(a) What are the key features of an international, independent, external audit process? (Refer to the Deloitte Presentation).

(b) From the short articles below on the PCAOB, and the Mandatory Articles on Chinese Auditors: too big to ban Parts One and Two Provided Below, briefly outline the issues faced by the PCAOB and US and Australian- based auditing firms in trying to assess/audit the business information of Chinese companies which are listed in US and Australia. In your answer, identify whether there are any current remedies to these issues.

QUT BUSINESS SCHOOL/201 6 AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues Readings: 1: Read the Deloitte's Presentation Notes - To Be Handed Out in Lectures and to be Made Available under the Lecture Eleven Folder; 2: Read Chapter Fourteen of the Doupnik & Perera text; 3: Read the short discussion provided below on the details of the countriesations which deny access to the PCAOB to conduct audits; 4: Read the short extracts included below from the Articles entitled: 'Chinese auditors: \"too big to ban\" - Parts One and Two' Please note that there is a large exam question on this topic and these readings in your final exam. Required: 1) (a) What are the key features of an international, independent, external audit process? (Refer to the Deloitte Presentation). (b) From the short articles below on the PCAOB, and the Mandatory Articles on 'Chinese Auditors: \"too big to ban\" - Parts One and Two - Provided Below, briefly outline the issues faced by the PCAOB and US and Australianbased auditing firms in trying to assess/audit the business information of Chinese companies which are listed in US and Australia. In your answer, identify whether there are any current 'remedies' to these issues. 2) (a) Identify and discuss any three of the multinational auditing issues that would be faced by audit firms seeking to audit operations of multinational companies as outlined in the Deloitte presentation. In your answer discuss whether the withdrawal of the US from the IFRS Convergence process and the incentives of Anglo Saxon listed companies to over-state their profits should be considered as major, international auditing issues. (b) Highlight three main responses /remedies of the audit firms to these issues as outlined in the Deloitte presentation. 2|Page AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues 3|Page AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues 4|Page AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues 5|Page AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues http://pcaobus.org/International/Inspections/Pages/NotYetInspected.aspx Registered Firms Not Yet Inspected Even Though Four or More Years Have Passed Since Issuance of an Audit Report While Registered (as of June 30, 2015) The list below includes the names of registered firms for which, as of June 30, 2015, the inspection fieldwork had not yet been completed by the PCAOB, even though four or more years have passed since the end of the calendar year in which the firm first issued an audit report while registered with the PCAOB. This updated list indicates three firms (one firm in each of Denmark, France and Spain) have been removed from the December 31, 2014 version of this list because the inspection fieldwork of such firms has been completed. The Board had previously announced its intention to publicly identify firms meeting the criteria above. Such intention was communicated in the releases issued in connection with the PCAOB's adoption of PCAOB Rule 4003(g) and PCAOB Rule 4003(f).[1] Accordingly, this list is updated, at a minimum, on a semiannual basis by adding firms that qualify for the list and also by removing firms for which the inspection fieldwork has been completed or that have voluntarily deregistered from the PCAOB. The reasons that the inspection fieldwork for a firm has not been completed within four years of the firm having issued an audit report while registered with the PCAOB may vary. Many of the firms included on this list are located in a jurisdiction where the PCAOB is being denied access to the information necessary to conduct inspections of registered firms on the basis of asserted restrictions under local law or objections based on national sovereignty. As of June 30, 2015, the PCAOB was unable to conduct inspections of firms located in 12 such jurisdictions (Austria, Belgium, China, Cyprus, the Czech Republic, Greece, Hong Kong, Ireland, Italy, Luxembourg, Poland and Portugal).[2] In addition, the PCAOB remains unable to conduct inspections of firms located in Venezuela despite attempts to communicate with the Venezuelan government. The PCAOB continues to seek to resolve the obstacles to PCAOB inspections with the relevant authorities in all of these jurisdictions and remains optimistic about concluding bilateral agreements with many of them in the foreseeable future. While the PCAOB concluded a cooperative arrangement with Hungary in March 2015, joint inspections in Hungary had not yet commenced as of June 30, 2015. With respect to certain other jurisdictions, namely Denmark, France, Germany, Spain and Sweden, cooperative agreements that permit PCAOB inspections had been concluded, but not all firms in the jurisdiction have been inspected to date. 6|Page AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues With respect to the firms listed below, no PCAOB inspections have been completed even though four or more years have passed since the end of the calendar year in which they first issued an audit report while registered with the PCAOB. PLEASE NOTE: Inclusion on this list should not be construed to support any positive or negative inferences about the quality of the firm's audit work, its systems, policies, procedures, or practices. [1] For more detail about these rules and the PCAOB's decision to publish this information, please see PCAOB Release No. 2009-003, Final Rule Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (June 25, 2009), issued in connection with the PCAOB's adoption of PCAOB Rule 4003(g); and PCAOB Release No. 2008-007, Rule Amendments Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (Dec. 4, 2008), issued in connection with the PCAOB's adoption of PCAOB Rule 4003(f). [2] The PCAOB currently is prevented from inspecting the U.S.-related audit work and practices of PCAOB-registered firms in Ireland and, to the extent their audit clients have operations in mainland China, Hong Kong, because of the positions taken by the local authorities in these jurisdictions. Certain registered firms in these jurisdictions previously had been inspected by the PCAOB either because, in the case of some firms in Ireland, an inspection was conducted before the current obstacles arose, or because, in the case of some firms in Hong Kong, the inspections did not involve, or no obstacles were raised to, the review of audit work relating to a company's operations in China. In August 2015, the PCAOB concluded a cooperative arrangement with the Greek audit regulator that provides a framework for the PCAOB to resume joint inspections in Greece. As of June 30, 2015 Sort by: Group by: Name of Firm PwC Wirtschaftsprfung GmbH Deloitte Bedrijfsrevisoren / Reviseurs d'Entreprises Ernst & Young Bedrijfsrevisoren C.V.B.A. - Rviseurs d'Entreprises S.C.R.L. Grant Thornton Bedrijfsrevisoren - Rviseurs d'Entreprises (formerly known as PKF bedrijfsrevisoren BV o.v.v.e. CVBA) 7|Page Country Austria Belgium Belgium Belgium AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren civil CVBA/SCRL Dahua CPA Co., Ltd. (formerly known as BDO China Dahua CPA Co. Ltd.) Deloitte Touche Tohmatsu Certified Public Accountants LLP Ernst & Young Hua Ming LLP Gansu Hongxin Accountants Ltd Grant Thornton JTC Fair Song CPA Firm PricewaterhouseCoopers Zhong Tian LLP Reanda CPAs Co., Ltd Shanghai Perfect C.P.A. Partnership Zhonghua Certified Public Accountants (formerly known as Grant Thornton Zhonghua) Ernst & Young Cyprus Limited Ernst & Young Audit, s.r.o. Deloitte Statsautoriseret Revisionspartnerselskab Deloitte & Associs Salustro Reydel (KPMG) BDO AG Wirtschaftsprfungsgesellschaft Grant Thornton SA KPMG Certified Auditors A.E. Pricewaterhousecoopers Auditing Company SA Baker Tilly Hong Kong Limited BDO Limited Crowe Horwath (HK) CPA Limited Deloitte Touche Tohmatsu Ernst & Young K.P. Cheng & Co. KPMG Hong Kong Mazars CPA Limited Hong Kong 8|Page Belgium China China China China China China China China China China Cyprus Czech Republic Denmark France France Germany Greece Greece Greece Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues PricewaterhouseCoopers UHY Vocation HK CPA Limited Wong Lam Leung & Kwok C.P.A. Limited BDO Magyarorszg Knyvvizsgl Kft. KPMG Hungaria Kft. PricewaterhouseCoopers Knyvvizsgl Kft. Ernst & Young Chartered Accountants Grant Thornton BDO S.p.A. Deloitte & Touche S.p.A. KPMG S.p.A. PricewaterhouseCoopers spa Reconta Ernst & Young S.p.A. Deloitte Audit PricewaterhouseCoopers, Socit cooprative (formerly known as PricewaterhouseCoopers S.a r. l.) BDO Sp. z o.o. PricewaterhouseCoopers Sp. z o.o. Deloitte & Associados, SROC, S.A. KPMG & Associados Sociedade de Revisores Oficiais de Contas, S.A. Pricewaterhousecoopers Auditores, S.L. BDO Sweden AB Deloitte AB Ernst & Young AB Espieira, Pacheco y Asociados (Pricewaterhousecoopers) (formerly known as Espieira, Sheldon y Asociados) Rodriguez Velzquez & Asociados (formerly known as Alcaraz Cabrera Vazquez) 9|Page Hong Kong Hong Kong Hong Kong Hungary Hungary Hungary Ireland Ireland Italy Italy Italy Italy Italy Luxembourg Luxembourg Poland Poland Portugal Portugal Spain Sweden Sweden Sweden Venezuela Venezuela AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues 10 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues Chinese auditors: \"too big to ban\" (Part I) http://rogermontgomery.com/chinese-auditors-too-big-to-ban-part-i/ Insightful Insights March 4, 2015 How is a company's auditor to do its job without access to the relevant financial and business information it requires? This is the basic problem that foreign auditors face when trying to assess Chinese companies. Such financial and business information has been categorised by the Chinese government as \"State secrets\" - so cannot be turned over to foreigners.As we explained when examining Chinese e-commerce platform, Alibaba (here), the 'Big Four' auditing firms do not actually operate in mainland China. Instead, they essentially license out their brand name to local affiliates. Under US law, all major auditors must undergo regular inspections by the Public Company Accounting Oversight Board (PCAOB). Yet, the PCAOB is not allowed by the Chinese government to inspect the local Chinese affiliates of the Big Four auditing firms. The Chinese government cites national security reasons for disallowing the inspections. Therefore, all US-listed Chinese firms appear to be in breach of the Securities Exchange Act. Last month, the Securities and Exchange Commission (SEC) basically caved in to Beijing's refusal to turn over such corporate information to US regulators. The SEC had the right to delist all Chinese companies from US exchanges for being in breach of the Securities Exchange Act. They chose not to. A Wall Street Journal editorial last week pointed out why this has become such a concern for US investors and regulators: \"The SEC has long sought access to the auditing records of Chinese companies suspected of fraud. Tens of billions of dollars in U.S. market value have disappeared in recent years as more than 170 U.S.-listed Chinese companies have faced scrutiny for embezzlement, theft, misrepresentation and other alleged abuses.\" Chinese accounting expert, Paul Gillis, sums up the situation nicely in his recent blog: 11 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues \"So today we have different rules for Chinese companies that list in the US than we have for others. Not only is the SEC dependent on Chinese regulators to decide what documents they can see, the PCAOB remains unable to conduct inspections of auditors.\" The assessment by Chinese newsagency, Xinhua, is even more succinct: Chinese auditors are \"too big to ban.\" So it's buyer-beware for US investors in Chinese companies. In Part II, we will examine what the implications might be for Australian share investors. Andrew Macken is a Senior Analyst with Montgomery Investment Management. To invest with Montgomery, find out more. Andrew Macken is a Portfolio Manager at Montgomery Global Investment Management. Andrew joined Montgomery in March 2014 after spending four years as a Research Analyst under Jim Chanos at Kynikos Associates in New York. 12 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues Chinese auditors: \"too big to ban\" (Part II) Companies, Insightful Insights March 5, 2015 In our recent blog post, we examined the recent decision by the US Securities and Exchange Commission (SEC) to essentially give up trying to regulate the Chinese auditors that provide audit assessments of US-listed Chinese companies. Essentially, Beijing refuses to divulge its corporate information to foreign regulators on national security grounds. The result is that Chinese auditors - the ones that provide their assessments of Chinese company financial statements - cannot be inspected by US regulators. And yet, these companies will remain free to list on US stock exchanges and sell shares to US investors. Back home, we have the Corporations Act 2001 which sets out the laws dealing with companies in Australia. Section 310 of the Act states the following: \"The auditor: (a) has a right of access at all reasonable times to the books of the company, registered scheme or disclosing entity; and (b) may require any officer to give the auditor information, explanations or other assistance for the purposes of the audit or review.\" So what would an Australian auditor do if it were faced with the task of auditing a mainland Chinese company? We would love to ask this question to Grant Thornton Audit Pty Ltd. We noticed they are the auditors of Premiere Eastern Energy Limited (ASX:PEZ), a Chinese company that recently listed on the Australian Stock Exchange. According to the company's initial public offering prospectus: 13 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues This sounds like a mainland Chinese company to us. And therefore, its detailed corporate financial and other business statements are surely deemed to be \"State secrets\". So how can Grant Thornton Audit comprehensively audit this company for the benefit of Australian investors without breaking Chinese law? This is a genuine question that should be asked by investors in Premiere Eastern Energy (not to mention by the Australian regulators). The Montgomery funds do not own shares in Premiere Eastern Energy. Andrew Macken is a Senior Analyst with Montgomery Investment Management. To invest with Montgomery, find out more. Andrew Macken is a Portfolio Manager at Montgomery Global Investment Management. Andrew joined Montgomery in March 2014 after spending four years as a Research Analyst under Jim Chanos at Kynikos Associates in New York. 14 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues Additional Reading (Not Mandatory) So Much for the PCAOB Inspecting Audit Firms in China http://goingconcern.com/post/so-much-pcaob-inspecting-auditfirms-china 10 3 Nov 2015 / By Caleb Newquist Welp. After years of negotiation and Chairman Jim Doty saying this past summer that the PCAOB was "very close" to reaching an agreement to inspect audit firms in China, this happened: Last month, a final agreement that would have allowed a U.S. regulator to examine the audits of Chinese companies listed on American stock exchanges fell through, according to two people with knowledge of the matter. The failed negotiations are a setback for the Public Company Accounting Oversight Board, a Washington-based watchdog that has sought access to Chinese audits for years as dozens of companies such as JD.com Inc. and Alibaba Group Holding Ltd. raised billions of dollars from U.S. investors. Apparently China wanted to restrict the inspections to such a degree that US officials decided "it wasn't worth proceeding." University of Tennessee Professor and PCAOB Investor Advisory Group member Joseph Carcello told Bloomberg, "There is no obvious solution that doesn't have serious side effects.\" China's been playing hardball so the devil in me wants the PCAOB to pull the registrations, just to see what happens. They'll never go that route, and you can't really expect the PCAOB to quit trying, otherwise the purpose of the entire body gets called into question. I don't know what their Plan B is, but a month or so back, Paul Gillis mentioned this paper from Nemit Shroff of MIT that suggests "that regulatory oversight of the [non-US] auditor helps improve reporting credibility, which in turn facilitates corporate investment by increasing firms' external financing capacity." Gillis says that could happen in China as well: The study suggests that these companies would have greater credibility in their financial statements if China were to permit the PCAOB to inspect the Big Four in China and Hong Kong. The benefits would extend even to Big Four clients not listed in the U.S. 15 | P a g e AYB227/Week Eleven - International Comparative Auditing Issues/Oral Presentation/Tutorial Questions - Focus on Multinational Audit Issues If the PCAOB hasn't tried this line of reasoning, it might be worth a shot. If they have, then it's back to the drawing board. Either way, China seems to prefer keeping its secrets rather than give in to a snoopy American quasi-government agency, regardless of the benefits. 16 | P a g e