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Accounting and Auditing

1) Why is public accounting often viewed as a guarantor of results, or even as a provider of assurance that one's investment is of high quality? To what extent is it reasonable to view the auditor as a guarantor? Explain. To what extent do you believe that user expectations of the public accounting profession appear to be unwarranted? Explain.

2) The Sarbanes-Oxley Act of 2002 has been described as the most far-reaching legislation affecting business since the passage of the 1933 Securities Act. What are the specific portions of the legislation that affect the external audit profession, and how do they affect the profession? How does the legislation affect the internal audit profession? What are some activities that are implied in the legislation, as well as activities that will likely emerge as companies implement various provisions of the act? Do you believe that legislation enhances the power and prestige of the audit profession, or alternatively, does it decrease both the power and prestige of the profession? Explain.

3) The ten Generally Accepted Auditing Standards (GAAS) provide the foundation for all other auditing standards and interpretations. What is the definition of the standard of due professional care, and how might a court decide whether an audit firm met the standard? Why is independence often considered the cornerstone of the auditing profession? Why were independence issues a primary concern of Congress when they developed the Sarbanes-Oxley Act?

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1. Accounting is often seen as a guarantor of results because the public both needs and wants something reliable to count on, to know that their investment is secure. We just ended more than a decade of accounting ridden scandals, and every few years it seems that another accounting scandal seems to appear. Because public accounting was designed to instill confidence in a company's financial performance, investors want the certainty of the accounting profession to basically guarantee that their investment is safe. Although this isn't completely reasonable, it does show the need for high quality accounting and auditing information, and it also shows the reason why accounting and auditing are strictly regulated. Investors want that confidence, they want that assurance, and they expect that auditors and accountants will provide them with that needed assurance. This is why we have seen regulations like the Sarbanes Oxley Act and tighter SEC regulations. Investors want to know that regulators are doing everything in their power to protect their investments. I don't believe user expectations are unwarranted from a general standpoint. I believe that when investors blame auditors ...

Solution Summary

1) Why is public accounting often viewed as a guarantor of results, or even as a provider of assurance that one's investment is of high quality? To what extent is it reasonable to view the auditor as a guarantor? Explain. To what extent do you believe that user expectations of the public accounting profession appear to be unwarranted? Explain.

2) The Sarbanes-Oxley Act of 2002 has been described as the most far-reaching legislation affecting business since the passage of the 1933 Securities Act. What are the specific portions of the legislation that affect the external audit profession, and how do they affect the profession? How does the legislation affect the internal audit profession? What are some activities that are implied in the legislation, as well as activities that will likely emerge as companies implement various provisions of the act? Do you believe that legislation enhances the power and prestige of the audit profession, or alternatively, does it decrease both the power and prestige of the profession? Explain.

3) The ten Generally Accepted Auditing Standards (GAAS) provide the foundation for all other auditing standards and interpretations. What is the definition of the standard of due professional care, and how might a court decide whether an audit firm met the standard? Why is independence often considered the cornerstone of the auditing profession? Why were independence issues a primary concern of Congress when they developed the Sarbanes-Oxley Act?

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