The article I chose is from the CPA Journal entitled "Failure Study: A Needed Addition to the
Accounting Toolkit". I selected this article because I think it touches on two elements of this
week's discussion - it is both recognizing the need for new tools for auditors to use and is calling
for these resources due to the historic failures of the profession.
The article posits that the trend of perceived failures of the auditing profession, listing global
failures to detect corporate issues in audited firms, and the rise in public perception that auditors
were not performing their duties to protect investors and the overall economy. The article goes on
to discuss Failure Studies as they are performed in other professions. In healthcare and airline
industries, critical failures in the operating room or of a plane are investigated in detail to assess
the cause of the failure and institute new policies or practices to prevent the failure from
occurring in the future. In the auditing profession, the changes to the processes are often driven
by regulation or law with limited internal incentives to pursue substantial changes to the audit
process.
I do agree with portions of the article. Through this course, it was apparent that much of the audit
language and process is driven by regulatory standards that prescribe process and steps. This
raises the occasional thought that this is a "box checking" exercise, where so long as the steps are
performed in the correct sequence to the expected degree, the auditor can step away from the
engagement safely without concern over the future outcome of the entity being audited.
To change this, the article speaks of the need for internal motivation of the auditing profession to
break from the incentives pushing against more accountability and seek evaluation of auditor
performance based on a rigorous failure study. Driving change from the profession and using the
process of gathering, collecting, and utilizing data to inform federal policy to see greater levels of
transparency and accountability in the auditing process. I think this is a noble objective, but in
practice, difficult to obtain.
An internal audit must transform and develop if it is going to fulfil its mission and remain
significant in the future. There was audit executive survey for Deloitte’s 2018 global chief. Internal
audit groups have the most impact and influence on the organizations. Forging internal audits path
to greater impact and influence, explores the current state of internal audit functions worldwide,
focusing on those with the greatest impact and influence within their broader organization.
Deloitte & Touche LLP, (2020, April 24, n.d.) The survey findings states that the progress over the
last two years with CAE’s perceive their functions to have impact and influence. The internal audit
groups strive to have innovation that delivers more value to the organization. Being innovative
does not mean you have to change every aspect of your audit plan. Being innovative means
understanding how the organization is evolving and how best to apply new approaches and
technologies to serve the organization’s needs while optimizing resources. Hatherley, Global
Internal Audit Leader (2018, n.d.)
Within the case of Arthur Anderson Enron regarding audit failure, there is substantial knowledge
provided on social responsibility ratings on market returns to Arthur Anderson (AA) clients and
following the Enron audit failure. Linthicum, C., Reitenga, A. L., & Sanchez, J. M. (2009, November
18). Chaney and Philipich (2002) found that AA’s loss of reputation which turned into a negative
market return to AA clients following the Enron audit failure. Organizers of the social responsibility
argue that the social responsibility can improve the reputation of the firm, while detractors argue
that it is considers a “poor use of the shareholders money”. Linthicum, C., Reitenga, A. L., &
Sanchez, J. M. (2009, November 18) It was concluded that the negative returns were related to
the investor’s loss of confidence in AA. I recommend that the business will focus on ethical
behaviour. This is referring the economic development while improving the quality of life of the
workforce, families, and local communities.
I feel this will have a positive influence on the firm’s reputation. The common motivation is
economic benefits like indirect benefits. It was mentioned in forbes.com that the corporation
should apply its assets for social purposes, instead of the profit for its owners. It might be
beneficial to conduct a study where the marketing is expected to re-assess issues related to the
firm’s reputation.
It is important to always pay attention to industry trends to remain prepared for future audits.
Deloitte, a large accounting firm talks about integrated assurance and cyber internal audits as two
major trends and innovations of the future. Improving auditing procedures and activities is a large
focus of auditing trends.
The utilization of integrated assurance allows for increasing the visibility of risks and allows for
viewing of the company's risk management plans. This also helps to decrease organizational
burdens, create dependable business transactions, and further company insight strategies (White
&Adams, 2019). On the other hand, cyber internal audits are used to protect businesses from
cyber activity dangers. Internal audits find cyber activity perplexing as there is a great loss of
resources.
N. White & S. (2019, March 19). Internal Audit Future Trends. Retrieved October 27, 2022 from
https://www.2.deloitte.com/us/en/pages/risk/articles/internal-audit-future-trends.html
Sources:
The Innovation Imperative: Forging Internal Audit's Path. Deloitte United States. Retrieved October
27, 2022, from https://www2.deloitte.com/us/en/pages/audit/articles/global-chief-audit-executive-
survey.html
Microsoft. Microsoft Support. (n.d.). Retrieved October 27, 2022, from
https://support.microsoft.com/en-us/windows/find-my-downloads-in-windows-10-de903ee9-7d37-
256b-9145-f0f016c5aed8
Linthicum, C., Reitenga, A. L., & Sanchez, J. M. (2009, November 18). Social Responsibility and
corporate reputation: The case of the Arthur Andersen Enron audit failure. Journal of Accounting
and Public Policy. Retrieved October 27, 2022, from
https://www.sciencedirect.com/science/article/abs/pii/S0278425409000891
Jim Peterson, J. D. (2019, April 5). Failure study. The CPA Journal. Retrieved October 29, 2022,
from https://www.cpajournal.com/2019/03/29/failure-study/
