An empirical analysis of audit risk assessed by top auditing firms: a Philippine particularity.

• Author: Ferrer, Rodiel C.

1. INTRODUCTION

   In recent years, the business world has seen a spate of corporate frauds and scandals which rocked its very foundation. As a result, numerous investigations and lawsuits have been made against erring companies who, in collaboration with their auditing firms, entered into "dubious" financial transactions which when they were discovered, admitted commission of bribery and other egregious mistakes that tarnished the integrity and reputation of very well established companies and their auditors and accountants.

   This has spurred considerable attention and importance given to the extent of compliance with international financial statement disclosure requirements and revision of accounting standards to rectify the failures or weaknesses of improper disclosure of the true value of a firm and other relevant financial information that may affect the decision of different stakeholders who are largely dependent on audit reports prepared by these companies' auditing firms.

   International Accounting Standard 1 Presentation of Financial Statements (IAS 1) replaced IAS Presentation of Financial Statements (revised in 1997) and applied annually beginning 1 January 2005. The International Accounting Standards Board (IASB) developed IAS 1 as part of its project on Improvements to International Accounting Standards. The project was undertaken in light of queries and criticism in relation to the standards raised by securities regulators, professional accountants, and other interested parties (Financial Reporting Standards Council, 2005).

   In USA, the Sarbannes-Oxley act can be read almost as a perfect mirror of the collapse of Enron and perhaps suggests a loss of faith in the self-regulatory capacities of both boards and markets by increasing the criminal liabilities of directors. In the UK the response has been more muted but has involved the further strengthening of the role of the non-executive within boards (Higgs 2003).

   The globalization of capital markets and the growth of international capital flows have heightened the significance of cross-national comprehension of corporate financial reports as well as the associated audit reports. The accounting literature is replete with assessments of the harmonization efforts and the international differences in the financial accounting area (Archer 1989) Furthermore, most recently the International Federation of Accountants (IFAC) has released International Auditing Standards (IAS) in an attempt to harmonize and place audit practice under a single standard. However, there is still an on going debate on whether global standardization has been attained. A notable argument is cultural influence on standardization (Farrell & Cobin, 2001). Auditing practice is not considered as culture free and is therefore subject to variations based on existing ethical standards and cultural influence. And as previous studies have concluded, risk assertion lies on the personal level and is largely affected by the individuals' ethical standards and core values.

   In the same light, the researcher investigates if such differences exist among auditors in Metro Manila, Philippines. This study examines if significant difference exists between the perceptions of the auditors on Audit Risk when the latter are grouped as to gender, position, specialization and years of audit experience.

2. RESEARCH METHODOLOGY

   Primary data on perceptions of audit risks were obtained from a survey of auditors of the top five (5) auditing firms in the Philippines, namely: Sycip Gorres Velayo & Co. (SGV & Co.), Isla Lipana & Co., Punongbayan & Araullo, Laya Mananghaya & Co. and Manabat Delgado Amper & Co.

   The t-test was...