External Auditors Are Responsible For Ensuring A Company's Financial Statements

According to an article in the CPA Journal, the accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two (2) alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use.

It is common industry knowledge that an audit plan provides the specific guidelines auditors must follow when conducting an external audit. External public accounting firms conduct external audits to ensure outside stakeholders that the company’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) standards.

(1) Planning Phase: Auditing standards require the audit to be properly planned; this is to ensure that the audit is conducted in an effective and efficient manner. In order to plan properly, we need to:

Recent events have highlighted the critical role of boards of directors in promoting good corporate governance. In particular, boards are being charged with ultimate responsibility for the effectiveness of their organisations’ internal control systems. An effective internal audit function plays a key role in assisting the board to discharge its governance responsibilities. Yet how does the board – and its audit committee – satisfy itself that internal audit is functioning effectively and efficiently?

The way in which audit reports have been documented and presented has slightly changed since the 1940’s whereby the use of guidelines as provided by GAAS (Generally Accepted Auditing Standards) in the documentation and reporting of the report is still in use. The system used for reporting under GAAS within the United States is the pass/ fail model which analysts believe to be a very useful tool for concise and clear assessment of a fair reporting of the audited financial statements of a company. The new set of rules by the PCAOB sets out to seek the presentation of additional information regarding the process of audit pertaining to each business by rolling out new audit standards.

An external auditor reviews a company’s financial reporting processes to attest that the financial statements fairly and accurately represent operational results and conform to generally accepted accounting principles. The audit process provides a reasonable, verifiable basis for the auditors’ opinion regarding the financial statements. An audit plan describes the various procedures that will be used and the purpose of those procedures. While management is responsible for presenting the financial statements, the auditor is responsible for attesting to the measure of risk observed in relation to any possible material misstatement in the financial statements provided. The following is an audit plan for Keystone Computers & Networks, Inc.

Nowadays, more and more attention has been paid on internal auditing. Drawing the lessons from the scandal of Enron, Enron allowed an external accounting firm to take charge of company’s internal audit function, and consequently

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

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

One of the key roles of the external auditor is to protect the interest of the public. To achieve this, it is important for the public to trust and have confidence in the work of an auditor. It is crucial that auditors appear independent to the public in both fact and appearance. For this reason, it is the auditor’s responsibility to ensure that there are no personal or business

Auditors of a firm’s financial statements, be they external or internal auditors, have the primary objective of providing users of said financial statements with an opinion on the fairness of reported information to engender the confidence of said users (AICPA, 2012). As such, auditors must adhere to requirements set forth by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). Among such requirements; objectivity is essential in performing audit duties be they external or internal audit functions.

• Preparing the engagement letter – The nature and scope of the audit must be clearly stated in the engagement letter. This is to ensure that there are no misunderstandings between the client and the auditor.

Financial Statements provides information that is used by interested parties (users) to assess and appraise the performance and financial Status of managers and the institutions respectively and also to make economic decisions. External auditors are engaged to ensure the reliability and trustworthiness of such Financial Statement so presented. STATEMENT OF PROBLEM:

The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase

Planning an audit is one the most important phase in an audit because without enough planning programme, the auditor risks taking the work blindly which increases audit risks which will lead to forming an informed opinion on the financial statements. There are many areas in audit planning that will themselves lead to misunderstanding or misrepresentation and many auditors have fallen under criticism for lack of proper planning documentation. It is from the filed documentation that inspectors can conclude that file documentation reflects the real amount of planning done.