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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
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During this period, a relatively small number of accounting firms could perform audits for a relatively large number of entities. Professional accountants and auditors could render reports on the financial performance of different entities and could work for different investor groups.
Hayes, R., et al (2005) argued that a self-interest threat occurs when a member firm or member of the assurance team could benefit from a financial interest or other self-interest conflict with an assurance to client. Examples of circumstances that may create this threat include but are not limited to: a direct financial interest or material indirect financial interest in an assurance client; a loan or guarantee to or from an assurance client or any of its directors or officers; undue dependence on total fees from an assurance client; concern about the possibility of losing the engagement; having a close business relationship with an assurance client; potential employment with an assurance c
The Statement of Auditing standard no. 2 states that there should be independence in mental attitude at all times is required. The factors include threat or intimidation, auditor's self -interest in getting an unqualified or other type of opinion. The auditor's job is to express his unbiased opinion on the fairness of the audit client's financial statements.
The norms of auditor's independence also denote the admirable excellence of not being prejudiced or prohibited by others in matters of opinion and conduct. It was not difficult, by subtle thought transmission for independent auditors, perhaps with some self-satisfaction to invest them with this splendid excellence of independence.2
The factors include intimidation, self -interest and the like. The auditors opinion gives credence to the financial statements. The following paragraphs explain that independent auditors are the rule and not the exception (Snyder 2002).
In question 1 the different threats of independence as it is one of the most crucial characteristics of auditor. In question 2b, the ethical dilemma of the employee of a firm has been analysed with different point of view. In question 3 the liability of an auditor
From this definition the basic understanding of the purpose of audit is that auditors verify the financial information companies prepare and provide reasonable assurance to the shareholders and other stakeholders that this financial information is free from material
Some of them may possess only a part or portion of these qualities.
I personally know a person who I can call as a good leader. He is a sales supervisor and is able to guide his team well because he believes that it is important that they
Other major issues are identification of the partner’s liability and powers to bind the organization while conducting activities in relation to the firm. There are other minor issues which need to be considered in the recovery of your organizations debts, and they
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