Auditing as Banks Systematic Examination of Data, Statements, Records, Operations, and Performances - Term Paper Example

This section shall state the date which should not be earlier than that on which the auditor has sufficiently obtained enough relevant audit evidence on which to base his opinion.3.0 Purposes of auditor’s report

3.1 Opinion

The overall objective of a financial audit is to form an opinion on the financial statements or determine that an opinion cannot be formed based on an evaluation of the audit evidence obtained (SAS, 2015). Through the financial audit, the auditor has the opportunity to express his or her opinion on the truth and fairness of the financial statements, and this is the main objective. The statutory auditor of an organization needs to express his expert sentiment about reality and decency of the situation of the organization as appeared by the monetary record and of the benefit or misfortune as appeared by the benefit and misfortune account notwithstanding several other information in his report (Basu, 2006). The true view entails the correctness of the presented facts as well as the adherence to the relevant reporting frameworks such as the IFRS and the ascertainment that there are no material misstatements resulting to errors or fraud that may mislead the users of the reports. Fair view means that the financial statements reflect on the economic substance of the transactions and is devoid of any biases.

The responsibility for the presentation of the true and fair view of the financial statement lies with the company’s directors. Auditors are required to state in their report whether, in their opinion, the financial statements present a true and fair view of the actual financial state of affairs. The opinion part contains judgment or impression of the auditor about the truth and fairness of the accounts and balance sheet and profit and loss account (Kumar & Sharma, 2015). The auditor has a legal requirement to express his opinion as this is important for the users of financial statements in making their decisions concerning the company. In particular, the auditor has a statutory duty to express an opinion whether the financial statements give a true and fair view and in providing this opinion, the auditor needs to consider whether there are sensible justification for tolerating that the money related statements should have been prepared on a going concern basis (Gul & Fung, 2014).

3.2 Accountability

The people who prepare the financial statements are independent of the owners of the company, which necessitates the need to conduct an audit process. In large corporations, the owners who are the shareholders do not have firsthand knowledge of the financial situation of the corporation unlike in small businesses where the owner is usually the manager. In large corporations, management is divorced from ownership. One among the important characteristics of corporations is the separation of ownership and management (Thai & Association of Practice Management Educators, 2010). Corporations have very many shareholders making it impractical for them to manage their company. As such, the shareholders appoint directors so that they can run the company on their behalf. The management is responsible for the preparation of the financial statements and shareholders can access them to get the information they need.

Managers’ responsibility to the shareholders forms an important part of the objectives of corporate governance. Managers are seen as the agents of shareholders and are therefore expected to engage in activities that maximize value to shareholders by increasing the market price of the shares (Soederberg, 2009). The management performance will be reflected in the financial statements for the shareholders to see how their worth is being controlled. However, the shareholders also need the assurance that the information contained in the financial statements is credible and can be relied upon. To give such confirmation, the auditor evaluates the proof gathered as an aftereffect of methods directed and communicates a conclusion (Gupta, 2005). The auditor therefore provides external verification on the authenticity of the financial statements to reinforce the management accountability in safeguarding the shareholders’ worth within the corporation

3.3 Reliability

There are various other users of the financial statements apart from the shareholders. Such users include potential investors, tax authorities, creditors and the management. Potential investors need to ascertain the overall performance of the corporation before they decide to invest in the company. Creditors need to ascertain the financial strength of the corporation in terms of its ability to meet its long term and short term obligations. The tax authorities need to ascertain the tax liability due from the company. The audit report provides the reliability required by these parties. The auditor does not give an opinion of the worth of the company or whether it is a wise investment. Rather, the audit report provides assurance that what the management says is reliable (Hay & Willekens, 2014).The management will also need the auditor’s report to aid in the re-evaluation of the internal control system, and risk management based on the resultant feedback from the audit process.

3.4 Assurance

The overall objective of the auditor in conducting an audit of financial statements also includes obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error (SAS, 2015).The purpose of the audit is to give reasonable assurance of the financial statements within the acceptable scope. The scope is the boundary of the audit (Vallabhaneni, 2005).It is not possible to obtain absolute assurance because the extensive work that would need to be conducted may entail relatively high costs as compared to the benefits. Auditing is therefore intended to provide assurance within acceptable limits sufficient enough to ensure that the financial statements do not contain error or frauds that may bring about material misstatements.

4.0 Presentation of CBK Auditors’ report

The independent auditor’s report for Commercial Bank of Kuwait is divided into seven main parts. These parts include the title, introduction, management’s responsibility for the financial statements, auditor’s responsibility, audit opinion, and report on other legal and regulatory requirements, as well as the auditors’ signatures and address.

4.1 Title

The title of the report clearly states that this is an independent auditors’ report.

4.2 Audit report address

The report is specifically addressed to the shareholders of the Commercial Bank of Kuwait.

4.3 Introductory paragraph

4.3.1 Audit objective

The audit report expressly outlines the various financial statements that were audited. This included the consolidated financial statements of the bank together with its subsidiaries as well as the group. The financial statements include consolidated statements of income, comprehensive income, the changes in equity, cash flow statement, a summary of important accounting policies, together with other explanatory information for 2015. The paragraph also includes management as well as the auditors’ responsibilities.

4.3.2 Management’s responsibility for the financial statement

This part expresses the management’s responsibility in preparing and presenting the consolidated financial statements in a true and fair manner according to the International Financial Reporting Standards (IFRS), being the reporting framework used by the State of Kuwait. It also expects the management to put in place internal control systems which will enable it to prepare the financial statements.

4.3.3 Auditor’s responsibility

This part lays down the responsibilities of the auditor as pertains to the audit process. The main responsibility is stated as the expression of an opinion on the consolidated financial statements as per the audit. Our responsibility is to express an opinion on these consolidated financial statements based on our audit (Commercial Bank of Kuwait, 2015). It also states the guidelines followed by the auditor in carrying out the audit process which is the International Standards on Auditing (ISA). It states the need to comply with ethical requirements and the need for the auditor to plan his work and perform it in a way that will be effective for reasonable assurance in terms of material misstatements in the consolidated financial statements.

It states that the auditor uses his judgment in selecting the audit procedures as well as in the assessment of material misstatement risk that may result out of deliberate fraudulent activities or unexpected errors. The auditor assesses risks by analyzing the internal control system that is being used by the management in the preparation of the consolidated financial statements so that effective audit procedures can be adopted in the determination of the true and fair view. The auditor also evaluates whether the management is using the appropriate accounting policies and if the accounting estimates made are reasonable. The IFRS is considered in the presentation of the consolidated financial statements.

4.5 Opinion

This section contains the auditor’s opinion on the financial statements. The opinion issued in the audit report is a standard unqualified opinion. In an unqualified, it is stated that the auditor followed generally accepted auditing standards and believed the financial statements were presented fairly, in all material respects, in conformity with generally accepted accounting principle (Giove, 1992).

4.6 Report on other Legal and Regulatory Requirements

This section outlines the auditor’s report on other legal and regulatory requirements that are expected for the bank to observe in the preparation and presentation of the consolidated financial statements. The auditor expresses an opinion on the books of accounts and the contents of the board of directors’ report on the consolidated financial statements that are being maintained in line as to whether they are proper and sufficient enough for the auditor to gather evidence for which to express an opinion. The auditor also states the sufficiency of the information obtained from the financial statements as well as the explanations offered in relevance for the purpose of conducting the audit procedure. It also states the conformity of the bank’s financial statements’ contents and presentation according to the requirements laid down by relevant authorities, in this case, the Central Bank of Kuwait.

Auditors’ names, company, and signature

Two auditors have stated their names and the companies they audit firms they work for

Audit report date

The audit report date is stated as 26 January 2016

Similarity with ISA 700

Of Kuwait

The reporting framework used by the bank is the International Financial Reporting Stands issued by the International Auditing Standards Board (IASB). The auditor’s report has been presented within this reporting framework, following all the necessary requirements that have been laid down. However, there are a few elements that are missing from the report. First, the scope of the audit has not been clearly specified. Secondly, the CPA firm name and address has not been given. Therefore, the report has not been prepared in accordance with the guideline given above.

Conclusion

Auditing is a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. Public companies are required by law to avail the auditor’s report of their financial statements for every financial year. An auditor’s report provides authenticity to a company’s financial statements, which gives confidence to the users of the company’s financial statements to rely on the information provided. The Commercial Bank of Kuwait is a publicly owned company and as such, is required by law to publish its auditors’ report. The bank has published its auditors’ report for the financial year ended 31 December 2015 which is presented in accordance with the International Financial Reporting Standards (IFRS).