Introduction

This academic essay discusses and evaluates the impact of not regulating the provision
of audit and assurance services.
Rick Hayes et.al defined an audit as:
a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of
correspondence between these assertions and established criteria, and
communicating the results to interested users. (Hayes et al., 2005, p.10).
More generally, an audit is an official examination of the accounts (or accounting
systems) of an entity or a Company by an auditor. The main objective of an audit is to
enable an auditor to convey an opinion as to whether or not the financial statements of
an entity are prepared according to an applicable financial framework.
An assurance service refers to an independent professional service, aimed at improving
the information or the context of the information so that decision makers can make more
informed and better decisions. Assurance can be conducted either by conducting
Audits or reviews. Quite often, different people in society need to be assured about
something. For example, shareholders of a Company need an independent assurance
that Directors have prepared Financial Statements properly and that the statements are
not wrong; hence they always seek services of Audit and Assurance service providers.
Without assurance from Auditors, shareholders may not accept that the information
provided by the financial statements is sufficiently accurate and reliable. The statutory
audit therefore provides assurance to shareholders as to the quality of the information in
the financial statements.
Meanwhile, provisions have been put in place to regulate the provision of Audit and
Assurance services so that Auditors and Assurance service providers should have
guidance (and in some cases rules) as to how they should perform their audit work.
These regulations are mostly made by Governments (through Acts of Parliament) and
also through the International Standards on Auditing (ISAs), as set by the International
Audit & Assurance Standards Board (IAASB), which is part of the International
Federation of Accountants (IFAC).
Impact of not regulating provision of Audit and Assurance Services
The impact of not regulating the provision of audit and assurance services has been
enormous to Auditors and Assurance providers, Companies and society at large.

To begin with, the Malawi Companies Act of 1984 Section 191 (7a) (p. 79 & 80) is
clear that Auditors remuneration is set by either the one who appoints the Auditor i.e.
the shareholders, directors etc. or the company itself as it thinks necessary. This
statutory provision has helped Companies have more bargaining power regarding audit
fees; hence Auditors cannot charge their clients exorbitantly. In turn, this has resulted in
Companies being able to access audit and assurance services at a reasonable cost.
The Malawi Companies Act 1984, section193 (2b) (ibid.2. p.81) has also given
guidelines on the removal of an auditor. Whenever there is a motion to remove an
Auditor from office, the section provides the Auditor with rights to make his
representations to the shareholders if he feels that his removal from office is unjust, by
stating as to why he feels he should still stay in office. The statute further demands that
the Auditors representations must be accepted by the Company and notice should be
given to shareholders about the Auditors representations. Further, the Auditor is
supposed to receive notice of Annual General Meeting and has the right to speak and
be heard at such a meeting. This statutory provision implies that Auditors cannot be
removed from office without being heard or willy-nilly by shareholders; hence the Auditor
has some protection. However, this statute can result in Companies maintaining
Auditors that they do not want. Typical case in point is where the Auditor has made
serious errors in the course of doing his work, but the Auditor manages to convince
shareholders through his representations that he should not be removed from office
Hayes et.al further elaborates that audits required by law, can only be performed by
auditors who have met specific technical requirements with regard to education and
experience. (Hayes et al., 2005, p.47). Similarly, the Malawi Companies Act 1984,
section192 (1) (ibid.2. p81) supports the notion by Hayes et.al and states that a person
who is eligible to be an Auditor should be eligible and entitled so to act under the Public
Accountants and Auditors Act. In Malawi, Companies Act further imposes a criminal
liability or fine of K 2,000 on any persons that contravene the Act. This legislation has
helped to improve technical excellence of Auditors because the audit profession has
minimum standards set perform duties of an Auditor. Absence of this regulation would
have resulted in society not to rely on Auditors opinion, because the opinion would have
been formed by less qualified, inexperienced and incompetent people. Subsequently,
neither Banks nor Tax authorities would rely on audited financial statements to provide
loans to Companies and assess tax payable respectively. In addition, failure to regulate
provision of audit and assurance services would also have resulted in inconsistences of
audit practices and standards, hence information provided to shareholders or other
stakeholders would be compromised.
Meanwhile, the Malawi Accountants Board regulates the provision of auditing and
assurance services to its members in the country.

This is achieved by providing the means, and the regulatory framework for the
education and training of adequate numbers of competent and disciplined accountants
and auditors, to serve the needs of Malawi. The Board strives constantly toward the
maintenance and improvement of standards of registered auditors and the Board
therefore protects the public who rely on the services of registered auditors and
supports registered auditors who carry out their duties competently, fearlessly, and in
good faith. However, Auditors who act contrary to the Boards rules and regulations are
disciplined through sanctions, which include fines, a reprimand (either oral or written)
and a suspension for a limited period of time. In the absence of this type of regulation,
providers of auditing and assurance would have lacked discipline, for example
confidentiality, professional behavior and Integrity.
Oftentimes, Audit firms provide assurance services to clients in areas ranging from
preparation of tax returns and financial statements. Incidentally, regulation on provision
of audit and assurance services require that Audit staff who were initially engaged in
preparation of tax returns or financial statements of a Company, should be interchanged
with a new team of audit staff to audit the Companys financial statements, in order to
avoid threats to Auditor independence for example familiarity and self-review threats.
Without this regulation, Auditor objectivity issues mentioned above would result in
compromising the quality of audit and assurance reports and this can result in the
Auditor forming an inappropriate audit opinion.
International Standards on Auditing (ISAs) has set out standards which are supposed to
be followed by Auditors worldwide. Use of international standards by various countries
has led to intra country recognition of audit and assurance services providers possible.
For example, Baker Tilly who are qualified Auditors registered in the United Kingdom
where recently hired to Audit Malawi Government Accounts after the cash gate
scandal.
The Malawi Companies Act 1984 Section 194 (3) (ibid.2. p.82) also gives the Auditor
the right to have access at all times to the places of business and the books and
accounts and vouchers of the company and also entitlement to require from the officers
of the company any information and explanation as the Auditor thinks is necessary for
the performance of his duties. This provision gives the Auditor power to discharge his
duties of reporting on the accounts effectively and in an independent manner when
reporting on the truth and fairness of the Companys financial statements. Without
regulating provision of audit and assurance services, directors or managers with ill
intentions would deliberately not provide the Auditor with financial information.
The auditors of a company while acting in performance of their duties have an obligation
under the Malawi Companies Act Section 194(1) (ibid.2. p.82) to act in such manner

as faithful, diligent, careful and ordinarily skilful. In the case of London and General
Bank (1895), the Judge said that the Auditor must not certify what he does not believe
to be true, and he must take reasonable care and skill before he believes that what he
certifies is true. (Millichamp, p374, 1993). This means that Auditors are responsible for
due care, and where Auditors do their job negligently, they may be subject to either joint
or several liability by the client who rely on audited financial statements. In auditing,
Joint and several liability concepts are designed to protect users who suffer losses
because of misplaced reliance on materially misstated financial statements.
(Johnstone e.t al, 2014, p.116).
Auditors may be jointly and severally liable under Common Law, Statutory Law or
Contract Law. The famous case of London Oil Storage Co. Ltd (1904) is an example
where the Auditor was held liable for negligence. Facts of the case are that:
petty cash was misappropriated over a period of years so that the balance per
cash book was 796 in 1902 whereas there was only 30 in the cash box. The
Auditor did not count the cash and therefore did not discover the embezzlement.
It was held by the court that loss was caused by the Auditors not because they
failed to discover the loss already made but because their failure to discover the
loss in the previous years led to further defalcation. The Auditors were ordered to
repay the loss caused by their negligence which was assessed at five guineas
only. (ibid.3, p.375).
In the circumstances, it is clear that failure to regulate audit and assurance provision
would have resulted in Auditor negligence, because Auditors would perform their duties
without due care and skill and they would not been held liable for losses suffered by
clients or third parties.
Finally, an Auditor has the right to resign from office. Typical examples where the Auditor
can resign include; where he has too much work with other clients, where there are
serious disagreement with the client due to material errors & irregularities in the
accounts or misstatements of financial statements and also where his independence
being compromised (for example being threatened by the client). This right helps
Auditor and Assurance service providers to perform their work fearlessly, without
interference from their clients.

Conclusion

From the issues discussed above, it is evident that by not regulating the provision of
audit and assurance services, Auditor independence would be compromised and also
that Auditors would as well perform their duties negligently without fear of being
penalized; hence it is important that the provisioning of Audit and Assurance services
should be regulated.

References:
Hayes, R., Dassen, R., Schilder, A and Wallage, P. 2005. Principles of
Auditing: An Introduction to International Standards on Auditing, 2 nd ed,
Pearson Education, Edinburgh.
Malawi Companies Act (1984)
Johnstone K.M, Gramling A.A and Rittenberg, L.E., 2014. Auditing: A RiskBased Approach to Conducting a Quality Audit, 9th ed, Cengage Learning,
Ohio
Millichamp A.H, 1993. Auditing, 6th ed, DP Publications, London