Auditing & Accounting Ethics - Essay Example

Auditing has to provide a reasonable assurance that financial statements(balance sheet, income statement, and cash flow statement) are free from material misstatements and present It is important to understand that auditing does not involve preparation of financial statements. The preparation of financial statement is an altogether different function and that is the responsibility of the management. An independent auditor’s report very clearly states this fact at the very start of the report.

“It is management and/ or the directors of a company who are responsible for the preparation of financial statements which comply with relevant regulations and reflect the financial position of the company. Therefore certain elements of the preparation of company’s financial statements may be viewed as undertaking management functions and hence create a potential threat to the audit firm’s independence.(CISPA Guidance Note 6, page 1)i Generally audit is conducted to ensure that clerical accuracy of book keeping functions and the drawn accounting analysis there from.

But the management may draw certain specific purposes of auditing besides reasonably ensuring true and financial position and results of financial performances. These purposes may be detection of frauds, valuing firm in a merger or take over scheme, the determination of rights at dissolution and like that. Financial statements are prepared adhering applicable GAAP. The purpose of auditing statements prepared under GAAP is to provide an independent opinion about the material misstatements in financial statement prepared as per GAAP.

There may also be auditing other than expressing an independent opinion about misstatements. The purposes of such auditing are specific and predetermined by the management. As per John P Wilson and Ebrary (2006)ii these specific auditing purposes are: Independence of auditors is the most hotly discussed subject after the occurrences of scandals like Enron and other. In