In: Accounting
(a) Discuss the extent of an auditor's responsibilities to shareholders and others during the course of their normal professional engagement.
Auditors Responsibility to Shareholders
Auditors are responsible to verify the accounting records and state the opinion on the status of the organization records and its position. As share holders are owner of the organization they need true status of the organization. And also, the auditors are independent party, therefore they are expected to report to shareholders and their representative such as board of directors.
The key Responsibilities of an auditor towards shareholders are duty to make certain inquiries, make a report to the company on the accounts examined, make a proclamation in terms of the provisions set, detection and prevention of fraud, duty to report fraud, duty as to substantial accuracy.
Since an auditor is an independently qualified person who is appointed to give shareholders an independent, professional and informed opinion on the financial statements prepared by the directors. audit can also be of benefit to third parties wishing to engage in business with the company as it helps to assess the reliability of the information provided.
The main responsibility of an auditor is to report to the members. The report must state whether, in the opinion of the auditor, the financial statements give a true and fair view of the state of the company’s affairs and whether they have been prepared in accordance with relevant provisions of the Companies Acts and other relevant legislation and accounting standards.
The auditors’ report must be made available to every member and be read at the AGM. If the auditor cannot give a positive opinion, they may give:
qualified opinion – this states that the financial statements give a true and fair view of the company’s state of affairs except for certain stated circumstances;
A disclaimer of opinion– this states that the auditor is unable to form an opinion as they were unable to gather a sufficient amount of competent evidence; and
An adverse opinion – this states that the financial statements do not give a true and fair view.
If an auditor discovers that a company has not kept proper books of account, they must notify the company of this opinion. If the directors do not take the necessary steps to correct this situation within seven days, auditors must notify the Companies Registration Office of their opinion.
If auditors discover information during an audit that leads them to believe that the company or anyone associated with it has committed an indictable offence under the Companies Acts, they must report this to the Office of the Director of Corporate Enforcement (“ODCE”) and help the ODCE with their investigation of the report.
Auditors must carry out an audit with professional integrity. If they do not comply with their duty to exercise reasonable skill and care, they may be liable for damages to the company or to its members in particular. The independent auditor also has a responsibility to his profession to comply with the standards accepted by his fellow practitioners.
Auditors responsibility to others (investors, debtors, creditors, government institutions, financial institutions, and general public)
The auditors are responsible towards other stake holders such as investors, debtors, creditors, government institutions, financial institutions, and general public.
The investors are solely relying on the audited financial statements in order to make investment decisions. Therefore, auditors are morally responsible towards investors to secure their capital.
Also, the financial institutions especially banks provide financing facilities by looking at auditor’s opinion. Therefore, the auditors are responsible towards financial institutions as well.
The tax is calculated based on audited financial statements, where the tax income is used for development purposes of the country. Therefore, the auditors have to verify the records and state true status as part of development purposes.
Also, the auditors are responsible to customers, suppliers as the survival of the organization depends on the auditors’ review.