Solomon & Peecher (2004b) - Document View - ProQuest...

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Databases selected: Multiple databases. .. Full Text (714 words) Does Your Auditor Understand Your Business? Ira Solomon and Mark E. Peecher . Wall Street Journal . (Eastern edition). New York, N.Y.: May 25, 2004. pg. B.2 Abstract (Summary) Based on our collective 40 years of experiences as audit scholars, we encourage the oversight board to adopt a framework requiring auditors to obtain a deep understanding of the businesses that underlie public companies' financial statements. Otherwise, the board's new rules effectively will be fool's gold. A deep understanding of business is central to what we call "strategic-systems auditing." Two premises of SSA are that accounting systems reflect business risks and performance in fallible, incomplete, and untimely ways, but that financial statements should reasonably reflect these business realities. As such, auditors must conduct business- informed tests and amass business-informed evidence before they can draw reasonable conclusions about the veracity of financial statements. Because business-informed auditors are better able to detect unintentional and fraudulent misstatements, we encourage the PCAOB to ground its rulemaking in a SSA framework. Otherwise, the oversight board inadvertently may increase the risks of future audit failures and further erosion in investors' confidence. New rules requiring substantive tests will yield insubstantial evidence unless auditors can corroborate it with deep knowledge of business reality. Copyright (c) 2004, Dow Jones & Company Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. HONEST INVESTORS, managers, and corporate governors beware. A new regulator, the Public Company Accounting Oversight Board, has just begun writing audit rules. However, there is little reason to believe these rules will prevent future corporate frauds, lootings, and audit failures. Recent corporate scandals and audit failures have diminished confidence in financial statements, increasing the
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This note was uploaded on 11/17/2011 for the course ACCY 405 taught by Professor D during the Winter '11 term at University of Illinois at Urbana–Champaign.

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Solomon & Peecher (2004b) - Document View - ProQuest...

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