Question 1

Conditions that must be present for a company to be “auditable” include the ability to obtain and evaluate evidence. This evidence that is being collected must be reliable. If an auditor cannot obtain reliable evidence, then the audit will not be conducted. The sources of the audit evidence ought to be trusted too for “auditability” of an entity.  Simply put, for a company to be “auditable,” there ought to be reliable, relevant and sufficient evidence.

Challenges posed by Chinese companies come from the barriers erected by the government that makes it difficult for auditing. A good example is where there is a broad definition of “state secrets, ” and this gives the companies the autonomy of not disclosing relevant information to the auditors. An appropriate audit cannot be conducted with sufficient evidence.

Question 2

The major international accounting firms do not have the responsibility of providing uniform audit services worldwide. This is because the primary role of external auditing in a given country tends to be determined by the corporate governance structure in the country. This means that there are different auditing standards in use in different countries. As a result, it would be difficult for accounting firms to enhance uniformity.

Question 3

In order to supervise the audit of the Chinese subsidiary, the international accounting firm should request to have access to the audit work papers. This will help to see the quality of audit that was conducted by the subsidiary firm. The aspect would help in assessing whether the subsidiary firm has followed the appropriate standards that ensure the audit conducted was of high quality. Based on the information obtained, the international firm will know exactly what areas need improvements during the next audit, and there will be utmost supervision on these areas.

The responsibilities would not be different under International Standards of Auditing.

Question 4

Among the things that the U.S regulatory agencies can do is for PCAOB to observe the audit inspections in China to ensure that the standards being applied are of the required quality to provide assurance that the financial statements produced can be relied upon.  This can begin with inspection observations and later move to on-site inspections.

SEC can also operate by delisting Chinese companies that have questionable track records. US exchanges also ought to increase the scrutiny of new listings that are based in China, and reject the ones that do not meet the expected standards.

Question 5

Ethical and moral values tend to vary from nation to nation and culture to culture, but this does not mean that the accounting profession cannot have a uniform code of ethics. Despite people from different cultures having different moral and ethical values, there are those values that tend to be similar. This could also be the case for the accounting profession. Something like integrity, independence, technical standards, competence, responsibilities to clients and objectivity are values that are applicable in all jurisdictions. This means that there is a possibility of having a uniform ethical code.

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