The Impairment of Public Oversight and the Failure to Function in Auditor Behavior in Saudi Arabia Harvard Case Solution & Analysis

The Impairment of Public Oversight and the Failure to Function in Auditor Behavior in Saudi Arabia Case Solution 

Abstract

The role of the auditor in the business world has become more important in the modern era. The business has developed significantly and there are high complexities in the financial transactions as well as procedures and systems relating to these transactions. The requirement of professional conduct and behavior and the increased responsibility towards public, has made the auditors work more demanding and free from any error. The lack of the knowledge among the investors about the auditor’s duties and responsibilities has also created expectation gap between these parties. Different factors affect the independence, integrity and objectivity of the auditor. The paper will discuss such factors and will explain their implication in directing the auditor’s professional behavior. The paper will also discuss the various problems and issues that come from the oversight and regulatory boards that impact the auditing and accounting practice.

Introduction

The Auditor’s main responsibility is to give an opinion on the financial statements of the company. This opinion is as much valuable to the stakeholders of the company as it influences the major decisions of the shareholders and other connected stakeholders of the company. Likewise in Saudi Arabia, the main responsibility and statutory duty of the auditor is to express an opinion that whether the financial statements give true and fair view of the state of the affairs of the company and are free from material misstatements (Dabroski, 2000).

The auditor’s report increases the credibility of the entity’s financial information. Auditors have public duty to ensure for the stakeholders as well as for the general public, not limited to only shareholders that the financial information presented are reliable and trustworthy. However, the public image about the auditors has been impaired,as the latest corporate scandals puts critical question on the integrity and independence of the auditors (Mobily Scandel, 2014). Moreover, there are numerous concerns and questions raised about the role of the oversight board and its integrity in regulating the profession in Saudi Arabia.

The public authorities and the regulatory boards have assumed reactive approach in the matters regarding accounting and auditing profession in Saudi Arabia. Some reactive decisions have been taken such as banon one of the big four audit firms (Rashad, 2014), which shows the increasing involvement of the regulating authorities over the concerns about the auditors professional behavior.

This paper will discuss the various factors that are placing limitation on the auditor’s tendency to act in the public interest and the role of the oversight board and the related implication of the board on the profession. The perception about the auditor’s responsibility, expectation gap, has always been misinterpreted by the shareholders and other stakeholders, which is also explained critically in this paper(Mahadevaswamy, 2008). The audit fee also plays an important role that also influences the behavior and independence of the auditors. The auditor must analyze the threat that has been placed on the auditor’s objectivity, independence and integrity because of higher audit fee (Gopal V. Krishnan, 2012).

Overview and Research Question

The auditing practice in Saudi Arabia has been regulated by the Saudi Organization for Certified Public Accountants (SOCPA), established in 1992 and have headquarter in Riyadh, Saudi Arabia(SOCPA, n.d). The objectives of this public oversight body include reviewing, developing and approving the accounting and auditing standards for the country. It regulates the accounting and auditing profession and conducts exam as well as executes continuing development program for qualified professionals. SOCPA governs the accounting and audit profession in the country. The research work will include the evaluation of the SOCPA in regulating the profession and guiding the professionals in this field. SOCPA has the responsibility to issue and enact laws and general guidelines to align the professionals with the specific requirement of the audit, such as professional behavior and due care.

Saudi Organization for Certified Public Accountants (SOCPA) has also quality review committee that monitors and evaluates the Chartered Public Accountant CPA firms practice...................

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