Ifrs Standards

Audit Tutorial 8

1. Beattie et al’s 2015 paper presented an assessment of how the radical change in the audit environment and UK auditing, since the original theory was developed and instrumented, such as, the mandatory uptake of IFRS standards, the enhance involvement of the audit committee and the increased enforcement of standards following the Enron scandal, have altered how the prepares of the accounts and auditors interact with each other and also how their behaviours have changed

IFRS standards are compulsory to implement in the UK due to its participation in the EU which enforces the implementation of the IFRS standards. This study found that the IFRS standards did having not improved the quality of UK financial reporting as they were over complex and involved a high number of disclosures, some of which were costly to collect the information and were overlooked by the users. Another finding resulting from the study was that the participants did not agree with the implementation of the IFRS standards as they felt that these standards take away professional judgement principles such as substance over form and replace it with more of a rule based box ticking mentality which has led to auditors focusing more on complying with the standards rather than ensuring the reports represent a true and fair view.

The study also revealed that the participants perceived the IAS the same was as they did the IFRS, as overly detailed and prescriptive, again this leads us to the view that the enforced audit standards focus greatly on documentation and compliance of the audit process rather than the professional judgement of the auditor which can be seen as a direct result of the 2008 financial crisis in which auditors failed to predict. Also highlighted in this study is the fact that auditors only follow the standards set by IFRS in fear on the large fines that they may receive if they fail to comply with the standards. Many feel that this has resulted in the value of an audit being diminished as true and fair value cannot be achieved without professional judgement resulting in the inability to protect users from faulty standards.

2. The study used previous work from Beattie, V. A., Fearnley, S. & Hines, T. (2011) in which the evidence was collected by using the cases identified in Beattie et al. questionnaire study in 2008 and asking the respondents to the questionnaire if they were willing to be interviewed. 39 Chief accounting officers, 78 Audit partners and 33 Audit Committee Chairs responded that they we ok with being interviewed. Then companies in which the interviewees worked in were chosen in order to reflect different sized companies and companies from different industries. There were no set interview questions it was just a general discussion about the relationship between three key parties involved in their company and the audit committee, how they communicated if any problems arose and the participants were also asked their opinions on how they felt this process from start to finish

3. One strength is that the article has found that the introduction of IFRS and IASs have tended to over complicate matters and spend too much time concentrating on the compliance of technical side rather than using the conceptual framework and professional judgement. This change from judgement to a rule based system can be seen to be directly influenced not only by the 2008 financial crisis but also by the Enron crisis as well.

The writers also found that creating a system of compliance can be damaging to economy as it does apply the knowledge of the professional. This point is reinforced by the Parliamentary inquiries into the global crisis which highlighted a loss of trust in the audit and financial reporting sectors as there was no warning of the impending crisis. The House of Commons Treasury Committee also criticised the audit system for its over-compliance stating that “they followed the rules but missed the point.”