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Role of external auditors for financial statements
Role of external auditors for financial statements
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QUESTION 1: Auditors’ Duties and Responsibilities 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. Required: Identify and explain (in your own words) the key requirements that an auditor must follow in order to meet the “reasonable skill, care and caution” criteria in an audit of a Financial Market Conduct (FMC) reporting entity in New Zealand. Provide appropriate references. *** Exercise of “reasonable skill, care and caution” varies according to situations (Lopes, J. in Kingston Cotton Mill Co 1896). Nevertheless, to achieve such in performing an audit, its an auditors responsibility to comply with the requirements cited in ISA (NZ) 200, as follows (1) Ethical requirements …show more content…
As per ISA (NZ) 200-A17, this ethical requirement includes the auditors integrity, objectivity, professional competence and due care, confidentiality, & professional behaviour. Integrity is an ethical attitude which includes the auditor’s honesty, accuracy, and fair practice. Objectivity is a mental attitude while carrying out the audit wherein the auditor is fair and just with all his/her work. Professional competence is the knowledge and skill of the auditor, gained through education, training and experience, while due care is a degree of care of an auditor on certain situations wherein an he/she must act diligently. Confidentiality is the commitment of the auditor not to disclose any information regarding his/her client, unless required by law. Professional behaviour means the auditor must act in accordance to the law and set of standard as a manifestation of respect to the
The specific obligations in this case would include monitor corporate governance activities and compliance with organization policies, and assess audit committee effectiveness and compliance with regulations
This organization has been setting ethical standards and publishing the Code of Professional Conduct for the profession since the early 1900s. A Code of Professional Conduct is necessary for any profession to help maintain strict ethical standards. This organization is the basis of ethical reasoning in the accounting profession because of what the Code of Professional Conduct covers. The code is comprised of a preamble and six articles. The preamble and the six articles serve as a foundation to provide guidance and guidelines for accountants to overcome any emerging ethical issues with ease on a daily basis. The six articles’ purpose is to protect the public, investors, and creditors. The AICPA Code of Professional Conduct consists of: Responsibility, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of
In order to implement any audit, the board should establish measurable standards, which seem rather difficult at the present time, considering that a limited ethics program currently exists (Ferrell, Fraedrich,
Responsibility of express opinion of these financial controls and statements within its internal control of such reports. This firm conducted the audit in accordance with PCAOB standards of the United States, which require the plan and performance of an audit for reasonable assurance that those financial statements are both free of material misstatement and that effective controls are in place and maintained to eliminate those misstatements. Our audit of financial statements included examination and testing of internal controls, inventory, payroll, deposits and withdrawals, along with receipts and payments. These evaluation gave the audit team an understanding of the internal procedures and controls when dealing with financial controls and statements, gave the audit team a reasonable basis for our
As accountants, we have an ethical obligation under the AICPA Code that requires us to place the public's interest ahead of all other interest, including our own self-interest and that of our employer or client. We must be independent, make decisions objectively, exercise due care, and must act with integrity. The standards of the Institute of Management Accountants (IMA) are similar to the Professional Conduct in the AICPA Code. Moreover, the principles of the AICPA Code include responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services. The IMA provides guidance on issues relating to competence, confidentiality, integrity, and credibility. The Resolution of Ethical Conflict section
The need for expansion in global business is a necessity for big companies, and many Canadian companies are expanding their operation into overseas markets. This is a new challenge to the performance of high quality auditing, because new transaction will be made in these markets which are not necessarily follow Canadian GAAP standards for purpose of reporting. The auditors must ensure they understand business standards and regulatory that is applicable to entities that now form a part of consolidated financial statement. The auditors need to understand business structures which exist in foreign countries.
The need for Professional Scepticism (PS) has become a paramount part of the auditing process. From judging critical evidence to being the watchdog on potential conditions that may cause material misstatement, the auditor plays a critical role. PS is also known as professional judgement. The Australian Auditing Standards ASA200 (AUASB 2015) defines PS as, “an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.” This essay will discuss PS and how it is an essential skill to audit quality and their role performance. We will use peer reviewed journals to aide our discussion with how the concept of PS applies to auditors.
The International Federation of Accountants (IFAC) is a global body that sets professional standards for the accounting profession. IFAC has an Ethics Committee which released a new code of ethics, effective from June 2006 (George, 2005), and updated this code, effective from January 2011. There are five fundamental principles in this code of ethics, objectivity, integrity, professional competence and due care, confidentiality and professional behaviour. Objectivity implies that an accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgements (George, 2005). Accountants must be honest, straightforward and act with integrity in all business relationships. The principle of professional competence and due care requires accountants to act diligently and in accordance with current technical, professional and legislative requiremen...
It is highly essential for accountants and business professionals to maintain a standard of ethical conduct in the workplace as the nature of their work places them in position of trust. (Senarante, 2011). Accountants have the responsibility to ensure that their duties are performed in accordance with the five fundamental principles set out in the Code of Professional Ethics such as integrity, objectivity, professional competence and due care, confidentially and professional behaviour (Cunningham et al. 2014). Accountants are expected to be reliable and trustworthy. Thus they are required to act ethically in relation to their clients, employers and the general public in order to provide quality services in the best interest of the society (Eginiwin & Dike, 2014). The International Federation of Accountants (IFAC) have established a code of ethics for accountants, allowing each specific country to add their own national ethical standards to the code to reflect cultural differences. The code provides emphasis on the five fundamental principles as well as resolution of ethical conflicts. In Australia, professional accounting bodies such as CPA Australia, Institute of Chartered Accountants in Australia (ICCA) and the Institute of Public Accountants (IPA) adopt the Australian Professional and Ethical
While the responsibility to stand behind these statements lies with management, auditors are charged with independently investigating and examining those documents and producing an opinion founded on that audit. Auditors produce an opinion on whether a company’s financial statements are presented properly in all material respects, in compliance with GAAP. Furthermore, for companies impacted by Sarbanes-Oxley requirements, auditors are obligated to, as part of their larger financial audit, audit and issue an opinion on management’s internal controls and the overall effectiveness of a firm’s internal control over financial reporting. 3M’s “Report on Internal Control Over Financial Reporting” discloses that public accounting firm, PricewaterhouseCooper LLP, conducted such an audit of the company and issued an unqualified opinion on the effectiveness of 3M’s internal control over financial accounting (Gibson, 2013). An unqualified opinion is the best possible outcome of an audit and signifies compliance with GAAP and fair representation of financial information. For better or worse, the accountants behind audits are often included as defendants in lawsuits pertaining to financial statements. If 3M’s earnings were falsified in their annual report, for instance, an investor who relied on the false information to make financial decisions might sue both 3M and their auditors who overlooked the deceptive earnings figures. Accountants and auditors are seen as responsible for the financial statements they create or audit. After all, these are the professionals that are licensed to handle and certify critical information produced by corporations. Just as a disgruntled patient may sue a doctor for medical malpractice after a botched surgery, so too might a user of financial statements who incurred a loss based on dishonest or incorrect information place blame on
The Code of Ethics for professional accountants includes set of the rules and guidelines Mostly code of ethics can contain set of ideal professional conduct and acceptable behaviour as well as define unacceptable behaviour []. Main advantage of he code is that accountants can emphasis on the positive attitude and activities that may encourage an effective...
The code of ethics promotes the ethical values that internal auditing professionals are to uphold and practice by. The first principle in the code of ethics is integrity. The integrity of an internal auditor builds the foundation for trust with the client; if a client trust’s the auditor the communication process will be smoother when delivering difficult messages. The second principle is objectivity. Objectivity requires an internal auditor to preform and report the results of the audit without any bias. Objectivity aids in the delivery of grim news because the stakeholders can be assured that the findings and reports are the truth and aren’t swayed by the dislike or favoritism by the auditor. The objectivity principle also requires an internal auditor to disclose all material known facts so the stakeholders have the full picture and not just bits and pieces that could alternate the overall impression of the final report. Another principle within the code of ethics is competency. The competency requirement ensures that an internal auditor can’t perform and audit in which they don’t have the expertise or knowledge. Knowing that the auditor performing the audit and delivering the difficult findings and messages is competent and knowledgeable in what they are doing eases the communication process. Clients have the security and comfort of knowing that the auditor isn’t just pulling something out of a hat so that it appears as though they know what they are talking about. The auditor must actually understand the rules, regulations, laws, and obligations a company has to abide by before even entering into an auditing
A qualified financial statement contains fair representations of an organization 's financial result, condition, and cash flow which is structured to ensure the organization is in compliance with GAAP . In the standard format, an organization should follow accounting principles to comply with internal accounting systems, disclosure rules, auditor oversight, and ethics, in the event, the above-mentioned principle does not meet, an audit failure may occur. An auditor failure may result as the request of clients and senior partners did not stand firm to refuse an unethical request from the clients. I will discuss a case of audit failure due to incompliance in the internal accounting system 's disclosure rule and firms ' right to refuse risky clients
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.
Apart from personal behavioural traits, an auditor’s integrity also affects his professional scepticism. The justification will be discussed