Question

Mr. Jabir is owner of Super Night Lamp Manufacturing SOAG, located in Salalah. His business is suffering from loss since last two years. He wanted to improve his business activity but bank and other investors were not ready to invest his business. Mr. Tahsin was appointed as auditor to check books of account. According to Mr. Jabir change the audit report and give a positive report which actually was not. On the basis of given scenario answer following questions:
a) What is the role of Mr. Jabir in this situation?
b) Which is those qualities Mr. Tahsin fail to perform during his audit work?
c) Also write the impact of unfair practices performed by Mr. Tahsin on bank authority and investors?

Answer 1

a) Considering the situation of Mr. Jabir, the owner of the Super Light Manufacturing SOAG, the following steps can be advised to be taken:

Reduces Expenses

Minimise the spendings by cutting down less priority expenditures

A dedicated owner shall minimise or avoid the taking drawings from the company

Pitch in for the better deals from the suppliers at lower than the usual price.

Enhance the Liquidity position of the business by selling the no longer used assets

Increase the sales

Increase the scope of sales and marketing team

Grab in for more customers. Project how and where it can be implemented.

Seek advice from an Accountant or a Financial Advisor by projecting the future business to be on track and avoiding the losses ahead wherever possible

b) The first and the foremost role of an Auditor is to form an opinion on the reviewed financial statements independently. Here the Auditor do not take any responsibility of the same it lies purely in the hands of the company being audited. Mr. Tahsin , however failed to perform his "Independency'' the most essential quality of the Auditor by giving the manipulated report so as to get through the Bankers Compliance. The true and fair view of the Financial statements were not given.

Auditors are not a part of management which means - He will not prepare or make changes to source documents,
Analyse or reconcile books of Accounts, Close the Books or Determine estimates in Financial Statements.

Rather, the Auditor should be inquiring of the management and others in order to gain an understanding of the business itself, its operations, financial reporting and so on. Instead of manipulating the Audit Report, he should be able to offer objective advice for improving financial reporting and internal controls to maximize a company’s performance and efficiency.

c) The Impact of unfair practises performed by Mr. Tahsin on bank authority and investors will result-

Mis-representation of benefit, advantages, conditions or terms of any policy.

Mispresentation of dividend or share of the surplus to be received on any policy of the company.

It made a false or misleading statement as to the financial condition of the business by manipulating  the actual losses incurred by the business to publishing the positive auditing report.