ROLE OF THE
•
AUDITOR
Auditors examine the financial records and financial
statements of limited companies.
• These auditors could be internal or external to the
company.
• Internal auditors are employed by the company to look in
detail at the financial controls of the company.
ROLE OF THE
AUDITOR
Internal auditors would examine the control procedures of a
company, for example the purchase and disposal of non-current
assets or the control procedures for handling cash and cash
equivalents within the business.
ROLE OF THE
AUDITOR
• External auditors are independent of the company and
would be appointed by the owners of the company, the
shareholders.
• Their primary role is to prepare a report that states
whether the financial statements are 'true and fair'.
ROLE OF THE
AUDITOR
• External auditors are not employees of the company but are
independent.
• Their role is to investigate whether the company has maintained
adequate financial records, and whether these records have been
used to produce financial statements that accurately report
the financial position of the company.
ROLE OF THE
•
AUDITOR
As stated, their primary role is to ensure that the financial records and
financial statements provide a true and fair view of the business.
• Furthermore, external auditors also make sure the records and
statements have been prepared in accordance with the relevant legal
and regulatory guidelines, as given in IAS 1: Presentation of
Financial
Statements.
ROLE OF THE
AUDITOR
• This process should give confidence to
• the users of the information, the stakeholders of the
• company, that the information contained in the
financial
• statements can be relied upon when making decisions
• such as whether to purchase shares in the company.
ROLE OF THE
AUDITOR
True and fair
• IAS 1 requires that the financial statements must 'present fairly'
the financial position, the financial performance and cash flows
of a business.
• The 'true and fair' view recognises the fact that the auditors
cannot guarantee that the financial statements are 100 per cent
accurate, as they do not have access to all the financial records of
the company, nor will they have the time to analyse and evaluate
this information.
ROLE OF THE
AUDITOR
If the auditors are satisfied that the statements do
show a true and fair view of the business, the report
that they issue will state that the financial
statements do show a true and fair view.
ROLE OF THE
AUDITOR
If the auditors feel that the records and statements
do not represent a true and fair view, they will issue a
qualified opinion in their report. This will raise issues
in those areas where the records have not been
maintained properly.
ROLE OF THE
AUDITOR
• In extreme cases, the auditors may state that ‘the financial
statements do not show a true and fair view'.
• This might have serious implications for a company.
• It may result in difficulties raising external finance, as providers
would have little trust in the information contained in the
financial statements.
ROLE OF THE
In addition toAUDITOR
this primary role, auditors should:
• provide an independent opinion on whether the financial
statements comply with relevant international accounting
standards
• state whether the financial statements have been prepared
on the basis of the business being a going
concern or not being a going concern, since this would
materially affect asset valuation
ROLE OF THE
AUDITOR
• test the financial recording procedures and control
systems put in place by the company to minimise the
risk of fraud, in order to have a reasonable chance of
detecting material mis-statements caused by fraud
ROLE OF THE
AUDITOR
• ensure that the directors' report is included with the
published financial statements and that the contents
of the report are factually true and include all the
important points relating to the performance of the
business
ROLE OF THE
AUDITOR
• report on whether the company has complied
with the requirements relating to corporate
governance, if they are requested to by the
shareholders.
Corporate governance
• This sets out the systems and procedures by which
companies are controlled and directed.
• The aim is to ensure that the management can ensure
the long-term success of the business and balance the
interests of all the major stakeholders in the company.
Corporate governance
The UK corporate governance code states the required
standard of good practice for many areas of business,
including the composition of the board of directors,
the directors' remuneration and their relationship with
stakeholders, with a view to minimising conflicts.
Corporate governance
Corporate governance is a relatively new term.
It has ethics as its main focus and recognises that
the company should look after the interests of all
stakeholders and not just its shareholders.
The auditors' report
The report usually has three main sections:
1 The separate responsibilities of the directors and
the auditors - the directors being responsible for the
preparation of the financial statements while the
auditors are responsible for forming an opinion on
the financial statements
The auditors' report
2 The basis of the audit opinion expressed by the
auditors - details of how the audit was carried out
3 The opinion - an overall assessment of the financial
statements
Types of audit opinion
• Unqualified opinion - the auditors are satisfied the
financial statements have been prepared correctly
and give a true and fair view of the company’s performance.
Types of audit opinion
• Qualified opinion - the auditors feel that certain
aspects of the financial statements have not been
prepared properly and that it is sufficiently material
to be brought to the attention of the shareholders.
Types of audit opinion
• Adverse opinion - the auditors feel that the
financial statements very significantly do not give
a true and fair view of the company's financial
performance.
Types of audit opinion
• Disclaimer opinion - insufficient information was
provided for the auditors to make a valid judgement
as to whether the financial statements showed a true
and fair view of the financial position.
