Financial Statements And On Design Internal Control Systems

Furthermore, when the internal control is fixed, the outside auditor can rely on the clients system and less audit testing can be conducted. When everything is improved, the management letter is given to the organization’s top management and not disclosed to the public, (Finkler, S. A., Ward, D. M., & Calabrese, T. D., 2013). Next, is the auditor’s report that entails the opinion letter usually written in three paragraphs and given to the board of trustees. Then, the opinion paragraph is added on to state the organizations financial statements are in accordance of the financial position and followed through with (GAAP). The clean opinion addresses the opinion of the auditor and the overall exercising of professionalism. Also, the complete opinion of the financial statements is to give a representation of the organization. All other opinions may be included and can be addressed by adverse opinions if (GAAP) was not in accordance. A qualified opinion can be added if a specific area wasn’t included in the financial statement when needed. Finally, the management reports are conducted by the management team and not the auditors. The management report is the annual report the topics included in the report are the internal control system and the responsibility of the audit committee.

Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.

A company’s internal control over financial reporting includes policies and procedures that pertain to the maintaining records accurately and fairly, provide reasonable assurance that the transactions are recorded according to the accepted accounting principles and the receipt and expenditures of the company being carried out with the authorization from management and directors of the company. The auditors also express an unqualified opinion for the consolidated financial statements which means that the auditor's opinion of the financial statement, was given without any reservations. Such an opinion basically states that the auditor feels the company followed all accounting principles appropriately and that the financial reports are an accurate representation of the company's financial condition.

The auditor required to providing a reasonable assurance about the financial statements that they are free of error or fraud by planning and performing audit work in conformity with GAAS (AU-C 240). According to AU-C 240, fraudulent financial reporting and misappropriation of assets are the two main category of fraud. The auditor should consider the incentive or pressure upon the employee, evaluating the environment or the opportunities to commit the fraud and looking at the justifications to committing fraud when he assessing a likelihood of fraud (AU-C 240). However, in the case they were incentive and pressure by management to meet the Wall Street expectations, opportunities to acquire companies in the future, and weakness of the internal control.

4. An auditor should make decisions in the public interest rather than in the interest of management or current shareholders in order to maintain the trust of the public. Businesses and the public depend on each, the public wants the goods and services of businesses, and businesses need the money of the public. People will not want to buy the goods and services of companies they do not trust or feel they have been manipulated by. Investors will also not want to invest in companies who manipulate their financial statements. Auditors need to make decisions in the interest of the public so that the public is aware of the truth of the businesses being audited. The fiduciary responsibility of accountants is to the public, not to management and/or directors who have proven to be self-interested and untrustworthy. If there isn’t a fiduciary responsibility to the public, public expectations will not be met, corporate credibility will diminish, and the accounting profession will suffer once again for a bad reputation.

An independent financial statement audit is conducted by a registered public accounting firm. Prior to accepting an engagement, the audit firm will conduct a preliminary review to assess any potential risks, the nature and complexity of the client’s business, and whether the audit firm has the capability and expertise to perform the audit. Once they have accepted the engagement, the audit team meets with the management of the company and the audit committee and begins to create an audit plan based on an understanding of the company’s business, its risks, and its controls to mitigate such risks, with a focus on the likelihood of any material misstatements in the company’s financial statements. The auditors might review the public record, or gather information from outside analysts, to learn about the industry and the company. The auditors determine the company’s significant accounts and the type of transactions the company is involved in to determine what audit procedures to perform and how to assign

The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.

Auditing is all about assessing the financial statements of a company in order to obtain reasonable assurance that they are prepared in accordance with the appropriate conceptual frameworks. The financial statements must give a true and fair view therefore auditors are responsible in detecting if there are risks of material misstatements caused by intentionally misstating or omitting items. Auditors must follow all ethical principles and should adhere to auditing standards in order to have an objective audit opinion. It is essential that they remain independent and free of influence from their client. They must have control over the process, in case the client wants to hide something that affects their company adversely.

Oftentimes, firms fail to put into place efficient internal controls that may unfortunately lead to corporate loss and even corporate failure. Under the authority of the Sarbanes-Oxley Act of 2002 (SOX), congress mandated that all public companies must establish and enforce a system of internal controls over its financial reporting. The role of an auditor is to evaluate these controls and issue an opinion with the goal of assuring that management

Auditors should have the clear understanding of how important independence is to their work and if there are any threats to it need to apply relevant extensive safeguards and systems within the firm to protect and enhance it. Because outside of the management of the company who are owners and other relevant third parties mostly rely on independence auditors report. And they take their investment and business decision based on audited financial statements. Auditor should be independent in mind as well as in appearance(refer APES110 definition)and also it should be maintain in all audit & review engagements work that he perform as well as in the other assurance engagements(Refer APES 110 sec 290,291).Independence is about objectivity, professional scepticism and integrity .(refer APES 110 fundamental

There are three main ways in which the auditor’s independence can manifest itself. Programming independence is essentially protects the auditor’s ability to select the most appropriate strategy to conduct an audit. Auditors must be free to approach a piece of work in whatever manner they consider best. As a client company grows and conducts new activities, the auditor’s approach will likely have to adapt the account for these. In addition, the auditing profession is a dynamic one, with new techniques which is constantly being developed and upgraded which the auditor may decide to use. The strategy methods which the auditors intend to implement cannot be inhibited in any way. While programming independence protects auditors’ ability to select an appropriate strategy, investigative independence protects the auditor’s ability to implement the strategy in whatever manner they consider it necessary. Basically, auditors must have unlimited access to all company information. Any queries regarding a company business and accounting treatment must be answered by the company. The collection of audit evidence is an essential process, and cannot be restricted in any way by Client Company. Reporting independence protects the auditors’ ability to choose to reveal to the public any information that they believe should be disclosed. If company directors have been

On an ongoing basis Auditors perform methodical and independent reviews of paperwork, financial records, documents and receipts. Due to the complexity and difficulty nature of assessing judgment on audit reports, the necessity to determine if misstatements are material enough to be mentioned in the audit report and if the existing accounting position of the business or industry can be warranted is essential (Sun, 2016). With this information auditors are able to document and determine if the information presented can be verified and if it represents a true and fair standing of the company’s financial statement at that given point in time. Internal control deficiencies occurs in situations where the manner in which financial information that is reported is hindered by restrictions placed upon management and employees. Additionally, these boundaries hinders them from efficiently and accurately identifying misstatements while performing their daily tasks (Graham & Bedard, 2015). Based on established internal controls auditors are able to perform different procedures that are required to follow while performing an audit and also at the conclusion of an audit to detect Internal control deficiencies.

In these cases, auditor’s must inform their clients about their roles and the responsibility of the companies accounting function against those of the external auditors. When the auditor

Auditing as a profession as evolved drastically over decades and as time has passed auditing activities has expanded from performing specific assurance activities for management, to assisting and advising management with their specific business activities. The Institute of Internal Auditors define internal auditing as ‘”…an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.’ (Institute of Internal Auditors, 2013) Through this definition it can be explained why auditors can be

A company prepares financial statement to provide information about its financial position and performance. This information is in turn used by a wide range of stakeholders (such as investors, banks, customers, suppliers etc) in making economic decisions with respect to respective economic interest in the company. Typically, in terms of ownership by investment in shares of the company, shareholders though own the company but do not manage it. Therefore, the shareholder and other such stakeholders to get comfort in taking sound decision need independent assurance from the auditors that the financial statements reflect true and fair view of the company affairs in all material respects. Hence, in order to enhance the level of