Free Custom «The purpose and usefulness of the Stardard Audit Report» Essay Paper

Introduction

Several studies have been conducted to evaluate the purpose and usefulness of the Stardard Audit Report (SAR). This is after several concerns have been raised by investors and other users of SAR and other corporate financial statement in the recent decades.  Consequently, various audit firms and accounting oversight boards have revised their regulations in order to ensure that the reports on auditing activities are reliable include the unbiased information about the company. On the other hand, groups of investors and other users of SAR have reacted to the revisions and recommendations made by auditing firms on how to ensure that the auditing reports are accurate and reliable (Akers,  CPA & Marquette University 2012, pg, 18).

It is worth noting that modern business organizations benefit greatly from the auditing reports. Other than the internal auditing report conducted by the auditors of a company to monitor their self performance, currently there is need to also have external auditors to evaluate the accounting reports of a company and give their parallel report on the performance and stability (Carcello & Beasley 2008, pg. 28). This is because it is believed that internal auditors are sometimes biased and they may not give investors and other stakeholders of the company the accurate performance of the firm. A report from an independent and credible auditing firm is therefore important in order to ensure that the investors and other users of corporate accounting information have the accurate information before making their decision pertaining their interest to the company in question (Global Accountant 2012).

 

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Therefore, in order to evaluate the purpose and usefulness of SAR, this paper assesses the available literature on what other researchers, scholars and accounting and auditing firms have pointed out as the purpose and usefulness of the SAR. The article begins by explaining the meaning of SAR, Some history of SAR, how efforts have been made to improve SAR, reports from professionals and professional organizations. The paper also evaluates the feedback, comments, and recommendations from the accounting and financial organizations and the general investor group on how useful the SAR is to the concerned company, investors and other users of corporate accounting information. The paper concludes by summarizing the assessment of the purpose and usefulness of SAR. There are recommendations on how the SAR can be improved in order to eliminate the shortcomings and make them more useful to both companies and investors.

What is Standard Audit Report (SAR)?

A standard audit report (SAR) can be defined as the auditing report conducted on the accounting information of a company by both internal and external auditing firms and in accordance to the international set standards acceptable globally (International standard on auditing 2012). In other hands, SAR refers to the audit report that satisfies all the international auditing and accounting set standards of performance to ensure quality and validity of the contents of the audit report. According to the reports released by scholars and  researchers as well as accounting and financial organizations worldwide, SAR has undergone very minimal changes in the last over 50 years. In fact study shows that since 1948, SAR has been lastly changed in 1988 (Carcello & Beasley 2008, pg. 41).

However, with the rapid changes in the modern business world and unique requirements of modern investors, SAR is currently changed regularly in order to increase its accuracy and usefulness to the users. Additionally, the purpose of having SAR has been updated and in the modern businesses the purposes of SAR have increased. For instance, in the year 1988, Statement on Auditing Standards (SAS) 58, Reports on Audited Financial Statements made significant changes in the audit report. The funny bit is that the organization had tried to change the SAR since 1965 without success. This shows how difficult it is to modify SAR and yet command the international recognition (KPMG 2012, pg, 12).

The purpose of Standard Audit Report (SAR)

Researchers and scholars as well as the auditing firms have come out strongly to criticize the perception that some auditing firms aim at pulling some organizations down by reporting information that sends the investors away. This as been a great challenge faced by the external auditing firms and it has been a major threat to their operations in different parts of the world. In some instances they are denied access to the vital accounting and financial information of an organization that could affect the stability and performance of the company in question. However, in order to come up with a uniform way of presenting the audit report, SAR was established. The following are the major purposes of SAR:

1. To bring harmony among the reporting methods used to present the audit report from different parts of the world. Initially, auditing agencies and firms as well as individual auditors from different parts of the world used different methods to submit their reports and this was confusing. However, SAR was established to ensure that these differences are harmonized (KPMG 2012, pg, 9).
2. SAR aims at ensuring that there is a standard regulation of the auditing process as well as ensuring that material information is included in the auditing report and non material information is neglected.
3. Another major purpose of SAR is to ensure that there is uniformity in the audit report released from different parts of the world. This means that investors from any part of the world can read an audit report and make valid investment decisions regardless of its origin.
4. SAR also aims at ensuring that there is accuracy in the auditing process and in the reporting of the findings by ensuring that there are reporting standards that auditors should use.

The usefulness of Standard Audit Report (SAR)

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The importance of SAR to both the organization in question and the investors has been discussed for long and it’s a not a new concept. The available literature shows that several accounting organizations and other influential personalities have advocated the importance of SAR.  For instance, in the year 2011, Steve Harris, a PCAOB Board Member, in his speech in Washington DC commended the PCAOB for highlighting the usefulness of SAR (Global Accountant 2012, pg, 9). The study shows that the need for SAR arose as a result of different auditing firms to present their auditing report using different formats thereby making it difficult for users of this information. Consequently, some companies were placed in a more advantaged position in the eyes of investors simply because they have used a sub-standard audit report. This gave rise to the need for having a SAR that harmonizes the reporting formats used by different auditing firms. According to the literature reviewed, the following are the major importances of SAR:

1. SAR has sufficient information for educated investors. In many instances, investors are educated about investments and those not educated have some experts to help them when making investment decisions. Before the establishment of the SAR, report submitted by different auditing firms was very misleading to the investors and other users of accounting and financial information. This is because different firms used different reporting methods to submit their audit reports. This made it difficult for investors to make informed and favorable investment decisions. SAR provides uniform global reporting standards for the auditing information making it easily understandable by investors and other stakeholders (ACCA 2012).
2. The SAR eliminates the need to have a detailed procedure on how the audit was conducted. Initially, some auditing firms included detailed procedure reports in their audit information making it more complicated for investors and other users. The procedure information also made the auditing firms to ignore the important details in their reports and emphasize on the procedures. The SAR has eliminated this mistake and ensures that the audit report includes only the informative information required by the investors and stakeholders of the company in question.
3. Unlike the previous reports, SAR does not require much reasoning and analysis. Before the establishment of the SAR, audit reports from different auditing firms required some analysis and reasoning, especially by investors and user not familiar with the accounting and financial statements. However, SAR has eliminated this challenge and audit reports do not require any further analysis by user before making valid decisions. The study shows that SAR is self explanatory. There is some detailed information that is not important to investors. SAR excludes these details from the report making it more understandable the investors and other user of accounting and financial information within and outside the organization (PWC 2012, pg, 4).
4. The SAR includes only the material information in its reports. This includes the materials used during the auditing process, the independence of the auditing firm and the issues addressed by the auditing committee. This makes the SAR more reliable when compared with other forms of reports used by auditors that are not conversant with the SAR.
5. The SAR addresses the issues of auditors’ views on the financial statements and findings such as the views of the auditors’ views on the management estimates and areas of high risks in the organization. Previously, it was difficult for auditing firms include all the information pertaining to the organization being audited without being biased. However, with SAR it possible for the auditing firms to determine the information that they should include in their auditing reports without ignoring some vital information or giving too much irrelevant information about the firm (ACCA 2012).
6. The SAR also clarifies on the “reasonable assurance” that an auditing firm should give in its report. It also states the responsibilities of the auditing firm to ensure that it detects fraud in its reports in order to ensure that both investors and other stakeholders of the organization have accurate information that they can use in decision making.
7. The SAR also clarifies on the responsibility of the auditor’s responsibility to access information outside the financial statements such as non- GAAP information, earning releases and other information that may affect the audit report released to the investors and other stakeholders of the organization (Deloitte  2013, pg, 12).
8. SAR also ensures that there is a balance between the auditor and the audit committee. This ensures that there openness during the auditing process because all the parties involved are willing to disclose all the material information. This makes the audit report more useful to the users.

Conclusion

The literature reviewed shows that indeed Standard Audit Report purposes are very important in the auditing and reporting the auditing information. It is evident from the assessment that SAR plays a very crucial role in ensuring that the auditing process and reporting of the auditing is done in the most accurate manner to ensure that investors and other stakeholders of the organization are well informed about the performance of the organization they are interested in (Charles 2010).  Additionally, the assessment shows that SAR is also very useful to the auditing firms, business organizations, investors and other parties interested in knowing the accounting and financial information of a company. The assessment has also showed that there is need to include more information in the SAR in order to make it concrete and easily understood by the investors and other stakeholders of the organization.