Audit Function in the Post-Enron Era
Diminishing importance of the audit function
The audit function has always been an integral part of corporate governance. Few will disregard its importance. However, in the fast-moving pace of globalization, with intensifying pressure to produce ever rising earnings and stock prices, auditors were being thrust into the new role of ‘enabler’. They began to emphasize too much, being a business partner to the company. They were more concerned with client revenue than the source of that revenue and independence from their client. As a result, they ignored the basic responsibility of the audit function which is self-independence. Accounting frauds were left undetected. This led to the recent major corporate collapses such as Enron. As shocking as Enron is, it's only the latest in a dizzying succession of accounting meltdowns1, thus casting doubt on a once honored profession. As a result, an expectation gap occurred. The advancement of information technology did not help to ease the pressure on the audit function as well2. Due to the advancement of information technology, computerized information systems and information technology (IT) have become the backbone of every organization. However, because of ineffective IT auditing, auditors fail to correct weak internal controls in the information systems, thus leaving frauds undetected. As a result of these factors, the importance of the audit function has diminished as investors start to lose their trust in it.
As shown, the auditing profession has not kept up with the rapidly changing environment. Therefore, in order to re-establish the public trust, keep up pace with fast changing environment and to reduce the audit expectation gap, changes must be made to the ...