In our article of 15 July 2019, we referred to several international scandals involving companies that have been audited by the Big Four (KPMG, Deloitte, Ernst & Young and PWC) and the possibility of these firms being blocked from undertaking future audit work in India. We also referred to the failure of the Big Four, Grant Thornton, BDO and Mazars in the UK to achieve the quality standards set by the Financial Reporting Council (FRC).
These scandals raise the important questions about the presence of the auditors; whether due care is exercised in conducting audits; and whether adequate risk assessments are carried out to provide reasonable assurance about the detection of transactions and events that pose significant risks to the operations of the entities involved and to the achievement of their objectives.
Today’s article discusses the risk-based approach to auditing. It concludes that external auditors should assess risks not only associated with the fair presentation of financial statements but also all risks that are likely to have an adverse effect on the operations of the organisation and the achievement of its objectives. In this way, the “expectation gap” can be bridged.
