Premium Essay

The Purpose of Independent Auditors

In: Business and Management

Submitted By sjwbtb123
Words 1258
Pages 6
The purpose of an independent auditors’ report is to communicate the opinions of the independent auditors about the financial statements of the company they audited to the public. However, there have been an issue on the communication of the independent auditors’ report as the message intended to be brought forward by the preparers are misinterpreted or confused by the users (Asare and Wright, 2009). The reason for such misinterpretation and confusion by the users of the independent auditors’ report is mainly the use of technical language. For example, from the independent auditors’ report in the annual report of SP Setia Berhad 2012, it was mentioned that the audit was carried according to approved auditing standards in Malaysia. However, it does not clarify which standards are being applied during the course of auditing.
The misinterpretation arose from the use of technical language also lead to an expectation gap in the nature and responsibilities of the independent auditors and the public’s expectation of them (Enyi, Ifurueze and Enyi, 2012). Again, example can be obtained in the annual report of SP Setia Berhad 2012. In the independent auditors’ report, it was stated that the auditors perform the audit to get “reasonable assurance” that the financial statements do not contain material misstatement. However, the word “reasonable assurance” may hold different meanings for different individuals. By utilising these words in a report, people will have different perception of the work of the independent auditors compared to the actual responsibilities of the auditors during an audit.
There are three main causes to the occurrence of the expectation gap which are auditor’s performance, audit environment and users of financial statements (Mohammed Al-Alimi and Katdare, 2013). In the auditor’s performance cause, the expectation gap exists due to the auditor’s deficient

Similar Documents

Premium Essay

Sanderson Farms

...The over-arching purpose for audit committee charter is as follows: * Communication between the external auditor , internal auditors and Board * Oversee the independent auditor * Receive the Independent auditors’ reports * preapprove all auditing services, internal control-related services and permitted non-audit service * Review and discuss all the documents prepared by independent auditors for tax purposes * Review and discuss the annual financial statements and disclosures with management * Review and discuss the quarterly reports from independent auditors. * Discuss with management and the independent auditor the effect of regulatory and off-balance sheet structures on the Company’s financial statements. * Discuss financial risk exposures and possible loss contingencies with the management. * Review and evaluate the lead partner of independent auditors. * Make recommendation on hiring policies with the board. The over-arching purpose for CEO and senior financial personnel * The CEO and all senior financial personnel are responsible for accurate and clear disclosure in reports that needs to be filed with SEC. * Bring to attention any information he has regarding any deficiencies or misstatements or fraud that involves the management, employees or internal control auditors. * Bring to attention any violation of the Company’s Corporate Code which causes conflict of interest or anyone who is in direct contact with...

Words: 506 - Pages: 3

Premium Essay

Cae Study Enron

...for the crisis at Enron. The two main are the top executives at Enron and the auditors at Arthur Andersen. The auditors at Arthur Andersen clearly had a conflict of interest. Andersen earned more form other accounting services from Enron than from auditing services performed. This would certainly lead to the notion that Andersen could and probably did alter the financial reports of Enron to their own benefit. The top executives at Enron were also just as responsible as each of them were profiting from the buying and selling of the company’s stock making huge profits. Both the auditors and the top executives were well aware of the special purpose entities to protect the data that should have been entered on the consolidated financial statements of Enron. The auditors and the top executive should have noticed the problem with the special purpose entities and reported them. Both the auditor and the top executives were profiting from the special purpose entities not being reported on the consolidated financial statements. 2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence. One service an auditing firm has offered to its clients is bookkeeping. This can certainly be a threat because the auditor will not look as closely at work he or she performed. The audit can potentially...

Words: 1701 - Pages: 7

Free Essay

Emphasis on Matter Report

...ISA ISA 706 January 2009 International Standard on Auditing Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report 706 INTERNATIONAL STANDARD ON AUDITING 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report Explanatory Foreword The Council of the Malaysian Institute of Accountants has approved this standard in January 2009 for publication. This standard should be read in conjunction with the Preface to Malaysian Approved Standards on Auditing; Preface to International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services; Glossary of Terms and International Framework for Assurance Engagements. The status of International Standards on Auditing is set out in the Preface to Malaysian Approved Standards on Quality Control, Auditing, Review, Other Assurance and Related Services. Applicability International Standards on Auditing (ISAs) are to be applied in the audit of financial statements under all reporting frameworks. Reporting frameworks are determined by legislation, regulations and promulgations of the Malaysian Institute of Accountants and where appropriate mutually agreed upon terms of reporting. ISAs are to be applied in the audit of historical financial information. Effective Date in Malaysia Effective for audits of financial statements for periods beginning on or after January 1, 2010. Reproduction of Full Text of Final IFAC Publication “Copyright...

Words: 3662 - Pages: 15

Premium Essay

Company Law Audit

...The primary purpose of auditor is provided audit service to audit client. Auditor main duty is to offer independence verification of a company's record to make sure that all the information matches up to what was provided. The audit is an important part of the capital market framework as it not only reduces the cost of information exchange between managers and shareholders but also provides a signaling mechanism to the markets that the information which management is providing is reliable. Independence of auditor is important to external auditor’s role. An analysis of various parliamentary reports, statutes such as case law, journals and annual reports will provide a basis for considering the claim that audit independence is a central element to the external auditor's role. It can be seen through APB ethical standards govern issues relating to the integrity, objectivity and independence of auditor. The vital of auditors’ independence can be seen through in the case of Enron. The auditors who were Arthur Andersen received fees for audit and non audit services. Other than that, there were regular exchanges of employees within Enron and Arthur Andersen. Arthur Andersen did not report the fraud to the shareholder although they have made a report on the company’s account. It is because the fraud is committed by management, the auditor need to make sure that they were in management’s good books in order to obtain the contract of non audit service. However, the case of Enron has caused...

Words: 774 - Pages: 4

Premium Essay

Powerpoints

...AuditQuality Agency theory and the role of audit The Audit Quality Forum comprises representatives of the audit profession, investors, business and regulators who have an interest in high quality and confidence in the independent audit. a Q AuditQuality a Q The Audit Quality Forum brings together representatives of auditors, investors, business and regulatory bodies. Its purpose is to encourage stakeholders to work together by promoting open and constructive dialogue in order to contribute to the work of government and regulators and by generating practical ideas for further enhancing confidence in the independent audit. The initial focus of the Forum was to improve audit transparency and support shareholder involvement in the audit process. At its meeting in May 2005 the Forum agreed to explore a broader agenda which will examine the relationships between shareholders, boards, auditors, regulators and other stakeholders in the audit. Anyone interested in providing feedback on this paper should send their comments to louise.maslen@icaew.co.uk. Further information on the Audit Quality Forum, the current work programme and how to get involved is available at www.icaew.co.uk/auditquality or contact 020 7920 8493. © December 2005 Institute of Chartered Accountants in England & Wales Dissemination of the contents of this paper is encouraged. Please give full acknowledgement of source when reproducing extracts in other published works. No responsibility for any person...

Words: 5389 - Pages: 22

Premium Essay

Tesla Corporate Governance

...company. As a relative new and fast growing company, Tesla Motors has changed its Board of Directors almost every year from 2004 to 2009. In these 5 five years, the company raised over $200 million by six funding events (see exhibit 1). For each time the company raised capital, Tesla Motors chose a lead investor to be the member of Board of Directors. For example, in 2004, Elon Musk invested $6.3 million out of $7.5 million during Tesla’s first funding event Series A. Therefore, he obtained chairmanship of the board in that year. Then through the following funding events Series B, C and D and E, several investors have become the members of board as well. In 2009, in order to meet the requirements of IPO, Tesla added its first fully independent director Brad Buss. The company also established formal board committees for audit, compensation and nominating and governance as preparation for the impending IPO. In June 2010, Tesla Motors finally went public in an initial public offering at 226.1 million. The IPO was priced at $17 per share. And by now, Tesla’s stock price is $198 per share, which is 11 times of its original stock price. Moreover, Tesla Motors increased its enterprise value to 24.87 billion four years after it went public. Roles and recent challenges of the Board Tesla’s Board of Directors has very defined roles and responsibilities within the company and is able to exercise a...

Words: 5029 - Pages: 21

Free Essay

Role of Auditors

...ethics in the auditing profession which basically is integrity and objectivity for the auditors. This essay addresses dimension of the ethics in the profession of auditing main demands for them in the profession is to assess the integrity and the ethical value of their customers or clients. This is indeed very difficult task for the auditors in practice and demands a deep and robust understanding the value of ethics, ethical infrastructure with their products. According to roger D, martin auditors face ethics issues from two perspectives among which one is well known and other being known and appreciated by the people who are familiar with auditors knowing their work and responsibility. The prospective of this is to deal among the ethical foundation of the auditing profession and to show the integrity and get appreciated with the job they do. This indicates ethics prospective as seeking within their profession on how to manage and achieve their targets with no difficulty. The other prospective, which the auditors face, is to understand and get the solution for the current and new clients. This is generally referred as an assessment, which demands a complete attention and understanding of ethics, ethical infrastructure and the solution of that infrastructure. This essay will give a complete picture on why ethics is important to the auditors and how significant is the contribution of auditors is to the effective corporate governance of large Uk companies. According to Ghazala saeed...

Words: 1470 - Pages: 6

Premium Essay

It Services

...1 Satyam Scam in the Contemporary Corporate World: A Case Study in Indian Perspective Introduction Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju. The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext.Satyam's network covers 67 countries across six continents. The company employs 40,000 IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam. "The truth is as old as the hills" opined Mahatma Gandhi, christened the Father of the Nation by Indians. So a company named "Satyam" (Truth, in Sanskrit) inspired trust. The IT boom in India, was fuelled by young, middle-class, and educated, budding Indian entrepreneurs and Western firms anxious to outsource to take advantage of high-skill, low-wage worker. This trend created a new breed of businessmen for the 21st century and generated many fortunes literally overnight. The global corporate community was flabbergasted and scandalized when the Chairman of Satyam, Mr. Ramalinga Raju resigned...

Words: 16279 - Pages: 66

Free Essay

Ethics Research

...Business Research and Ethical Issues in Independent Auditing Te’ Portia Sibley RES 351 John Gilpin Jan, 22, 2014 The role of an auditor is to audit with integrity and objectivity. In an essay by Roger D. Martin, the role of an auditor should expand to assess the integrity and ethical values of their client as well. The purpose of this research was to bring to light how the auditor-client relationships could devolve into questionable behaviors. This article is in response to the regulations of the Sarbanes-Oxley act of 2002, that an independent auditing firm be contracted to audit a company in compliance with the Generally Accepted Accounting Practices. Prior to the act, company management hired the auditing firm, negotiated the fee and could request the firm perform other services. The Sarbanes-Oxley Act requires that an audit committee of the company’s Board of Directors hire the auditing firm with restricted duties. The researcher concludes that an auditor could and should be trained to understand ethics and how it influences behavior. This is a tool auditors could use to assess the integrity and ethical values of clients and better understand the ethical infrastructure (organizational elements that contribute to an organizations ethical effectiveness) of an organization. What unethical research behavior was involved? The article discusses how auditors maintain integrity and fulfill their responsibilities independently. Auditors should be aware of risks when dealing...

Words: 815 - Pages: 4

Premium Essay

Audit

...CPA and comparison of amounts in the statements to comparable financial and nonfinancial data. These comparisons, which are referred To us as analytical procedures, are useful in bringing to light possible misstatements of financial statements amounts. The distinctions between a review and an audit are as follows: Review: • It gives limited assurance that the financial statements do not have any known errors of departures from GAAP. • It generally base on analytical procedures and inquiries. • It does not consider the client’s internal controls. Audit: • It gives reasonable assurance that the financial statements are fairly presented in conformity with GAAP. (SAS100). • Auditors are in charge to obtain an understanding of client’s internal control. • Auditors should gather supporting evidence from the management records. Question 2. Third party confirmations should give consistent evidence in support of assertions made by management. Usually the truthfulness of the evidence depends on the...

Words: 1156 - Pages: 5

Premium Essay

Audit

...status. In this step, the chosen audit team gets familiar to the entity’s application systems understands the accounting process. This step, is the start of analytical procedures. 3. Develop Audit Plan Developing an audit plan consists of 5 main steps. First one is assesing the potential error level and risks. Second step is deciding on the audit approach. Third step is controlling; in this step potential errors are tested such as cutoff, valuation, completeness. Tn fourth step, substantive tests are planned. In the last step, all of the steps above are summarized and submitted to the entity. 4. Perform Audit Plan In this process, auditor performs the plans which are made in the previous step. The auditor checks the effectiveness of the audit plan. Then, substantive analytical procedures goes on. The auditor identfies the account balance and errors to be tested. An expectation of the entity’s substances are developped. The properties which requires a further imnvestigation are identified. Briefly, further investigations are planned and the analytical results are evaluated in this step. Then the tests of detail takes place. This step is required when balances can’t be predicted and it’s more effective to apply tests of detail. After all these steps are done, a financial statement review is made. Financial statement review means observation and confirmation of the whole process. 5. Conclude...

Words: 1747 - Pages: 7

Premium Essay

Accounting

...statement audit involves obtaining and evaluating evidence about an entity's financial statements for the purpose of expressing an opinion on whether the statements are presented fairly in conformity with established criteria--usually GAAP. Thus, the nature of the auditor's report is an opinion on the fairness of the financial statement presentation. A compliance audit involves obtaining and evaluating evidence to determine whether certain financial or operating activities of an entity conform to specified conditions, rules, or regulations. A report on a compliance audit takes the form of a summary of findings or assurance regarding degree of compliance. An operational audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives. Reports on such audits include an assessment of efficiency and effectiveness and recommendations for improvements. 3. Independent auditors are individual practitioners or members of public accounting firms who render professional auditing services to clients. These services may involve financial statement audits, compliance audits, and operational audits. Internal auditors are employees of the companies they audit. They are involved in an independent appraisal activity, called internal auditing, as a service to the organization. Internal auditors are primarily concerned with...

Words: 4500 - Pages: 18

Premium Essay

Auditing and Answer

...Adjunct Faculty, school of business of Independent University, Bangladesh. He provided me valuable assistance in preparing this assignment. I am deeply grateful to him, that he constructs this course to render exposure of Auditing as well as the basic functioning of such. The course builds on the capacity developed in the principle of accounting practice basic concepts and apply them in real case situations. This will help me a lot, in accounting and auditing discipline and auditors decision making process in the real world. I am sincerely thanked to him, that he gives us this case as an assignment, which will help us in future. Because of, this case is based on the practical experience from ‘real world’ situation that is applicable to all business organization. It is making us familiar with real experience. We now know what kind of fraud is taking place in organization, how we can prevent them, how we improve breakdowns, what kind of process should an auditor follows to discover fraud, all of this will help us further carrier as an auditor Dhaka April 2011. Neaz Executive Summary An audit is an examination of a company’s financial statements prepared by the directors of the company. Its purpose is to give the company’s owners an independent, professional and informed opinion stating...

Words: 6869 - Pages: 28

Premium Essay

History of Auditing

...“Audit” is defined as an independent evaluation implementation by an independent expert of a particular activity or event. There are many types of audits such as financial, operational, technological etc. The most popular reference to audits, however; are the ones that examine financial statements. Auditing is the examination and systematic structural evaluation of an organized business. The evaluation is made up of operations within the business organization and the products and developments of production occurring within the business system. An investigation into past history of a business is involved in auditing. Records and data about a company are also involved, in order to measure and discover the legality of the business's transactions operations, tax reporting, and thorough handling of finances. To be blunt, audits test the financial legitimacy claimed by a business entity. According to R. Gene Brown’s “Changing Audit Objectives and Techniques”, (The Accounting Review, Vol. 37, No. 4), reviewing the history of auditing helps to provide a basis for analyzing and interpreting the changes which have occured in audit objectives and procedures over the years. Fundamentally, this review shows a recent significant correlation between expanded reliance on internal controls and a decrease in detailed testing. The future of auditing will probably consist primarily of a procedural or systematic review, with the analysis of effectiveness of internal controls providing the major...

Words: 1188 - Pages: 5

Premium Essay

Internal Control Procedures

...is where I purchase all my necessities for the animals that I truly treat like my kids. I thought it would be interesting to see what the internal procedures for this company are. Petsmart has an audit committee which is selected by the Board of Directors, and is comprised of at least three board members who remain independent of the company and the management team. This is mainly because of the NASDAQ National Market rules that are in place and must be followed. By following these rules outlined, all committee members will meet the financial literacy requirements of the NASDAQ, and at least one member will meet the financial expertise required by the NASDAQ. The purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities relating to the integrity of the Company’s financial statements and accounting and financial reporting processes; the audit of the Company’s financial statements; the compliance by the Company with its systems of internal accounting and financial controls and legal and regulatory requirements; the independence of the Company’s external auditors and the performance of the Company’s external and internal auditors. The committee is allowed access to all financial books, records, facilities, and personnel of the company in order to properly discharge the responsibilities of the committee to the company. The committee has the power to investigate anything relating to the company and the business of the company that may be brought...

Words: 1140 - Pages: 5