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THE BASICS OF AN AUDIT
Objective of the audit
The objective of an audit of financial statements is to “enable an auditor to express an opinion on such financial statements. ... This is an accepted fact and therefore, the auditor merely issues an opinion on the truth and fairness of the statements and does not certify them to be correct.
Responsibility of management
“While the auditor is responsible for forming and expressing his opinion on the financial statements, the responsibility for their preparation is that of the management of the enterprise. ... To stress this very point, the Institute of Chartered Accountants of India (ICAI) has made it mandatory for auditors in India to state the management’s responsibility for the financial statements in all the opinions that they issue. ... While the auditor has a responsibility to take account of any frauds that he comes across, it is not his responsibility to seek out frauds. The same viewpoint has been supported by the judiciary in the landmark judgement of Re: Kingston Cotton Mills Co. (1896) wherein Lord Justice Lopes observed that an auditor “is a watchdog, not a bloodhound.”3 An auditor should exercise reasonable care in the exercise of his duties but not approach the audit with suspicion. Even a subsequent discovery of fraud or error will not lead to an auditor being held liable so long as he can prove that he performed his duties according to standard procedures. ...
THE ISSUE OF CONFLICT OF INTEREST
Arthur Andersen’s consultancy revenues of $27 million from Enron seem to have renewed a debate worldwide about whether auditing firms should be allowed to provide other financial services to clients.
Approximate Word count = 1268
Approximate Pages = 5.1
(250 words per page double spaced)
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