MANAGEMENT is efficiency in climbing the ladder of success; LEADERSHIP determines whether the ladder is leaning against the right wall - Stephen Covey

Tuesday, October 11, 2005

Sound auditing benefits shareholders

Audit quality is vital to the proper functioning of the market economy. Scrupulous adherence to high standards of disclosure and strict compliance with legal requirements are essential to the protection of shareholder interests and promotion of investor confidence. It is the auditors who ensure that the financial statements comply with established accounting and disclosure standards. The auditor's opinion enhances the credibility of financial information, thus helping management, shareholders and other relevant stakeholders to make sound decisions. Failure by auditors to report accounting manipulations or non-compliance can lead, not only to individual bankruptcies, but also to overall loss in investment confidence.
As national economies become more closely linked across the globe, the importance of reliable and transparent financial statements in accordance with uniform international standards is becoming increasingly apparent. Audits can therefore be more useful to investors if the auditor follows the practices set out by the International Federation of Accountants (IFAC) and if financial statements are prepared according to the International Accounting Standards Board (IASB) principles or other national accounting body of a country.
To summarize, as a general rule: -
i) Audits should be conducted by a qualified and independent auditor;
ii) Auditors should understand & comprehend the business environment & tailor their programs to suit the business requirements.
iii) Principle of materiality should'nt make the audit immaterial / irrelevant.
iv) Auditors should alert accounting and auditing standard setters about emerging techniques of dubious propriety;
v) National professional accounting bodies should ensure that their members, as auditors of financial statements, comply with applicable professional standards.
vi) Ethics Ethics & Ethics - Auditors should be more catholic than the pope!


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