Auditors Meaning Definition Jobs and Roles Essay

Who are the Auditors? Define its Meaning, Definition, their Jobs and Roles with Essay? Nowadays, the business environment becomes more complex. Hence, the demands on professional audits have existed increased to provide reasonable assurance to users of the company’s financial statement. They are playing the important role in society. The important role of the external auditors is to “perform the audit to obtain reasonable assurance about; whether the entity maintained effective control over the financial statement” and “reducing the information asymmetry in the financial statement; as well as mitigating agency problems between the managers and shareholders and between the shareholders and the creditors”.

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They stand emphasized by professional bodies like the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), Association of the Chartered Certified Accountants (ACCA), Malaysia institution of Accountancy (MIA), International Federation of the Accountants (IFAC) and several professional bodies with the guidelines on issues of auditors independence parties of the companies to express a professional opinion in companies finance statement showing the true and fair view. They exist also surrounded by other regulations such as Company Law. Section 8 of the Malaysian Companies Act states that; the external auditors must approve by the Minister of Finance as company auditors for purpose of conducting the statutory audit.

Roles of External Auditors;

The role of the external auditors is to reduce the agency problem. They are playing the role of watchdogs to help the shareholder monitor the credibility of the information presented by the management; and, also verification of financial statements is showing the true and fair view to the shareholder. Enhancing credibility is the perception of the external stakeholders; that they express an opinion in impartial and reduce conflicts of interest. The external auditor recognizes by the professional bodies in emphasis on the independence on appearance to the company shareholder and the management as an agent.

In the premise of the agency theory that agents have more information; than principle and have information asymmetry to the principal’s interest because there adversely affected by the agents. Pursuant agency theory They as an agent to evaluate the company are going concerned or exist by expressing; their professional opinion in the audit report to the stakeholder and shareholder. On other hand, the audit may fail to be a reducing the agency problem. This is because the agent appointed by the shareholder to do an audit and also pay by the company on their service; this will create conflict in the financial interest of the agent and difficulties in the role in reducing agency problems.

Another roles of external auditors;

Second is the role of external auditors as independent professional parties to verify the company’s financial statement. The “Ethics Committee of the IFAC has been emphasis ethical issue about the independence of the auditors”. Without independence, they may affect their audit judgment. Independence is an attitude or state in mind, the auditors’ independence is difficult to determine to assess objectively; otherwise only the action they can use in evaluating the auditors’ independence. “Regulatory and investor have existed concerned about the effect of auditors’ increased non-audit service on auditors independence and subsequent earning quality”. The independence of the auditor the code of ethics has listed own by bodies in a range of the; “risks concerning actual and perceived independence to the external auditors”.

The auditor’s essence independence can “underlie the success and credibility of the accounting profession to serve the public”. After the Enron and Andersen cases showed that auditors stand failed to independence for providing the audit service to serve the public. This is because the auditor has a close personal relationship with the Enron Chief Accounting Officer. The Andersen audit partner provides the non-audit service to their audit client; this will conflict interest especially when the revenue of the non-audit service is greater than the audit fee; this will lead the auditor to influence their opinion on the audit report. “More surprising is that Andersen even maintained permanent office space in Enron’s building. In addition, Andersen employees attended and join many events organized under Enron management. This sign of lack of independence (real and perceived) was clear”.

Limitations;

On other hand, the role of auditors has its limitation. The first limitation of auditors is the time budget and also experience of the auditors. This becomes a part of influence audit judgment to express an opinion on the financial statement. This will increase fraud risks or an inability to adequately staff to do an audit to get the evidence. The auditor engagement exists time-limited and provides the non-audit exist restricted; the audit client will try to influence the audit fees to the external auditor to provide the unqualified report. The increase from the client’s time pressure, also the auditor may make the professional judgment of concessions.

The negative time pressure may affect the fewer experience auditors to get enough evidence bypassing every audit stage without completion of audit work and reducing the time compare to actual time spent on specific audit work. Also, They may consider that additional time spent to do an audit; yet finding significant issues in the qualified opinion; the auditors with subjects framing of the additional audit time as a “cost” or a “loss”. On other hand, they may lose function, significant audit adjustments may be related to reducing the risks associated with a steadfast; and, the use of additional time may consider appropriate; because the company may have received something in return for excessive audit time things.

External Auditors;

They are playing an important role in society days; and, there also pertain to some regulations to provide a service in society. Also, They are in existing “auditing standards about the audit principle and framework, responsibilities of the auditors, and audit procedure and quality control”. These auditing standards exist not designed to detect fraud other than financial statement fraud. The independent auditors exist not expected to be experts in the authentication of records and documentation with finding; “asset fraud, a merely material misstatement of the financial statement”.

The Association of Certified Fraud Examiners (ACFE) has a predication belief that the fraud may have occurred. Therefore they have an expectation gap within the user of financial statements with auditors. The user expectation the auditor delivers the financial statement is free from fraud. Now a day they stand being challenged and sued by investors because of financial fraud. The financial statement fraud will suffer to external auditors in monetarily and reputational of the audit firm; when they exist failed detected the financial statement frauds.

Clients;

When the external auditors do not meet the client or the financial statement users expect; also they may be responsible under the common law or statute law depending on the nature of action and the relationship between the party auditors. Under regulatory of the Common Law, the external auditors may; “lawsuit by brought against auditors on the law of contract and tort actions for failure to exercise the appropriate level of professional care”. This basis the characteristic of a lawsuit arising from the external auditors’ is because the auditors are failure to exercise the professional care in doing the audit with will impact the end-user of the financial statement.

Under common law, concepts exist developed through the court decision based on the tort of negligence; in which negligence will affect the end-user of the financial statement. On other hand the auditors may fail to fulfill the requirements by the regulatory of Common Law, in the case of KPMG had existed sued alleges in the performed grossly negligent audits and also reviews and failed to detect the material error concerning New Century’s residual interest on loans it securitized and on its loan repurchases liability.

Ethical Behavior;

The external auditors should have an ethical behavior in mine with is “concern to characteristics as honesty and integrity, reliability and accountability; as well as all other aspects of attitude right versus wrong behavior”. The AICPA Code of Professional Conduct is control the quality of auditing and other accounting services. In the MIA the code of ethics stands referred to as MIA by-laws to the auditor to the indoctrination of sound professional practice and the prevention of illegal and dishonorable to the professional practice. Also, The Auditor’s judgment of the financial statement has a positive impact on the ethical code and experience. The requirement of the Code of ethic is relating to integrity and objectivity. Integrity and objectivity are important qualities for a professional accountant. “By-law imposes to all members to the obligation to be fair, intellectually honest and be free of conflict in their professional work”.

In the IFAC code of ethics as mentioned independence is a fundamental characteristic of the external auditor in the audit engagement. The code of the professional ethic will issue preserve the public to more confidence in the professional. Also, The code of ethics may include the self-review threat. The auditor must be to act on the professional independence of the audit client. The independence of the accounting firm stands impaired to perform the bookkeeping or makes an account or management decision for the company and takes primary responsibility for the client in all financial information. In this situation, public accounting may have a dual purpose because the public accounting firm may provide the financial statement or other information and do an audit on the financial statement to provide an audit opinion on their work.

Incorporate governance;

Incorporate governance, the external auditors according to the Company law check the financial statement issued by the managers to the shareholder. Corporate governance has existed defined in the range of organizations that protect and enhance shareholder interest. In the current view on the investor, the auditors assist the investor in the final decision by providing an independent professional opinion. Also, external auditors assist investor decision-making by enhancing the credibility of financial statements.

The “role of external auditors is to express an opinion concerning whether the financial statement gives a true and fair view of the company’s financial position and the final result in operations for the year ended”. On other hand, the auditors may fail to fulfill the requirement of the corporate governance to check the financial statement is showing a true and also fair view to the shareholder. In the case of Enron and Anderson, the auditors exist failed in the corporate governance; Although the existing approval, the procedure is sound sufficient, to ensure that the Supreme Audit quality but sometimes unable to detect misappropriations.

Conclusion;

The auditor may need to continually maintain their professional knowledge at a high level. Their need to continue to take courses is provided by the professional body to maintain a high level of professional knowledge. The auditors may measure always keep up to date the auditing standard is their need to follow up in the time of the providing the audit job to the client. The auditors need to always be independent in mind and appearance, to express an opinion in company financial statement and reduce the risk of the end-user of that financial statement. There are also cannot easier exist influenced by other person is provided the professional opinion in the audit report.