Question

How does the public trust responsibility apply to the audit of a private company?

Answer 1

Though public company has direct involvement of public in it's operation but it can't be ruled out that private company indirectly have involvement of public in it's operation . So both public company as well as private company have the responsibility of public trust. Involvement of public in the operation of private company can he expressed by the use of following points :-

1. Borrowings from financial institution = since private company also takes loan and borrowings from financial institution in order to finance it's operation and thus it is their responsibility to use those funds judiciously since it is the money of public that is on stake. Public has deposited their savings and invests their savings in financial institution which in turn provided those money to private company. Hence, public is involved in this form through financial institution.

2. Goods purchased on credit from creditors = private companies also purchased various goods and services and various equipment and assets and more particularly it obtains them on credit and thus they have answerability towards those creditors , towards those public which have shown trust on it and provided it with goods on credit. And thus this makes public involvement in their operations.

3. Various type of taxes owed to government = a private company sell goods and collect certain indirect taxes which it has responsibility to pay to government . Also it earns income and income tax is payable by it on that income earned by it, which is again public money.

So in this way there is a lot of indirect involvement of public in the functioning of private company, which leads to public trust responsibility to the audit of private company