the PCAOB = Created the PCAOB Reduced public trust = Weakened auditor independence

<p>To regulate the auditing profession = To regulate the auditing profession To provide consulting services = To provide IT support To outsource internal control = To outsource internal control To provide accounting services = To provide accounting services</p> Signup and view all the answers

<p>Auditor independence = Auditor independence Public trust = Public trust ICFR effectiveness = ICFR effectiveness Corporate governance = Corporate governance</p> Signup and view all the answers

<p>From public accounting firms to professional services firms = From public accounting firms to professional services firms From professional services firms to public accounting firms = From professional services firms to public accounting firms From market-driven service firms to firms serving public interests = From market-driven service firms to firms serving public interests From firms serving public interests to market-driven service firms = From firms serving public interests to market-driven service firms</p> Signup and view all the answers

<p>Lend credibility to financial reports = Reducing information risk Protect investors from incomplete information = Adding value to corporate governance Detecting material misstatements = Preventing biased financial reports Serving as a corporate governance mechanism = Improving ICFR effectiveness</p> Signup and view all the answers

<p>External auditors = Providing independent audit opinions Audit committees = Overseeing the internal audit function Independent public accountants = Auditing financial statements for publicly traded companies The Securities Exchange Act of 1934 = Regulating external audit requirements</p> Signup and view all the answers

<p>Audit function = Value-added function for corporate governance ICFR system = Detecting and preventing material misstatements External audit failures = Raising concerns about corporate governance effectiveness Corporate governance mechanism = Protecting investors' interests</p> Signup and view all the answers

<p>Information risk = Risk of financial reports being biased or misleading Audit failures = Failures of external auditors to detect material misstatements ICFR effectiveness = Ability of internal controls to prevent material misstatements Material misstatements = Inaccurate or incomplete information in financial reports</p> Signup and view all the answers

<p>Audit committees = Overseeing external auditors' work Independent public accountants = Auditing financial statements for publicly traded companies External auditors = Providing independent audit opinions The Securities Exchange Act of 1934 = Requiring external audits for publicly traded companies</p> Signup and view all the answers

<p>Lending credibility to financial reports = Reducing information risk Protecting investors from incomplete information = Adding value to corporate governance Serving as a corporate governance mechanism = Improving ICFR effectiveness Detecting material misstatements = Preventing biased financial reports</p> Signup and view all the answers

<p>Agency problems = Problems associated with the separation of ownership and control in the corporate structure Information asymmetry = Unequal access to information between management and investors Independent auditors = Gatekeepers who verify management assertions concerning financial statements Unqualified opinion = A high level of assurance that financial statements are free from material misstatements</p> Signup and view all the answers

<p>Securities Act of 1933 = Protected investors from receiving misleading financial information Securities Exchange Act of 1934 = Established the role of auditors as gatekeepers</p> Signup and view all the answers

<p>Current auditing standards = Provide reasonable assurance that financial statements are free from material misstatements Audit committees = Oversee the internal control and financial reporting process ICFR Effectiveness = Ensure that internal control over financial reporting is operating effectively Auditor independence = Ensure the auditor's objectivity and impartiality in auditing financial statements</p> Signup and view all the answers

<p>Corporate governance = The system by which companies are directed and controlled Audit committees = Responsible for overseeing the external auditor Auditor independence = The auditor's freedom from bias and influence ICFR Effectiveness = The operating effectiveness of internal control over financial reporting</p> Signup and view all the answers

<p>Independent auditors = Verify management assertions concerning financial statements Audit committees = Oversee the internal control and financial reporting process Management = Prepare financial statements and assertions SEC = Regulate and oversee publicly traded companies</p> Signup and view all the answers

<p>Agency problems = Information asymmetry Auditor independence = ICFR Effectiveness Corporate governance = Audit committees Independent auditors = SEC</p> Signup and view all the answers