Stakeholders can be influenced greatly by an audit. It may mean the difference on the company getting a bank loan or for an investor to bring in capital. The external audited financial statements were expected to provide some opinion to the reported earnings in the financial statements prepared by management which are within legal regulation and GAP. B. Discuss the external auditors’ right and duties as governed by Companies Ordinance.
For the right of auditors, auditors may request company to provide all information of which management and, where appropriate, those charged with governance are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters. Additional information that the auditor may request from management and, where appropriate, those charged with governance for the purpose of the audit. Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.
The primary duties of an audit s to review and verify the company’s financial statements to form an opinion about the company’s financial statements. They may give a qualified, unqualified, adverse opinion or even a disclaimer. Each one of these opinions can be vital for an organization. These opinions state whether the financial information was justly represented, misleading, or insufficient enough to form an opinion. These statements tell the public if the company is truthful and open with their financial information or if they seem to be hiding something they do not want anyone to e.
External auditors are the police and judges of the financial public affairs. The goal is a safe and sound set of financial statements to protect private and public investment. Also, they can give advice management through recommendations in their audit notes or discussions. Constructive suggestions can improve the procedures for documentation more efficient, ethical, or fairly presentable. C. Outline two court cases with which you are familiar and highlight how they have influenced the development of auditing. Case 1 . Re London and General Bank (1895)
In this case the company had taken credit for interest accrued on loans which were never likely to be repaid. Many of these loans were statute barred (i. E. Uncorrectable). The auditor was aware of the problem and reported only to the directors and not to the shareholders. Subsequently the financial statements did not show a true and fair view. In summing up, the judge stated that the auditor had a duty to shareholders to report any dishonest acts that had occurred. He said the auditor could not expect to find every error but had a duty to use due are and skill.
Case 2, Re Kingston Cotton Mill Co. Ltd (1896) In this case the accounts had been falsified to a very considerable extent by the managing director, by extensive overvaluations of stock. In this instance the auditors were deceived, and although they acted with due care, they had understandably missed the deception. Lord Justice Lindsey stated that the auditor is not bound to be a detective; he is a watchdog and not a bloodhound. In this instance the directors are liable to the shareholders for fraud. Reference: http://catalogue. Pearson. o. K/assets/hip/KGB/hip_KGB _personalized/complicates/0273711733. PDF Both this two case represent a cornerstone for auditor liability. A major error or oversight by the auditor can result in an incorrect opinion. If this happens, the auditor then has a liability to parties who suffer a loss. The auditor is a person whose position is an independent one, whose duty it is to discover and point out the errors or mistakes of the directors or a corporation if any, the gains and losses of the company to show in fact, exactly the true states of the accounts.
