Content Audit by Independent Auditors

Question: Discuss about the Content Audit by Independent Auditors. Answer: Introduction: An audit is an independent and systematic investigation of accounts, books, documents, statutory records and vouchers of a company in order to ascertain whether the financial statements and non-financial disclosures present a true and fair view of the company or not. This process is mainly carried out by independent auditors who are basically the qualified accountants of the company. Any kind of discrepancy in the accounts, processes and internal controls obtained in the audit process is effectively handled by the auditors and required measures can be adopted for the same. An audit can be performed so that a quality check can be done on the regulatory compliances done by the company. With the assistance of audit, risk management policies and other efficient control procedures of a company can be evaluated that necessitates the requirement of audit in every company. An auditor conducts the audit process on the basis of substantive methods, gathers various evidences and then assesses t he same by relying on professional judgment techniques (Wood, 2011). When the audit is completed, a written opinion of the auditor regarding the financial statements is furnished to the users. This written opinion is called the audit report. In order to conduct audit, an auditor must firstly pursue an understanding of the companys operations. Secondly, the potential areas which are materially wrong are recognized and the appropriateness of disclosures and account balances are verified. The efficiency of internal procedures and controls are examined to ascertain whether accounting policies are rational or not. Moreover, the judgments and predictions that facilitate in the preparation of financial statements are evaluated (Mock et. al, 2013). Thirdly the relevant happenings that have risen after the preparation of balance sheet are evaluated. Lastly, a written opinion is provided to the company that comprises of material misstatements associated with the management, if any. Appointment of Auditor An auditor means a firm or individual or audit company appointed by a company to conduct the audit. They must be duly qualified for an appointment as an auditor and must pursue a valid registration under ASIC. It is the duty of an auditor to frame a written opinion regarding the operations of the company that is about the appropriateness of statutory book-keeping and financial reporting (Cappelleto, 2010). As said by Cappelleto (2010) training and professional qualifications are essential for becoming a duly registered auditor. It cannot be considered that these requirements are limited till one becomes an auditor. Learning and professional training is still required after one becomes an auditor. It is expected of every auditor to perform their duties with integrity but violating any code of conduct by them is treated as an offence, thereby prohibited by ASIC to perform as auditors in future. Audit is very essential in companies to know whether the books of accounts present a true and fair view of the company or not. Auditors must exercise various quality traits while conducting the audit because it helps in forming an unbiased opinion regarding the company. An auditor is basically appointed by the shareholders in the general meeting of the company. However, if they fail to appoint an auditor, the directors can appoint the same. When it comes to appointment of a first auditor, then it is upon the Board of Directors to appoint the same within a period of one month from the companys registration and that appointed auditor will hold office until the appointment of a new auditor in the next general meeting (Heeler, 2009). Furthermore, an auditor can hold office till he gets removed by the company under S.329 or the consent of ASIC has been obtained regarding the resignation under S.342 or the auditor has become deceased or the retirement of auditor becomes compulsory under provisions covered in S.327 or if the winding up order of the company has been passed. Quality traits and access to confidential information An auditor is legally bound to conduct an independent examination and verification of the financial statements and books of accounts of a company. Any information that is essential for the conduct of audit can be obtained by the auditor. While conducting the audit process, an auditor must own several qualities like knowledge ability, confidentiality, professionalism, integrity and objectivity (Kalpan Williams, 2013). Confidentiality is very essential in an audit because it is expected of the auditors to not reveal any information regarding the business to third parties or use that gained knowledge for self-benefits. This is the reason why an audit profession is viewed with respect. If an auditor violates this quality of confidentiality and misuses such information whether for financial or non-financial motive, he can be sued by the company on account of professional misconduct. On certain situations, even ASIC can come forward and ban the auditor from conducting audits in future (Hoffelder, 2012). Even the independence of an auditor is regarded as a key trait of audit because without such traits, audit process cannot be carried out, thereby making the auditor unsuccessful in their profession. A good auditor avoids such professional misconducts and fulfills his duties in an effective manner. Thus, it is totally safe to trust auditors with the books of accounts and other information whether relevant or not, for performance of audit. Non-audit of accounts With due passage of time, volume of transactions have enlarged which has facilitated in creating complexities of business structures. There must be several rules and regulations regarding the business but an appropriate understanding and compliance with the requirements are needed so that high penalties can be avoided. There are considerable number of amendments and updates of the legal provisions regarding the companies which can facilitate in the fulfillment of other requirements that the company might be unknown to. There are several companies which operate for years without a significant understanding of the legal provisions and as a result suffer an unwanted and expensive compliance exercise (Gilbert et. al, 2005). In relation to a sole trader or small partnership, requirements of audit are not compulsory but when a company has been incorporated, a two side governance is established where on one side Corporations Act undertakes a responsibility to govern on compliance related issues while on the other side ASIC is responsible for the governance of taxation matters (Parker et. al, 2011). Management of day-to-day affairs of the company is very difficult for the Board of Directors of the company and as a result, accounts are failed to be observed. Therefore, audit is needed to ascertain the true performance of a business (Sawyer, 2003). Directors are entrusted with a responsibility to look after the business by the shareholders of the company and they might be held liable for frauds or irregularities in the financial statements. Hence, if an audit is performed, management can be advocated about the discrepancies in the internal controls of the business together with various suggestions on how to resolve the same (Hoffelder, 2012). With the help of audit, systematic and appropriate tax planning, productivity and efficiency of a business can be conducted. In relation to loan agreements or business acquisition, merger etc, audited financial statements prove to be very effective. In the absence of audit, profitable opportunities can also be left out by companies (Christens en, 2011). Auditors can also advocate other companies that are performing well on matters regarding material irregularities found in other businesses and appropriate due diligence can be adopted by such company to avoid such defaults on its part in future. Enormous public money is associated with listed companies; presentation of financial statements free from such material misstatements becomes very vital. Therefore, audit is considered as a very crucial ingredient in companies. Therefore, it can be considered that without an audit, these efficacies cannot be obtained (Sawyer, 2003). Audit by firm For an efficient performance of audit, one of the quality traits highly required is independence. In relation to independence, auditors are bound to perform the audit without being induced by factors whether of financial or non-financial nature which guides towards an unfairly prejudiced judgment (Baldwin, 2010). Therefore, if such an auditor is appointed who is independent by nature that is neither a partner nor relative of the shareholders or directors or has a material interest towards the company, then an efficient judgement on the part of auditors can be provided. The auditors appointed must not be related to the shareholders and directors of the company nor has a material interest in the company because this can impact the quality of the decision made by the auditor (Vause, 2009). Audit by Jane Jane holds around 40% shares in the company and is also undertaken with a responsibility to look after the day to day affairs of the company. According to the code of ethics of the company, any partner or relative of the directors are prohibited to conduct the process of audit so that the independence quality is preserved. Thus, Jane being in charge of the management and also a shareholder of the company cannot conduct the audit process because it is impossible that the mistakes committed by her can be identified by her only (Vause, 2009). Hence even if she is a qualified auditor, she will be unable to conduct the process of audit. The selection of auditors should be conducted with accurate precision and judgment because the complete reporting procedure of companies depends upon this. This can be well established from the example of Jane who is a shareholder of the company and thus prohibited from becoming the auditor of such company. The independence of auditors have gained due prominence. The most significant reason to this is the role played by auditors in pointing out the irregularities in financial and non-financial disclosures, thereby facilitating in the preparation of true and fair financial statements. Considering this it will be beneficial and ethical to do the audit by the firm as there will be an independent decision and judgment will not be influenced. Independence of an auditor is very vital because on the absence of such independence, a biased judgment can be provided by auditors due to which the company loses reputation. This will be beneficial for the board and will even help the shareholders in getting the correct decision. References Baldwin, S 2010, Doing a content audit or inventory, Pearson Press. 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Parker, L, Guthrie, J Linacre, S 2011, The relationship between academic accounting research and professional practice, Accounting, Auditing Accountability Journal, vol. 24, no. 1, pp. 5-14. Sawyer, L 2003, Sawyer's Internal Auditing, Institute of Internal Auditors. Vause, B 2009, Guide to Analysing Companies, Bloomberg Press Wood, D A 2011,The Effect of Using the Internal Audit Function as a Management Training Ground on the External Auditor's Reliance Decision, The Accounting Review, vol. 86. No. 6