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Prelims

Siddhartha Sankar Saha (Department of Commerce, University of Calcutta, Kolkata, India)
Mitrendu Narayan Roy (Goenka College of Commerce and Business Administration, University of Calcutta, Kolkata, India)

Quality Control Procedure for Statutory Financial Audit

ISBN: 978-1-78714-227-5, eISBN: 978-1-78714-226-8

Publication date: 30 June 2017

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Citation

Saha, S.S. and Roy, M.N. (2017), "Prelims", Quality Control Procedure for Statutory Financial Audit, Emerald Publishing Limited, Leeds, pp. i-xxv. https://doi.org/10.1108/978-1-78714-226-820171003

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Emerald Publishing Limited

Copyright © 2017 Emerald Publishing Limited

Half Title Page

Quality Control Procedure for Statutory Financial Audit

An Empirical Study

Title Page

Quality Control Procedure for Statutory Financial Audit

An Empirical Study

By

Siddhartha Sankar Saha

Department of Commerce, University of Calcutta, Kolkata, India

Mitrendu Narayan Roy

Goenka College of Commerce and Business Administration, University of Calcutta, Kolkata, India

United Kingdom – North America – Japan – India – Malaysia – China

Copyright Page

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2017

Copyright © 2017 Emerald Publishing Limited

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British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-78714-227-5 (Print)

ISBN: 978-1-78714-226-8 (Online)

ISBN: 978-1-78714-913-7 (Epub)

Preface

Inadequacies in the quality control environment for statutory audit of financial statements can go a long way towards the publication of falsified financial reports over a number of years, which can ultimately bring about a massive accounting fraud impacting on the national economy and society as a whole. The quality control of statutory audit of financial statements with the backdrop of recent corporate accounting scandals and their irreversible impacts on stakeholders of those businesses is a major problem area of the current economic environment. In order to address this problem, this research has been conducted in the form of a research-oriented book that provides a comprehensive outlook on the quality control framework for statutory financial audit. The book begins with a conceptual discussion on the quality of statutory audit of financial statements. Different factors governing the quality of statutory financial audit are identified and a comprehensive framework for quality control is established. The book also conceptually reviews the quality control framework for statutory financial audit in three select countries (India, the UK and the US) based on select parameters and makes a comparative study among them. The most critical part of this research, which makes it different from any other research in the field, is an analysis of respondents’ perceptions on the quality control procedure for statutory financial audit. On the basis of the respondents’ opinions, the research study finally suggests some measures to bring about significant progress in the field of quality control for statutory financial audit.

However, the primary objective of the book is to assist professionals in the field of accounting and auditing, who are the primary intended audiences of the book, in understanding the importance of quality control for statutory financial audit. Moreover, the book examines the effectiveness of the existing standards and other legal and regulatory requirements in enforcing quality control policies and procedures and suggests modifications in those regulations. The book will be of use to academics in the commerce and management fraternity as well as students pursuing postgraduation in commerce and business administration and also students pursuing professional courses who require an in-depth knowledge in this field. The book would also be beneficial to researchers in finance and control, in giving them an insight into the current state of quality control for statutory financial audit and showing them possible paths for further research.

Since the beginning of the current research, valuable advice and suggestions have been received from a number of sources. In view of this, we are pleased to put on record our sincere thanks to the partners or managers of a number of reputed chartered accounting firms, including PricewaterhouseCoopers, KPMG, Ernst & Young, etc. (located at Kolkata, India) for their valuable suggestions while formulating the questionnaire for this study.

We express our gratitude to learned authors from India and abroad whose works have inspired so many ideas for our present work. We acknowledge with thanks the cooperation of librarians and staff of a number of libraries in Kolkata (including Central Library, University of Calcutta, Central Library, St. Xavier’s College, American Council Library, British Council Library, B.C. Roy Memorial Library, IIM – Calcutta, etc.) for allowing us to consult relevant books, research papers and other electronic materials for our study.

We also convey our thanks to the learned respondents for their thoughtful opinions through the questionnaire designed for the study. We extend our best wishes to our friends and colleagues for their support and encouragement.

We are also thankful to our respective parents and other beloved family members for their uncounted sacrifice during our completion of this research work.

Date: July, 2017 Place: Kolkata, India

Dr. Siddhartha Sankar Saha E-mail: drsiddharthasxc@gmail.com/ pss_saha@yahoo.comDr. Mitrendu Narayan Roy E-mail: mitrenduroy@gmail.com

List of Tables

Chapter 1
Table 1.1 Demographic Profile of Respondents. 22
Chapter 5
Table 5.1 Selection of Variables. 129
Table 5.2 Percentage of Respondents in Different Agreement Levels (Quality Control for Audit Procedure). 135
Table 5.3 Percentage of Respondents in Different Agreement Levels (Overall Objectives of an Independent Auditor). 140
Table 5.4 Percentage of Respondents in Different Agreement Levels (Audit Engagement). 143
Table 5.5 Percentage of Respondents in Different Agreement Levels (Internal Control System and Internal Auditors). 144
Table 5.6 Percentage of Respondents in Different Agreement Levels (Audit Planning). 146
Table 5.7 Percentage of Respondents in Different Agreement Levels (Audit Evidence). 149
Table 5.8 Percentage of Respondents in Different Agreement Levels (Audit Sampling). 153
Table 5.9 Percentage of Respondents in Different Agreement Levels (External Party Confirmations). 154
Table 5.10 Percentage of Respondents in Different Agreement Levels (Using the Work of Auditor’s Expert). 156
Table 5.11 Percentage of Respondents in Different Agreement Levels (Auditing Accounting Estimates). 157
Table 5.12 Percentage of Respondents in Different Agreement Levels (Audit Documentation). 158
Table 5.13 Percentage of Respondents in Different Agreement Levels (Audit Report). 160
Table 5.14 Percentage of Respondents in Different Agreement Levels (General Issues Governing Quality of Audit). 161
Table 5.15 Percentage of Respondents in Different Agreement Levels (Quality Control Procedure for Statutory Financial Audit). 165
Table 5.16 Result of Chi-Square Test of Homogeneity (Quality Control for Audit Procedure). 167
Table 5.17 Result of Chi-Square Test of Homogeneity (Overall Objectives of an Independent Auditor). 170
Table 5.18 Result of Chi-Square Test of Homogeneity (Audit engagement). 171
Table 5.19 Result of Chi-Square Test of Homogeneity (Internal control system and internal auditors). 172
Table 5.20 Result of Chi-Square Test of Homogeneity (Audit Planning). 173
Table 5.21 Result of Chi-Square Test of Homogeneity (Audit Evidence). 175
Table 5.22 Result of Chi-Square Test of Homogeneity (Audit Sampling). 177
Table 5.23 Result of Chi-Square Test of Homogeneity (External Party Confirmations). 178
Table 5.24 Result of Chi-Square Test of Homogeneity (Using the Work of Auditor’s Expert). 178
Table 5.25 Result of Chi-Square Test of Homogeneity (Auditing Accounting Estimates). 180
Table 5.26 Result of Chi-Square Test of Homogeneity (Audit Documentation). 181
Table 5.27 Result of Chi-Square Test of Homogeneity (Audit Report). 181
Table 5.28 Result of Chi-Square Test of Homogeneity (General Issues Governing Quality of Audit). 182
Table 5.29 Result of Chi-Square Test of Homogeneity (Quality Control Procedure for Statutory Financial Audit). 183
Table 5.30 Mean Score of Individual Occupational Categories and Overall Sample (Quality Control for Audit Procedure). 186
Table 5.31 Mean Score of Individual Occupational Categories and Overall Sample (Overall Objectives of an Independent Auditor). 188
Table 5.32 Mean Score of Individual Occupational Categories and Overall Sample (Audit Engagement). 189
Table 5.33 Mean Score of Individual Occupational Categories and Overall Sample (Internal Control System and Internal Auditors). 190
Table 5.34 Mean Score of Individual Occupational Categories and Overall Sample (Audit Planning). 191
Table 5.35 Mean Score of Individual Occupational Categories and Overall Sample (Audit Evidence). 193
Table 5.36 Mean Score of Individual Occupational Categories and Overall Sample (Audit Sampling). 194
Table 5.37 Mean Score of Individual Occupational Categories and Overall Sample (External Party Confirmations). 195
Table 5.38 Mean Score of Individual Occupational Categories and Overall Sample (Using the Work of Auditor’s Expert). 195
Table 5.39 Mean Score of Individual Occupational Categories and Overall Sample (Auditing Accounting Estimates). 196
Table 5.40 Mean Score of Individual Occupational Categories and Overall Sample (Audit Documentation). 197
Table 5.41 Mean Score of Individual Occupational Categories and Overall Sample (Audit Report). 197
Table 5.42 Mean Score of Individual Occupational Categories and Overall Sample (General Issues Governing Quality of Audit). 199
Table 5.43 Mean Score of Individual Occupational Categories and Overall Sample (Quality Control Procedure for Statutory Financial Audit). 200
Table 5.44 Result of Mann–Whitney Test (Quality Control for Audit Procedure). 204
Table 5.45 Result of Mann–Whitney Test (Overall Objectives of an Independent Auditor). 206
Table 5.46 Result of Mann–Whitney Test (Audit Engagement). 207
Table 5.47 Result of Mann–Whitney Test (Internal Control System and Internal Auditors). 208
Table 5.48 Result of Mann–Whitney Test (Audit Planning). 210
Table 5.49 Result of Mann–Whitney Test (Audit Evidence). 211
Table 5.50 Result of Mann–Whitney Test (Audit Sampling). 213
Table 5.51 Result of Mann–Whitney Test (External Party Confirmations). 214
Table 5.52 Result of Mann–Whitney Test (Using the Work of Auditor’s Expert). 216
Table 5.53 Result of Mann–Whitney Test (Auditing Accounting Estimates). 216
Table 5.54 Result of Mann–Whitney Test (Audit Documentation). 217
Table 5.55 Result of Mann–Whitney Test (Audit Report). 218
Table 5.56 Result of Mann–Whitney Test (General Issues Governing Quality of Audit). 220
Table 5.57 Result of Mann–Whitney Test (Satisfactory quality control of statutory audit). 222
Table 5.58 Pearson’s Correlation Coefficient and Result of t-Test (Quality Control for Audit Procedure).
Table 5.59 Pearson’s Correlation Coefficient and Result of t-Test (Overall Objectives of an Independent Auditor).
Table 5.60 Pearson’s Correlation Coefficient and Result of t-Test (Audit Engagement).
Table 5.61 Pearson’s Correlation Coefficient and Result of t-Test (Internal Control System and Internal Auditors).
Table 5.62 Pearson’s Correlation Coefficient and Result of t-Test (Audit Planning).
Table 5.63 Pearson’s Correlation Coefficient and Result of t-Test (Audit Evidence).
Table 5.64 Pearson’s Correlation Coefficient and Result of t-Test (Audit Sampling).
Table 5.65 Pearson’s Correlation Coefficient and Result of t-Test (External Party Confirmations).
Table 5.66 Pearson’s Correlation Coefficient and Result of t-Test (Using the Work of Auditor’s Expert).
Table 5.67 Pearson’s Correlation Coefficient and Result of t-Test (Auditing Accounting Estimates).
Table 5.68 Pearson’s Correlation Coefficient and Result of t-Test (Audit Documentation).
Table 5.69 Pearson’s Correlation Coefficient and Result of t-Test (Audit Report).
Table 5.70 Pearson’s Correlation Coefficient and Result of t-Test (General Issues Governing Quality of Audit).

List of Exhibits

Exhibit 2.1 Framework of Audit Quality. 26
Exhibit 2.2 Interactions with Financial Reporting Supply Chain. 31
Exhibit 2.3 Contextual Factors of Audit Quality. 34

List of Chart

Chart 1.1 Demographic Profile of Respondents. 23

List of Appendices

Table A1 Result of Kolmogorov–Smirnov Test 260
Table B1 Brief Profile of the Respondents 273
Table B2 Chapter 5 Questionnaire 275

List of Abbreviations

A Agreement
AASB Auditing and Assurance Standards Board
AICPA American Institute of Certified Public Accountant
AQR Audit Quality Review
ASB Auditing Standards Board
AU − C Auditing Sections – Clarified
CA Chartered Accountant
CCAI Council of Chartered Accountants of India
CEO Chief Executive Officer
CIA Central Intelligence Agency
CPA Certified Public Accountant
CPD Continuous Professional Development
D Disagreement
DF Degree of Freedom
EQCR Engagement Quality Control Reviewer
FRC Financial Reporting Council
GAAPs Generally Accepted Accounting Principles
GAASs Generally Accepted Auditing Standards
GDP Gross Domestic Product
IAASB International Auditing and Assurance Standards Board
IAESB International Accounting Education Standards Board
IASB International Accounting Standards Board
ICAE&W Institute of Chartered Accountants of England and Wales
ICAI Institute of Chartered Accountants of India
ICAI Institute of Chartered Accountants of Ireland
ICAS Institute of Chartered Accountants of Scotland
IESBA International Ethics Standards Board of Accountants
IFAC International Federation of Accountants
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IPSAS International Public Sector Accounting Standards
IPSASB International Public Sector Accounting Standard Board
ISA International Standard on Auditing
ISQC International Standard on Quality Control
MD & A Management Discussion and Analysis
N Neutral
PCAOB Public Company Accounting Oversight Board
PPP Purchasing Power Parity
QRB Quality Review Board
RQB Recognised Qualifying Bodies
RSB Recognised Supervisory Body
SA Standard on Auditing
SA Strong Agreement
SAS Statement of Auditing Standard
SD Strong Disagreement
SEBI Securities and Exchange Board of India
SEC Securities and Exchange Commission
SOX Sarbanes Oxley
SQC Standard on Quality Control
SQCS Statement of Quality Control Standard
UK United Kingdom
USA United States of America

List of Standard Measures/Symbols and Their Explanations

H0 Null hypothesis
H1 Alternate hypothesis
χ 2 Chi-square
F O Observed frequency
F E Expected frequency
p value Probability
U Test statistic of Mann − Whitney test
Z Standardised test statistic
σ Standard deviation
r Correlation coefficient
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