Audit Education

Karen Van Peursem, Elizabeth Monk, Richard M.S. Wilson, Ralph Adler, Karen A. Van Peursem, Elizabeth A. Monk, Ralph W. Adler

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781135760670
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Audit professionals are valued members of society and are expected to be both skilled and ethical in their decision-making. The role of the auditor extends far beyond that of counting beans by demanding a social and political awareness, a technical knowledge, ethical principles and relationship skills. In addition, due to the team-oriented nature of the audit approach, auditors require strong team-building and interpersonal skills. This book offers expert descriptions of, and insights into, how such skills and responsibilities can be inculcated in tertiary education and professional training environments. Unlike other books which focus on auditing as a technical process, this volume examines auditing from a teaching and learning perspective. Expert contributors provide authoritative insights into an audit education which is embedded in accounting practice. The book's descriptions of these insights into improving education for future audit professionals may allow the introduction of new and challenging fields of enquiry.

Audit Education will be of great interest to educators in tertiary institutions, trainers in professional firms, and key individuals in accounting professional bodies seeking to ensure their members possess acceptable levels of attainment for admission and continued membership.

This book was originally published as a special issue of Accounting Education: an international journal.

INTRODUCTION

Audit fulfils an important social and economic role. It adds a certain quality, or ‘assurance’, to information so as to convince some parties as to the truth of claims made by another. Those providing information seek the auditor’s opinion in support of their claims. When that support is either not forthcoming or is misplaced, costs are incurred and disagreements arise. Questions are asked about the auditor’s role in disasters that may occur as a result. Audit fees give an indication of these costs and courtrooms tell individual stories of its outcomes.

It follows that audit practice is a sometimes controversial and complex area of accounting. This is recently made apparent by the multitude of company failures and financial institution disasters which have been exposed by the low tide of economic crises. Scandals such as Enron, Parmalat, WorldCom and the Bernie Madoff case epitomise the sometimes unfulfilled ethical obligations of the audit professional. A growing awareness of a governing body’s relationship with auditors has also brought the public’s attention to the value of having an auditor who can bridge the gap between management and ownership. International auditing standards, and sometimes awkward efforts to come to a consensus on them, also occupy professionals as do the complexities associated with technology and computerisation. The role of the auditor extends far beyond that of counting beans by demanding a social and political awareness, a technical knowledge, ethical principles and relationship skills. Auditor independence, and an awareness of the risks involved in providing such assurance, are a lived experience for the audit professional.

So where does one begin to bring meaning to the audit learner’s experience? There is not much time to enculturate them into the professionalism of audit. Audit is usually introduced at a university level as one of the last educational experiences prior to, or sometimes concurrent with, entering the workforce. Work experience in education is reasonably rare and so, while audit is a ‘practical’ subject in a sense, a real concern is that these students may be thrown into the field without a real chance to assimilate the knowledge they need in order to cope with the pressures they are about to face.

In this context in particular, we are very pleased to be given the opportunity - via this book - to offer ways forward for the audit educator. We are also pleased at the response we received to the Call for Papers for this project and now offer to you the results of an array of research and case experiences. We include five research studies which seek answers about how audit education can be improved. These are complemented by two case-based examples focussing on ethical and technical situations drawn from experience and practice, to help educators provide real-world experiences to their students to enable them to assimilate the knowledge which they have learnt in class. Given the constraints in which audit educators operate, insights into improving educational experiences are valuable because they can help sort through the overwhelming range of pedagogical possibility.

We begin with two chapters concerned with the skills and knowledge that could be, or should be, taught at university. Our first chapter looks to the value of generic skills in audit education. Crawford, Helliar and Monk explore the skills which audit and accounting practitioners expect from UK universities and contrast this with thos skills which students and employers expect. Although many of the generic skills deemed important by the various groups were revealed to be the same, this chapter highlights a slight mismatch between academia and practitioners, particularly with regard to where some of the skills should be taught.

Our second chapter creates an interesting parallel in the New Zealand context, focussing on audit skills and experiences expected from tertiary education. Chaffey, Van Peursem and Low uncover practitioners’ views with regard to the specific audit knowledge and audit skills required by business. They reveal practitioners’ insights on the balance needed between practice and theory and disclose differences among segments of the profession (in particular as to the needs of the small business). They also reveal differences reflecting the professional maturity of the respondents.

From these educational wishlists, our third chapter helps narrow the field. Ballantine and McCourt examine whether and to what extent ethical orientation and gender affect ethical judgement. They find that both male and female students are ‘high idealists’, with classroom implications arising therefrom. We can also receive some comfort from the view that ‘discriminating among students on the basis of ethical orientation [or] gender’ would not appear to be necessary in the audit classroom. Their findings echo earlier expressions of needs for students to acquire judgement and decision-making skills.

Our next chapter explores the effectiveness of work-based training for auditors. Marriott, Telford, Davis and Evans reflect on the implications of reduced audit training opportunities in their UK survey of trainees and their mentors. Although work-based training is highly valued, it is found that those employed in smaller firms have less opportunity to benefit from such experiences and are more reliant for their own skill-building on examination-based training. The influence of legislative change is felt in the experiences of these auditors.

This research also illuminates some of the difficulties in bringing real-world experience to the classroom. Our fifth chapter by Drake offers one device for addressing this problem of real-world experience in her use of “living cases” formed from contemporary news stories and similar reports. Focusing on corporate failure, Drake’s chapter also hearkens back to the changing face of audit by showing how the freshness and the realism of using media reports of corporate failure may help engage the students and encourage the development of the key skills identified by Crawford et al., and Chaffey et al.

Over a decade has passed since Albrecht and Sack (2000) wrote their seminal monograph on the future of accounting education, and the conclusions they reached still ring true today: that we must “add high value to our students as they prepare for careers in a fast-changing business world” (p 59). The changing business world and the changing expectations of graduates’ capabilities are perhaps particularly relevant for audit teaching. The need to demonstrate not only subject specific knowledge and skills, but also generic skills required for employment, is a challenge that accounting educators need to address, but technical subjects such as auditing are often harder to build-in this required mix of skills. With this in mind, we finish with two chapters which offer a more concrete example of innovative teaching in two areas of audit education.

Our first teaching resource chapter deals with performing agreed-upon procedures. Debraceny and Farewell present a case study on XBRL filing which is a topical area as regulation surrounding this is voluntary and is still a relatively new area. The case puts the student in the role of the engagement manager, and can be used to encourage students to consider the technical issues of XBRL filing, or it can focus instead on the more managerial processes underpinning this. Culminating in writing up the finding as a report to a client, the case also covers some of the more generic skills associated with client communication.

Our second case, and final chapter, looks at substantive tests of inventory. Clikeman provides an impressively comprehensive set of accounting records and supporting documents to allow students to explore a variety of issues involving inventory testing. In particular it focuses on the types of misstatements that can occur within the inventory. The case materials are flexible and allow educators to introduce a range of issues which can occur in inventory testing.

In the end, all five research studies and the two cases provide insights into an audit education that is embedded in accounting practice. Audit is not usually considered to be ‘pure science’, knowledge for knowledge’s sake: it has its roots and finds its meaning in professional associationism and from the market and the people who engage in that market. The seven chapters presented here explore educational issues, but they also draw from these assumptions and that inextricable link between education and professionalism.

This creates both opportunities and a dilemma. The opportunities are found in the topics, skills, knowledge and experiences which can inform teaching. It is also apparent, and to be made yet more so in the next issue, that audit academics are committed to quality and professionally-relevant learning experiences. We cannot conclude, however, without pointing out that such research also offers up a normative dilemma: Should we prepare our students for current understandings of professional associationism? Should we leave it to the ‘profession’ to create education’s boundaries? Should we benchmark their goals as our own? Or does doing so over-pragmatise the accounting degree?

In response, we can draw from Marriott, Telford, Davies and Evans and from Bal-lantine and McCourt in particular to suggest that academic research and a tertiary learning environment provide one feature not usually accessible to firms: a degree of objectivity and independence from the firm itself. While we are provided with valuable insights into improving education for future professionals, it may not be out of place to suggest that educators and researchers have another role to play. That is, through education and research can we truly hold up a mirror to professional practice and allow such insights to introduce new and challenging fields of enquiry. We take our cue here from the profession but also from a well-recognised interpretation of the academic’s role: “Perspective, as a component of the philosophical approach, calls for the breadth of outlook necessary to grasp the … full significance of things. Thus the philosopher ‘would endeavour to consider any proposition in broad perspective – and not merely from the view of a special pleader – so that he can make well-grounded judgments about it.’” (Mautz and Sharaf, 1980, p 9).

It is toward providing such insights, insights provided from a carefully considered and slightly distant perspective, that we hope you also find value in the chapters of this book.

Karen A. Van Peursem

Victoria University of Wellington, New Zealand

Elizabeth A. Monk

University of Dundee, UK

Richard M. S. Wilson

Loughborough University, UK

Ralph W. Adler

University of Otago, New Zealand

August, 2011

Reference

Mautz, R.K. & H.A. Sharaf (1980), The Philosophy of Auditing, (Sarasota, FL.: American Accounting Association).

Generic Skills in Audit Education

LOUISE CRAWFORD, CHRISTINE HELLIAR and ELIZABETH A. MONK

University of Dundee, UK

ABSTRACT The academic literature and higher education benchmark statements identify groups of skills that are desirable both for students seeking employment and for employers seeking to recruit students. Professional accounting education pronouncements also stipulate skills that are necessary for an individual to possess in order to act as a competent accountant and auditor. Through a questionnaire survey, this research examines: (i) which of these skills audit and accounting practitioners expect UK universities to teach; (ii) which skills audit and accounting academics believe are important for students to acquire; (iii) which skills audit academics believe that employers require; and (iv) which skills audit academics teach in the UK. Institutional theory is used to develop and interpret this research.

1. Introduction

In recent years, Higher Education (HE) initiatives and the professional accountancy bodies in the UK and across the world have highlighted the need for all graduates to be employment ready, demonstrating not only subject specific knowledge and skills, but also generic skills required for employment. The National Committee of Inquiry into Higher Education put forward several ‘principles’ for general education change in the UK. These principles highlighted that: (i) students should participate in their own learning; (ii) learning and teaching should be enhanced; and (iii) learning outcomes should reflect employer requirements, including general or transferable skills (Dearing, 1997). Several studies have been undertaken in the light of the Dearing report to determine the skills that employers expect from a graduate (see, for example, Williams and Owens, 1997; Fallows and Steven, 2000). These studies determine that graduates of HE programmes should exhibit generic skills that will enable them to acquire and retain employment. More recently, the Financial Services Skills Council (FSSC, 2009) highlights that, within the UK, accountancy and finance employers are increasingly relying on HE institutions as training providers and requests:

… more partnership working between employers and HE institutions to deliver the skills required (FSSC, 2009, p. 39).

The professional accountancy bodies have also issued several warnings over the last few decades that university teaching may not be reaching either the needs of students or those of employers (AICPA 1978; Accounting Education Change Commission 1990, 1992), again highlighting a lack of generic skills in undergraduate accounting degree programmes. For example, in 1978 the American Institute of Certified Public Accountants (AICPA) highlighted an ‘inadequate emphasis’ on communication and interpersonal skills. Further, in 2008 the International Federation of Accountants (IFAC) emphasized the importance of generic skills in its International Education Standard (IES) 3 Professional Skills and General Education stating that:

Appropriate skills enable the professional accountant to make successful use of the knowledge gained through general education. These skills are not always acquired from specific courses devoted to them but, rather, from the total effect of the program of professional accounting education as well as practical experience, and further developed through lifelong learning.… Relevant skills can give professional accountants a competitive edge in the market place and are useful throughout an individual’s career (IFAC, 2008b, paragraphs 8 and 9).

IES3 categorizes these skills as: (i) intellectual; (ii) technical and functional; (iii) personal; (iv) interpersonal and communication; and (v) organizational and business management skills. Acquisition of these skills, according to IES3, is essential for individuals seeking to become professional accountants. Further, in many of the 124 member countries of IFAC, it is only possible to become a qualified auditor after a set period of time as a professional accountant working in audit practice (for example, the UK, Australia and Uganda (IFAC Compliance Programme, 2004–2006)). Thus, the skills listed in IES3 apply equally to professional auditors’ education as they do to professional accountants’ education. Indeed, IES8 ‘Competence Requirements for Audit Professionals’ prescribes skills for auditors stating that auditing is a ‘. … structured process that . … involves the application of analytical skills, professional judgment and professional scepticism’ (IFAC, 2008c, para 1). However, the recent financial crisis has called into question the competence of auditors and to the claim that ‘. … external audit adds credibility to financial statements’ (Sikka, 2009, p. 871). The criticism of auditors, especially their auditing of banks, indicates that they are not demonstrating the requisite professional skills and it is, therefor...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• 1. Introduction
• 2. Generic Skills in Audit Education
• 3. Students’ Perceptions of Work-Based Training and Examination-Based Learning Relating to the Professional Competence of Auditors and the Impact of Regulatory Changes on Audit Training in the UK
• 4. Audit Education for Future Professionals: Perceptions of New Zealand Auditors
• 5. The Impact of Ethical Orientation and Gender on Final Year Undergraduate Auditing Students’ Ethical Judgments
• 6. Adding Value to Audit Education through ‘Living’ Cases
• 7. Attesting Adios! Airways’ XBRL Filings: A Case Study on Performing Agreed upon Procedures
• 8. J&K Fitness Supply Company: Auditing Inventory
• Index