In general financial statements represent a formal record of an entity’s performance over a certain period of time which contains useful information to shareholders to assist them in making decisions (IFRS, 2014). In recent years, a wide range of users including shareholders and investors are interested in financial statements such as competitors, lenders and so on. Hence the audit report is prepared to provide an independent examination and the expression of opinion on financial statements (Millichamp and Taylor, 2012). However whether the information that auditors faithfully present or the users can totally rely on might still be the big question. Nonetheless under rules and regulations set by accounting boards, audit reports show the external opinion on true and fair view of the company’s financial statements and reduce the “Audit Expectation Gap” (AEG).
Different users have different purposes when using audited financial statements (Millichamp and Taylor, 2012). IASSB chairman Arnold Schiller also argued that a quality and informative audit report is the one that delivers value to the entities’ stakeholders not just shareholders (2012). For example, the audited reports might give shareholders a picture of how profitable company is to see the potential growth and safety of their investment or lenders such as banks would be interested in the level of debt within a company and evidence that loans would be able to be repaid. Management is interested in analysing statements to measure the effectiveness of its policies and decisions, as well as government which would also be interested in determining the tax liability. Many people would prefer to use statements that have already been certified to make their decision due to the ass...
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...Objective Look at the Value of the Audit Report [online] available at: http://www.trueandfair.org.uk/questions-answers
(Accessed on 18th Feb 2014)
IFRS (2014) Financial Statements Presentation [online] available at: http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Statement-Presentation/Pages/Financial-Statement-Presentation.aspx (Accessed on 13th Feb 2014)
IFRS (2012) IFRS Outlook: Insights of IFRS for Executives and Audit Committees [online] available at: http://www.ey.com/Publication/vwLUAssets/Outlook_September2012/$FILE/Outlook_September2012.pdf (Accessed on 20th Feb 2014)
Millichamp, H., and Taylor, J (2012) Auditing 10th ed. London: Cengage Learning EMEA.
The CPA Journal (2014) Accounting and Auditing: The External Confirmation Process [online] available at: http://viewer.zmags.com/publication/56adc02d#/56adc02d/44
(Accessed on 16th Feb 2014)
The Securities and Exchange Commission requires that publicly owned businesses provide annual reports, which are available to the public. Many different people use annual reports, to make informed business decisions. Management from the company uses the information to determine a number of items. Some of these items are the profitability of the company, the inventory turnover rate, and the accounts receivables rate. Creditors use the annual report to determine how well a company can satisfy its current liabilities, as well as, how the company is doing in the aspect of long tem survival. Another group of people who use the annual reports furnished by companies are the investors, who can purchase shares of stock from the publicly company. Annual reports are very important to these people, because they are an over all picture to help them determine the over all stability and reliability of the company’s financial outlook. These annual reports are important because they do not only contain the financial statements of the company, but there is a management ‘s note to discuss reasons for any unexpected numbers, and an auditor’s report, from an independent accounting firm, who either agrees or disagrees with the financial numbers. Market reporter Matt Krant said, “Ignoring these reports is akin to driving down the freeway blindfolded.”
Due to the use of the company’s annual report for users to make decisions, ensuring that the financial reports convince the objective of general purpose financial reporting and qualitative characteristics of useful financial information as outlined in the IASB September 2010 ‘Conceptual Framework for Financial Reporting’ (CF) have become extremely important. Such failure of disclosures can mislead information on the company’s financial statements.
Financial Accounting Standards Board. (2006, July 6). Conceptual Framework for Financial Reporting. Financial Accounting Series , 1-55.
As quite data, we tend to use to assist and result in the acceptable call within the business ought to be consistent and dependable. On contrary, the knowledge that isn't reliable will result in injury and ineffective use for the resources of the corporate, unhealthy and damage result to the business and influence its higher cognitive process. To avoid unreliable data and wrong higher cognitive process and to confirm the accuracy within the work in step with the foundations and rules, there should be what's referred to as proof or (Audit), which is handled by freelance and qualified individuals. From all of this, we will acknowledge the importance of auditing method for all businesses. Within the corporations, the auditoris required to state clear opinion, if or not the annual accounts offer the truthful sight concerning the state of the corporate and its money position. To precise the opinion, the auditors shouldmeasure the register of the business, examine its assets and transactions. Altogether cases, the auditor ought to perform his job with due skilled care and high skil...
Due to regulations that require financial information to be standardized, two primary forms of accounting have been developed to address concerns specific to an audience. Financial accounting is the most public accounting information and is available to external users, such as creditors, auditors, and analysts. This information is an aggregate overview of the company’s financial statement because they are used by external users and controlled by reporting standards established by the SEC and the Financial Accountings Standards Board (Walther, 2009). The information provided in the financial statements under the financial accounting system is used by auditors to analyze the businesses financial position.
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
Audit quality is often defined as the probability that auditors will detect and report misstatements or unintentional measurement errors in the financial statements (DeAngelo 1981). This stems from an auditor’s competence and independence, in both how they are perceived and in actuality (Watkins et al 2004). This is of vital importance to analysts because financial statements form the basis of forecast inputs. The outcome of a financial analysis model can only be as accurate as the values used to create said model. As such, if input values are inaccurate, the output (forecasts) would no doubt also be erroneous. Dang (2004) argues that by limiting errors in the historical data used to formulate forecasts, high quality audits will improve the
Waqas A, 2013, ‘Analysis of Factors Present in Financial Reporting Standards Leading to Manipulate True & Fair View of an Entity’s Financial Statements’ Social Science Electronic Publishing 2014, KPMG p.1
The auditor is supposed to make assertions and assurance in addition to the client’s assertion. There is a difference between review and audit of financial information because of the level of assurance. An audit provides a high level of assurance on the financial statements compared to the review of financial statements. In addition, with an audit the auditor is required to provide a high level of evidence to support assurance of the report while the less evidence is required in a review. An audit is quite more comprehensive in scope than the reviews thus providing enough information required by the users of financial statements in making decisions.
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
The purpose of an audit (purpose). To provide financial statement users with an opinion by the auditor on whether the statements are presented fairly, in all material respects, in a manner that conforms to an applicable financial reporting framework. It’s important the audit does provide the ultimate user with financial statements needed to understand where their company is going and how it can and will succeed.
Auditors have a role to report an independent opinion regarding the truth and fairness of financial information presented to them by management which enhances the financial reporting system. The need for independence arises because, generally, users of financial statements do not have all the information necessary to judge the objectivity of the auditor. Auditors must not
Internal auditing has become an important part of corporate governance. Internal auditors are tasked with protecting an entity’s assets and producing reliable accounting reports used in decision-making processes. However, the most vital role of today’s internal auditor is testing the efficiency and effectiveness of all aspects of an entity’s operations (e.g., financial and nonfinancial; In’airat, 2015). According to In’airat, the components of corporate governance must cooperate with each other to ensure the efficiency of a functioning business. These components of corporate governance include, but are not limited to, the audit committee, internal auditor, executive management, financial management, and external auditors. Of these components,
The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.