An auditor is an autonomous qualified professional individual in auditing a company’s monetary statements. The Eden Company must hire external auditors even if the company audits itself. Auditing is a way of measuring the efficiency of a company’s inner control that is crucial for attaining a company’s set objectives through dependable financial reports. The paper aims to discuss why there is a need for an audit, how the auditor is appointed, rights of auditors and responsibilities of directors. The paper will also focus on advantages and disadvantages of auditing standards to auditors and the consequences when enforceable by statute. Finally, the paper will discuss the practical application of the professional code of ethics in auditing engagement.
Why There is a Need For an Audit
Auditors inspect the company records as well as operations to make sure fiscal statements are precise. Credibility is very crucial to the Eden Company, particularly in the initial years of operation as they try to establish their affirmative status. Since auditors do not work straight for the company, they are not that prejudiced. In addition, external auditors assist the holders of the company to find out if the company is in conformity with the relevant interior Revenue Service regulations. Due to the fact that an external auditor has no connection with the company, they can readdress the behaviour of the company with no fear of consequences if you are not in agreement with what the auditor comments (British Standards Institution 2004).
How the Auditor of a Company is Usually Appointed Under Legislation
The initial auditor of a company is normally appointed by directors or otherwise the shareholders can appoint the auditor at their first yearly General Meeting. Auditors are appointed at the Annual General Meeting and occupy office from the end of the meeting till the end of the immediate following Annual General Meeting (Cooper, 2009).
What the Auditors’ Rights Typically Are Under the Legislation
An auditor of a company has various rights: a right to access company’s books, vouchers and accounts at any time. The auditor also has a right to receive any information or explanations, which he/she thinks is necessary as he/she performs the duties as an auditor from the employee, directors as well as from other stakeholders of the company (Birds 2010). At the same time, auditors have a right to claim from the audited bodies in a realistic duration stated by the administrative centre, full and honest information, assertions and clarifications regarding audited statements and identified shortcomings from the audit.
The Responsibilities of the Directors Concerning the Accounting Function of the Company
The directors have the responsibility to ensure that accounting records and other files related to the financial and transaction situation of their company have proper records to allow making of fair and honest scrutiny of loss and profit accounts and balance sheet. In addition, the director has a responsibility to ensure that the financial year of every subsidiary matches the investment company’s financial year in a period of two years. Along with that, the director should present audited accounts once in each calendar year (Glynn, 2008). Finally, the director should organize a report in harmony with his or her resolution that will be attached to each balance sheet laid earlier than the company’s general meeting.
Discuss the Advantages and Disadvantages of Auditing Standards to Auditors and the Consequences of Them Being Enforceable by Statute
Auditing standards have many advantages to auditors. Auditing standards define to the auditors what an audit is, enhance consistency, and smoothen the progress of their knowledge giving ways to critic performance as well as influencing the auditors’ behaviour. In addition, audit standards reimburse for the absence of inspection of the outcome of the audit through an emphasis on the process of auditing. At the same time, to some extent, auditing standards diminish the information gain owned by the auditor by being a professional expert that can prompt the under-audit of the auditor. Furthermore, auditing standards balance the variety of requirements of numerous stakeholders that can inspire the audit to the least ordinary denominator and develop a market founded on unpleasant collections (Miller & Jentz 2013). Lastly, auditing standards give a scale that promotes the calibration of the legality of an auditor’s accountability in case of an unsatisfactory audit.
On the other hand, auditing standards have a number of disadvantages. In other cases, auditing standards depress the application of decisions made by auditors. Hence, the auditors feel undermined. Again, auditing standards limit the possible claims for financially valuable options standards of assurance. In addition, auditing standards lead to the extreme bureaucratic routine in the manner of the audit. Auditing standards also do not address all incidents fully and lead to substandard results delivered by auditors. At the same tme, auditing standards mainly put their emphasis on past issues and little emphasis on awaiting new issues (Turner & Weickgenannt 2009). Another limitation is that auditing standards focus on documentation and conformity instead of intuition as well as looking for verifications suitable to the dangers and circumstances.
At last, auditing standards can undermine the financial quality of the audit to various stakeholders, and this leads to experiences of pressure for audit organizations. The effect of auditing standards on economic statements of regulations and laws differ considerably. These laws, under which the auditing standard is subjected, comprise a valid regulatory framework. The issuance of some laws and regulations on auditing standards can have an immediate impact on a body’s financial statement. Auditing standards operate in highly regulated companies where there are laws and regulations that connect to the operating aspects of the company. In addition, auditing standards have laws that should be adopted by the administration or even develop the conditions, under which the organization is permitted to perform its duties (International Monetary Fund, 2008). When companies are not in compliance with laws and regulations, it may end to heavy penalties and litigations or any other effects for the company, which may have an impact on the fiscal statements.
Discuss the Practical Application of The Professional Code of Ethics When Undertaking an Auditing Engagement
The code of professional conduct refers to a legislated code that highlights proficient and ethical benchmarks needed by the company and auditors. This code draws the responsibilities auditors owe to the companies they are working on, as well as other agents. The code of conduct consists of various principles that are categorized into five groups. These categories include integrity and honesty, confidentiality, independence, competence and other responsibilities. It is good to note that this Code applies to all auditors and companies that are registered. All auditors and company holders must uphold honesty and integrity.
The companies must conform to the auditing standards in the performance of professional issues. This principle of integrity places a duty on all auditors to be open and honest in every profession and company relations (Pickett 2013). Integrity connotes to fair doings and truthfulness. An auditor should not be connected with a report, conversations, returns or any other information that has false and misleading statements, statements that are supplied carelessly or omissions of information that can result in misleading assertions (Gray 2007). In situations where the auditor is associated with this information, he or she has to make a move to be disconnected from that claim.
In addition, the principle of confidentiality places a duty on all auditors to abstain from revealing the company’s private information because specialization and business connections lack proper and particular rights. The auditors should as well avoid improper application of private information received from the business and professional connections to their benefit or the benefit of other external parties. On the other hand, auditors uphold the principle of independence by acting in a lawful way for the best interest of their customers. Auditors must have sufficient plans to overcome disputes of interest that can be introduced in connection with the activities undertaken in the company by the capacity of the auditor (Gray, 2007). Conversely, the company stakeholders and directors must also uphold the principle of confidentiality when working with auditors.
Lastly, the principle of competence ensures that auditors give the company services that are competent. The auditor must possess knowledge and skills necessary for conducting the auditing process. The auditors must also ensure that taxation rules are used in a correct manner to the situations in connection with giving advice to the company being audited. The last principle to be highlighted is other responsibilities. The auditor must not intentionally hinder the proper management of the auditing process. In addition, the auditor should inform the audited company about its rights and responsibilities under the code of conduct that are related to the auditing services to be provided (Pickett 2013). Hence, it is crucial for companies to hire auditors to evaluate their businesses to avoid its failure. Through auditing, companies will know how to manage their tasks effectively through monitoring their controls.
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