Audit Failure

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Erika (http://www.journalofaccountancy.com/News/20149822) 4/4/2014(Stop using “audit failure” term in PCAOB reports, Hanson says) The term “audit failure” has been causing some confusion and misunderstanding when it is being used in inspection reports in regards to how severe the findings may be the investors discover. A PCAOB member, Jay Hanson would like the board to stop using this term in the reports. The PCAOB uses this term to identify situations in which the auditing firm is unsuccessful in obtaining sufficient appropriate evidence to support the audit opinion. Hanson stated that this doesn’t mean that the statements that are obtained are misstated, and instead it means that the auditor didn’t do enough work to know whether the statements are actually misstated. Hanson goes into explaining what the real definition of “audit failure” means and how it is used in other contexts. He states that it is understood to mean that statements of a company are indeed misstated, and the relevant problems were not identified during the audit by the auditor. While Hanson has a problem with this term others like Collen Brennan states that if they use the term “audit failure” or not, the first part of the inspection reports are circumstances where the inspectors have found that the audit report was unsupported and not reliable, and he also noted that in the reports they have always made it clear that the term “audit failure” doesn’t really mean that the financials are materially misstated. Publishing rates of audit failures based upon PCAOB’s public reports are misleading as well, and the calculation most are using is that of “audit failures” divided by the total number of audits which would end up being misleading and harmful when comparing one firm to another. I think that the use of the term “audit failure” could be acceptable as long as the auditor/inspector will clearly explain what the findings were, and that using this term doesn’t really mean that the financial...
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