29 Mar The Role of Auditors in Corporate Organizations
Auditors are financial professionals who examine the financial records prepared by the directors of an organization for accuracy and rectitude.
Section 359(1) of the Companies and Allied Matters Act (CAMA) emphasizes the importance of an auditor by providing that auditors of a company must make reports to its members on the accounts examined by them, and on every balance sheet and profit and loss account, and on all group financial statements copies of which are to be laid before the company in a general meeting during the auditors’ tenure of office.
The absence of an auditor in any organization could hamper the quality, form and disclosure requirements of financial statements. Section 357 of CAMA is to the effect that every company shall appoint an auditor(s) to audit the financial statements of the company and to hold office from the conclusion of the next annual general meeting.
This article will examine the roles of auditors in companies and how they affect the life of businesses.
Auditors may be internal or external. Internal auditors are employees of the company who report to management. They examine the company’s business practices and risks and are able to provide advice and other consulting assistance to employees of the company. The timing of this audit is planned over a long term and is dependent upon the company’s activities.
External auditors on the other hand are independent bodies residing outside of the organization they are auditing and are typically appointed by the shareholders of the client company. Unlike the former, they have restricted relationships with their clients and examine the financial records and issue opinions on the financial statements of the company. The timing of an external audit is based on the financial year of a company.
Roles of Auditors
Reporting to Members on Statutory Accounts of the company
The company’s annual accounts are to be laid before the shareholders in general meeting. This enables the company to review the stewardship of the company in the preceding year and to approve the appointment or removal of auditors. It also influences other major decisions affecting the business such as the enhanced confidence of creditors and investors in the financial statements.
The auditors are appointed to provide independent and honest opinions on the financial position of the company. They gather appropriate and sufficient evidence and compare and confirm information until they have gained reasonable assurance on their findings.
In carrying out the above responsibility, there are a number of procedures that are observed and they are as follows;
- Investigating management and other departments to gain insight on the operations of the company
- Evaluating and understanding the internal control system
- Implementing analytical procedures on anticipated or unforeseen variances in account balances or classes of transactions
- Observing physical inventory count
- Confirming accounts receivable and other accounts with a third party.
It is the responsibility of an auditor to identify illegal financial activities and the occurrence of regulatory nonconformities in a company. The performance of routine and extensive assessment of corporate controls will ensure that the company does not undergo regulatory scrutiny for whatever reason.
Tax compliance is one of the major areas that should be reviewed. Most companies are not aware of the specific taxes they are to pay on transactions, and also periodically. The auditor is to advise promptly on all necessary steps to be taken and ensure that he updates the company on any development in the regulatory areas. For publicly listed companies, bodies such as the Securities and Exchange Commission and other professional organizations regulate their operations.
Standard accounting principles and guidelines must also be followed and this includes the International Financial Reporting Standards.
Adverse regulatory effects may include fines and non-monetary penalties, such as temporary suspensions. Regulatory monitoring helps the company to save money and also provides the opportunity to widen operations.
Internal control are policies and procedures put in place by a company to ensure the integrity of financial and accounting information as well as accountability. It is also a process for securing the objectives of organizations in operational effectiveness and efficiency, reliable financial reporting and regulatory compliance.
Auditors assist in the management of corporate affairs and provide guidance on issues of internal control. They succour department heads in identifying tools and methods of improving operating activities and putting companies on a more financially permissible path. Top executives establish these policies and procedures which require auditors to guide the company on the effectiveness and adequacy of internal charge.
Internal audits evaluate the company’s internal control including corporate governance and accounting processes. It ensures compliance with laws, reliable and expedient financial reporting and data collection. It also identifies problems and corrects lapses before they are discovered during external audits.
Summarily, auditors review the company’s accounting methods in order to ensure that the right steps are being followed to avoid fraud. Procedures for signing cheques, making payments to vendors and handling deposits are to be verified before implementation.
Auditors provide assurance to investors and creditors on the effective handling of funds.
They determine whether or not the financial records of a company reliably portray the true financial profile of a company by reviewing necessary statements and digging into relevant records.
They also protect innocent third parties from investing in entities with false financial statements (with the aim of defrauding them) or corrupt business practices.
Berkeley Legal advises companies and businesses on the essential and divergent roles to be filled in a corporate organization as well as the necessary roles to be played by these departments.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact email@example.com