THE ROLE OF AUDITORS WITH THEIR CLIENTS AND THIRD PARTIES

CHAPTER ONE

1.0       introduction

1.1   Background of the Study

In order to appreciate the significance of correct interpretation and application of

International Standards on Auditing (ISAs), one needs to first set the historical context.

Auditing has been a worldwide profession for hundreds of years. Historically, auditing was
concerned with accounting for government activities and reviewing the work done by tax
collectors. In the early years of auditing, the keeping and maintaining of accounting records
was done primarily to detect fraudulent activity. The industrial revolution in the mid-1700s to
the mid-1800s was responsible for the increased demand in auditors because this period saw
an increase in responsibility being passed from owners to managers. This led to an increased
requirement for auditors who were independent of management and who were engaged not
only to be alert for errors within financial records but also errors within the records. In simple
terms, deliberate errors in order to achieve personal financial gain were deemed to be
fraudulent activity (as is still the case today) whilst error was (and still is) unintentional.

During the early 1700s the concept of ‘sampling’ was introduced. Sampling is where auditors
select a sample of items that make up various balances and was used where it is not
economically viable to physically examine all the transactions that have taken place. This
practice is still pivotal today. This is one of the main areas which this publication looks at in
respect of the.
1.2   Aims and Objectives of the Study

The main objectives of this research work are to look into the roles of auditors with their
clients and third party. This project is design to enlighten the public that the work done by the
qualified verification of financial statement. Auditors need to exercise duty of care to the
client and third parties.

Also, the independence of an auditor is also important is this issue and this shows that work
of professional auditor cannot be over emphasis in every sector.

        In such situations, auditors, their clients and third party generally seek ways to resolve
their disagreements.

1.3   Significance of the Study

     The study would increase the stock of professional auditors in terms of know ledge and
professional skills on how to relate and operate with their clients and third party. The study
would also serve as a useful reference material to students of accountancy and future research
would find this work valuable.

1.4   Limitation of the Study

     The research of this nature involved spending on stationary, transportation and many
others. There is a problem of insufficient capital in term of money, materials and time.
Despite this constraint, enough will be put into the write up to justify the time and resources
that would be spent.
1.5   Definitions of Terms

Independence:

This means the possession of integrity, ability to be self-reliant and honest, freedom from bias
and avoidance of the relationship which to a research observer would suggest a conflict of
interest on the part of the auditor.

Confidentiality:

This means information acquired in the course of professional work should not be disclosed
except where consent has been obtained from the client, employer or other proper to
discharge or public duty to disclose.

Responsibility:

An auditor is not responsible for preparing accounts. He does not guaranteeing their
accuracy. An auditor does not maintain and control the business. He does not assess the
efficiency of business operations.

Error:

Errors are generally agreed in auditing as unintentionally mistakes. It makes clients account
unreliable and if very predominate in occurrence and value can impact or affect the truth and
fairness of the accounts.

Irregularities:

Every intentional distribution of financial statement for whatever purpose, which includes
misappropriation of assets, whether or not accompanied by distortion of financial statements
(such as missing vouchers, payment disputes, imbalance figure) undoubtedly constitute
irregularities.
Fraud:

Fraud is used only to refer to irregularities involving the use of criminal deception to obtain
an unjust or illegal advantage such as stating stock value higher than obtainable, in a
deceptive manner to be able to declare profit (when loss is actually sustained) and go ahead to
declare dividend wrongly. In order words “Fraud” refers to intentional misrepresentations of
financial information by one or more individuals among management, employees, or third
parties.

1. Manipulation, falsification or alteration of records or documents

2. Misappropriation of assets

3. Suppression or omission of the effects of transaction from records or documents

4. Recording of transaction without substance 5. Misapplication of accounting policies

1.6   Organization and Plan of the Study

It spells out the number of chapters into which the researcher wants to divide the work.

It is going to be a four or five chapter work. It has to stated here. This will guide the
investigator concern the organization and plan of his written up.

It is usually written such that the topic to be written under each chapter will need to be stated.

 Chapter 1: Introduction Rend other sub, heading in

 Chapter 2: Literature Review Break Down into sub-head into Reflect the topic in
Question

 Chapter 3: Research Methodology Chapter 4; Data Presentation, Analysis and

Interpretation

 Chapter 5: Finding, Summary, Conclusion and Recommendation.

1.7   Statement of Research Hypothesis

This research statement is mainly focuses on the effect of management information system on
company operation in the organization in which is stipulate on the growth, stability and
profitability of the organization. The statement of hypothesis for research work is as follow: –

1. Hi – management information system has improved the company service by reducing

the delay and stree of customers.

Ho – management information system has not improved the company service by

reducing the delay and the stree of customers.

2. Hi – management information system has significantly assists in detecting and

reducing fraudulent activities in company’s

Ho – management information has not significantly assists in detecting and reducing

fraudulent in company’s

3. Hi – management information system has significantly assists in detecting and

reducing fraudulent activities in company’s

Ho – management information has not significantly assists in detecting and reducing

fraudulent in company’s

 
CHAPTER TWO

2.0   Introduction

2.1   Concept of Auditing and its Independence

Auditing is the process of checking the financial statements along with other accounting
information of a business entity. It is a systematic procedure where the economic condition of
the entity is analyzed. The person taking up the responsibility of the process is called an
“Auditor”.

In this process, it is checked if the business is running profitably or not. Auditing is an

important process for the company, the investors, the government, creditors, shareholders,
etc. They very much rely on audit reports to make important business decisions.

This is the concept of auditing in a nutshell.

Definition of Auditing:

An audit is when an auditor examines or inspects various books of accounts, followed by a

physical inventory check, to ensure that all departments are using a defined system of
recording transactions. It is done to ensure that the financial statements presented by the
organisation are accurate.
Internal auditing can be done by employees or department heads, and external auditing can be
done by a firm or an independent auditor. The goal is for an independent body to audit and
verify the accounts to ensure that the books of accounts are completed fairly and that no
misrepresentation or fraud is taking place.

Before they can announce their quarterly results, all publicly traded companies must have
their accounts examined by an independent auditor.

What qualifications do you need to perform an audit? Any institution in India will have an
independent audit conducted by chartered accountants from the Institute of Chartered
Accountants of India or ICAI. Principles are set out by CPAs in the United States (Certified
Public Accountants).

There seem to be four steps to the auditing process. The very first stage is to establish the
auditor's position and terms of engagement, which is typically done through with a letter
signed by the client.

The second phase is to prepare the audit, which gave information like timelines and
organizations that will be scrutinized by the auditor.

Is the auditor in charge of a particular division or the rest of the company? The audit could
last a day or even a week, due to the nature of the audit.

When an auditor examines a company's accounts or inspects its major financial statements,
the results are usually published in a report or prepared methodically.

Analyzing the findings is the final and most important element of an audit. The conclusions
of the auditor are detailed in the report.

Principles of Auditing

The basic principles of auditing are planning, honesty, secrecy, audit evidence, internal
control system, skill and competence, work done by others, working papers, and legal
frameworks.
Audit Report

Now we know what is meant by auditing. As discussed above, it is the inspection of financial
statements of a business entity followed by checking inventory. Based on this investigation
and assessment of the financial records, the auditor gives his opinion regarding the financial
position of the organization in the form of a report.

It is ensured that the statements are prepared following the accounting standards, they comply
with all statutory requirements and proper presentation of the records is done with all matters
duly disclosed.

Advantages and Disadvantages of Auditing

Advantages of Auditing

 The major advantage of auditing is that It gives assurance to the owners, investors,
etc. about the accuracy of their financial statements.
 During the auditing process, errors and frauds in the account books are discovered. In
a way, it also prevents such errors for the fear of being detected.
 In the case of external audits, the books are very closely inspected, and the
management gets a second opinion of their financial standing.
 Since the books are closely examined, it helps the employees to be honest and
responsible while preparing the reports.
 The financial statements get more credibility while they are audited.

Disadvantages of Auditing

 Auditing involves a deep examination of records, which ends up in extra cost to the
company.
 The reports of the audit act as evidence to make major changes in the accounts of the
distribution of profits.
 The changes are calibrated and it makes the employees feel harassed
 Since the rules and regulations of business vary from time to time, it affects the result
of the audit.
 Since the audit report is credentialed, there are chances for the companies to commit
fraud and ultimately it will force the auditors to commit crimes after the audit.
  Smaller concerns do not consider auditing that important and proceed with regular
transactions.
 The auditing report is prepared based on the information agreed by the clients and so
it is not guaranteed.

Basic Principles Governing an Audit

This Auditing and Assurance Standard was the standard on auditing that was first issued by
the Institute. It explains the basics of auditing that govern the professional responsibilities of
an auditor.

The basic principles of auditing are confidentiality, integrity, objectivity, independence, skills
and competence, work performed by others, documentation, planning, audit evidence,
accounting system and internal control, and audit reporting.

1) A thorough examination of all systems

The assessment of all systems and procedures related to accounting and financial operations
is the primary goal of any audit. Before beginning the audit of the final statements of
accounts, the auditor must first comprehend the system and its functionality. It will serve as
the foundation for the entire auditing process.

2) Internal Controls Assessment

The extent of the audit will be determined by the efficacy of the organization's internal
control system. The auditor can rely on the system if the company's internal controls are in
place and very effective. Then he won't have to go over the accounting in great detail.

If the internal controls, on the other hand, are ineffective, the auditor must go over the
accounts with a fine-tooth comb. The auditor must also assess the internal control system,
according to CARO 2003.

3) Arithmetic Precision

The auditor must also check the accuracy of the books of accounts regularly. This includes
double-checking the books' arithmetical accuracy and verifying that the entries are properly
posted.
4) Principles of Accounting

The auditor must check that the capital and income transactions are properly distinguished.
All financial transactions must fall into one of two categories: revenue or capital. The auditor
must also verify the accuracy of both income and expenditure items.

5) Assets Verification

All of the company's assets must be physically verified by the auditor. As a result, he must
examine all legal documents, certifications, official statements, and other documents to
determine the ownership of all assets. The auditor must also make certain that no assets are
missing from the balance sheet.

6) Liabilities Verification

The auditor must also verify the organization's liabilities. He'll go over all of the documents,
letters, and certificates once again. He can also seek confirmation from outside parties if
necessary.

7) Attestation

A paper trail is left behind by every financial transaction. These supporting documentation
must be examined by the auditor to ensure that the transactions are valid and accurate.
Vouching is the term for this. The organisation, for example, has a 12,000/- electrical
expense. The auditor must then examine the electrical bill to double-check the transaction.

8) Statutory Obligations

The auditor's job is to ensure that the company's financial records conform with all laws,
rules, and regulations in effect at the moment. As a result, he must ensure that the accounts
are compliant with the Companies Act 2003, the Income Tax Act 1961, and other relevant
laws.

Features of Auditing

 Auditing is a systematic process. It is a logical and scientific procedure to examine the

accounts of an organization for their accuracy. There are rules and procedures to follow.
 The audit is always done by an independent authority or a body of persons with the
necessary qualifications. They have to be independent so their views and opinions can be
totally unbiased.

 Once again, an audit is the examination of all the books of accounts and financial
information of the company. So it is essentially a verification of the final accounts of the
organization, i.e. the profit and loss statement and the balance sheet at the end of the
financial year.

 Auditing is not only the review of the books of accounts but also the internal systems and
internal control of the organization.

 To conduct the audit we need the help of various sources of information. This includes
vouchers, documents, certificates, questionnaires, explanations etc. He may scrutinize any
other documents he sees fit like Memorandum of Association, Articles of Associations,
vouchers, minute books, shareholders register etc.

 The auditor must completely satisfy himself with the accuracy and authenticity of the
financial statements. Only then can he give the opinion that they are true and fair
statements.

Characteristics of Auditing

 It is a systematic procedure of examining the financial records of an organization

 Its main objective is to find out any frauds or errors in the financial records.
 It is conducted either by the auditors who have in-depth knowledge of accounting
procedures and legal formalities.
 It ensures the truth and fairness of the financial statements if it reflects the exact status
of the state of affairs of the business.
 It also ensures that the statements follow the accounting standards.

2.2   Audit Committee as an aid to Independence

Composed of individuals who serve on an organization’s board, an audit committee is

responsible for ensuring an organization operates in an ethical environment and complies
with laws and regulations. Charged with oversight of financial reporting, risk management
 and internal controls, audit committees also are responsible for selecting the public
accounting firms that serve as their organizations’ external auditors as well as for maintaining
relationships with their organization’s own internal audit team.

The essential nature of audit committee responsibilities was reinforced in 2002 with the
passage of the Sarbanes-Oxley Act, which significantly strengthened the role of audit
committees in organizational governance. Individuals who pursue an online Master of
Accountancy degree can acquire knowledge and skills that could be beneficial when they
interact with and report to audit committees.

Audit Committee Role and Duties

The breadth of an audit committee’s role and duties is demonstrated by its responsibilities.
Some of the most significant responsibilities under the purview of an audit committee include
the following:

 Ensuring the organization’s financial statements are understandable and reliable.

 Ensuring the organization establishes a thorough risk management process and effective
internal controls.

 Reviewing the organization’s policies, particularly in areas such as ethics, conflict of interest
and fraud.

 Reviewing the organization’s litigation and regulatory proceedings.

 Selecting and implementing a direct reporting relationship with the public accounting firm
that serves as the organization’s external auditor.

 Establishing communication with the organization’s internal auditor and reviewing all audit
findings.
Audit committees also play a significant role in setting the tone of an organization. They do
so by ensuring their organizations develop and implement a code of conduct and establish
effective communication channels. Audit committee members also need to be aware of what
management is doing to achieve compliance with laws and regulations, and they must be
knowledgeable about issues such as ongoing investigations and disciplinary actions.
 With such a broad scope of responsibilities, these committees can face significant challenges.
In its 2019 survey of 1,300 audit committee members worldwide, KPMG identified two of
the greatest challenges to audit committees performing their core oversight responsibilities:

 Maintaining internal control over financial reporting, disclosure controls and procedures.

 Helping ensure their organization has the talent and resources to maintain quality financial
reporting.
KPMG also reported that audit committee members viewed technological innovation, digital
disruption and the complexity of business as the factors that place the most pressure on risk
management and internal controls.

How an Audit Committee Operates

The charter an audit committee establishes sets the foundation for its operations. The
elements of the charter lay the groundwork for carrying out all audit committee
responsibilities. For example, an audit committee’s charter may be drafted to accomplish the
following key tasks.

 Set forth the audit committee’s purpose and list its specific responsibilities in detail.

 Establish the audit committee’s authority to carry out specific responsibilities, such as
appointing and compensating an external auditor, obtaining information and meeting with
officers of the organization.

 Define the composition of the audit committee, how members will be appointed and any
requirements for expertise among the members.

 Describe how the audit committee will conduct meetings, how often it will meet, who must
attend meetings and the circumstances under which the audit committee will meet in
executive session.
The precise composition of an audit committee depends on the type of organization the
committee serves. For example, publicly traded companies in the United States must comply
with the rules of the U.S. Securities and Exchange Commission (SEC) in areas such as audit
committee composition, independence and member qualifications. The audit committees of
governmental entities must comply with requirements established in state statutes, city or
county charters, municipal codes or local laws.
 The expertise of members and the ongoing training they receive have a significant effect on
an audit committee’s ability to carry out its responsibilities. Audit committees must
continuously update their knowledge in areas such as new accounting methods, technology
and financial disclosures.

What Makes Audit Committees Effective

How effective the committee is in executing its audit committee responsibilities can be
influenced by several factors:

 Having a strong audit committee chairperson who can facilitate productive meetings and
communicate effectively is essential to the success of an audit committee.

 Providing training to audit committee members through adjunct meetings, retreats or courses
offered by governance organizations helps committee members carry out their
responsibilities.

 Performing a self-assessment helps an audit committee identify and address opportunities for
improving its oversight activities.

 Ensuring transparency in its activities allows an audit committee to share important

information with stakeholders.

 Establishing effective communication — both internally among audit committee members

and externally with management, auditors and non-audit board members — helps an audit
committee demonstrate how it is carrying out its responsibilities.

 Ensuring diversity among committee members in terms of experience and knowledge

enhances its capabilities and proficiency.
Among the most important characteristics of an effective audit committee is strong
communication with and oversight of auditors. Audit committees need to have a good
working relationship and direct line of communication with the public accounting firm that
serves as the organization’s external auditor. They also must establish a strong rapport with
internal auditors to promote effective internal controls.
2.3   Audit Practice in the Firm and Scope of Operation

When it comes to validating the financial information about your business, Third

Party audit firms play a crucial role. Potential investors as well as lenders prefer reviewing
financial statements audited by external professionals before establishing corporate relations
with your firm. If the potential clients, lenders and investors find any anomalies in the audited
statements or notice that the auditors failed to point out any solid misstatements, it certainly
creates a negative impression in the eyes of the world. It is for this reason why accounting
bodies have established certain standards and expectations, which define the roles and
responsibilities of external audit firms, and set ground rules regarding how auditing must be
done.
 

Judging Financial Statements

 

Some companies form an opinion that Third Party audit firms are responsible for creating
business financial statements, which is in fact the job of firms providing  accounting
services.  The auditors are mainly responsible for providing even-handed affirmation that
there aren’t any material misstatements and issues in the financial statements, and are made
while following the accounting standards. They are there to just test financial data, sufficient
enough to offer reasonable assurance to the companies.
 

Understanding the Business and its Operations

 

Though accounting services just concentrate on crunching numbers, auditing is more about
recognizing the number statements which are not present in the vacuum. Auditors are
determined to obtain a thorough understanding of the client’s business, its operations, its
internal controls, and its overall environment, for which they perform a complete risk
assessment of your business. They examine the digital account system for ensuring the data is
protected and not being compromised, and will compare the results with other companies in
the same business for spotting irregularities, if any.
 
Mining Opinion Effecting Evidence
 

External auditors normally base a major portion of their judgement on the evidence that they
collect and examine while auditing the accounts. Once the business is rated on the risk chart,
auditors ensure to collect sufficient evidence to study and form their opinion. The greater the
risk rating of a client, the more quality evidence must be collected before presenting an
opinion. Third party sources, like banks, investors and lenders may also be contacted for
obtaining reliable information.
On the whole, it is on the basis of these roles and responsibilities that the external auditing
firms base their working criteria and judge the accuracy and reliability of the company’s
financial statements.

2.4   Right, Duties and Remuneration of Auditor

Appointment of a Company Auditor

Section 224 of the Companies Act deals with the provisions regarding the appointment of
auditor(s) of a company as follows:

(1) Appointment of First Auditor by Board of Directors: The first auditors of a company

shall be appointed by the Board of Directors within one month of the date of registration of
the company. Such auditor(s) shall hold office until the conclusion of the first annual general
meeting.

If the first auditors are not appointed by the Board of Directors, they may be appointed by the
company in a general meeting.

(2) Appointment by shareholders: Every company shall, at each annual general meeting,

appoint auditor(s) to hold office from the conclusion of that meeting until the conclusion of
the next annual general meeting, and shall, within seven days of the appointment give
intimation thereof to every auditor so appointed.
(3) Appointment of Auditors by Central Government: Where an auditor(s) is not
appointed or re-appointed at the annual general meeting, the company must notify the fact to
the Central Government within seven days thereafter and thereupon the Central Government
will appoint a person to fill the vacancy.

(4) Appointment by special resolution: In the case of a company, in which not less than
25% of the subscribed share capital is singly or jointly held by:

(a) a public financial institution or a Government company, or the Central Government, or

any State Government; or

(b) any financial or other institution in which a State Government holds not less than 51% of
the subscribed share capital; or

(c) a nationalised bank, or an insurance company carrying on general insurance business.

The appointment or reappointment (at each annual general meeting) of an auditor(s) shall be
made by a special resolution.

(5) Appointment of auditors of Government Companies: The auditor of a Government

company shall be appointed or reappointed by the comptroller and Auditor General of India
only.

Removal of Auditors

(1) Removal after the Expiry of Term: After the expiry of term, an auditor can be removed in
the annual general meeting by passing an ordinary resolution.

(2) Removal before Expiry of Term: An auditor can be removed before expiry of term as
follows:

(i) In Case of First Auditor : The first auditor who is appointed by the Board of Directors to
hold office till the conclusion of the first annual meeting, can be removed before the expiry of
term at the general meeting even without the prior approval of the Central Government.
However, a special notice of at least 14 days is required for the appointment of another
auditor in his place.

(ii) In case of other Auditors: Auditor appointed by the members can be removed before the
expiry of his term by the company only at a general meeting, after obtaining prior approval of
the Central Government and after giving a due notice to the auditor. Remuneration of the
Company Auditor

The person or persons who are authorised to appoint an auditor are considered fully
competent to fix the auditor’s remuneration. It is provided in Section 224 (8) of the
Companies Act that:

(i) If an auditor is appointed by the Board of Directors or by the Central Government, his
remuneration is to be fixed by the Board or Central Government as the case may be.

(ii) In other cases, the remuneration of the auditor shall be fixed by the company in the annual
general meeting or in such a manner as the company in general meeting determine.

(iii) The remuneration is inclusive of all expenses allowed to him and he is not entitled to any
other payment.

(iv) In the case of a retiring auditor who is re-appointed as an auditor in the general meeting,
the amount fixed for the previous year is considered as the remuneration for the current year
unless a resolution is passed, refixing his remuneration.

(v) In case where an auditor renders extra work over and above his audit work, he is entitled
to receive extra remuneration in addition to normal fee for the audit.

Qualifications of an Auditor

Section 226 of the Companies Act prescribes the qualifications and disqualifications of
company auditor. Accordingly, only the following persons will be competant to be appointed
as an auditor of a company:
(i) If he is a chartered accountant within the meaning of the Chartered Accountants Act of
1949.

(ii) Partnership firm as auditor: In the case of a firm, if all its partners practising in India
are qualified for appointment as auditors, it may be appointed by its firm name to be auditor
of a company. In such a case, any of its practising partners can act in the name of the firm.

(iii) Certified auditors: Apart from the practising chartered accountants, a person holding a
certificate under the Restricted Auditor’s Certificate (Part B States) Rules, 1956, is also
qualified to be appointed as auditor of a company.

 Disqualifications of auditors

The following persons shall not be qualified for appointment as auditors of a company:

(i) A body corporate.

(ii) An officer or employee of the company.

(iii) A person who is a partner or who is in the employment of any officer or employee of the
company.

(iv) A person who is indebted to the company for an amount exceeding Rs. 1,000.

(v) any other body corporate which is:

(a) a subsidiary of that company; or

(b) the holding company of that company; or

(c) a subsidiary of that company’s holding company

(vi) Further, if the auditor already holds appointment as auditor in the specified number of
companies, he will be disqualified for further appointment as auditor of any other company.
(vii) Where an auditor incurs any of the above disqualifications after his appointment, he will
be deemed to have vacated his office.

Statutory Rights of a Company Auditor Some important legal rights or powers of a company
auditor are as follows:

(1) Right to access books of Accounts and Vouchers: The auditor has a right of access at
all times to the books and vouchers of the company whether kept at the head office or
elsewhere. At all times means at any time during the business hours. The auditor may pay a
surprise visit when he suspects any irregularity in the accounts or wishes to verify the cash
balances, etc.

(2) Right to receive Information and Explanations: A company auditor has a right to
receive from the directors and responsible officers of the company any information or
explanation as he may think necessary.

(3) Right to receive Particulars: The auditor has a right to get from an officer or other
person any particular or information required to be given to the Balance Sheet or Profit and
Loss Account of a company or in any document required to be annexed or attached thereon.

(4) Right to receive notice and attend General Meetings: The auditor has a right to receive
notices and other communications relating to general meeting in the same way as a member
of the company. He can speak in the meeting in which accounts are discussed.

(5) Right to visit Branches: The auditor has a right to visit the branch office of the company,
if any, if the accounts of the company branch have not been audited by a duly qualified
auditor.

(6) Right to seek opinion from Experts: The auditor has a right to seek opinions of experts
in different fields whenever he feels it necessary as he is not expert in all the areas.

(7) Right to receive remuneration: The auditor is entitled to demand his remuneration from
his client after he has completed the work of auditing. Even if he is dismissed in the middle,
he has a right to get full remuneration of the year.
Duties of Company Auditor

(1) Duty to Submit Report: It is an important duty of the auditor to make a report to the
members of the company on the accounts examined by him. The report should contain the
following information:

(i) Whether in his opinion, the Profit and Loss Account referred to in his report shows a true
and fair view of the profit or loss.

(ii) Whether in his opinion, the Balance sheet referred to in his report is properly drawn up so
as to show a true and fair view of the state of affairs of the business.

(iii) Whether the auditor has obtained all the informations and explanation which to the best
of his knowledge and belief were necessary for the purpose of his audit.

(iv) Whether in his opinion proper books of accounts as required by law have been kept by
the company so far as appear from his examination of those books.

(v) Whether the report on the accounts of any Branch office audited under section 228 by a
person other than the Company’s auditor has been forwarded to him and how he had dealt
with the same in preparing the auditor’s report.

(vi) Whether the Company’s Balance Sheet and Profit and Loss Account dealt with by the
report are in agreement with the books of accounts and return.

(2) Auditors duties to enquire into the affairs of the Company:

(i) Loans and Advances: He has to see whether loans and advances made by the company
on the basis of security have been properly secured and whether the terms on which they have
been made are not prejudicial to the interests of the company or its members.

(ii) Transactions represented merely by book entries: He must see that transactions which
are not supported by any facts or evidence, though recorded in the books, are not prejudicial
to the interests of the company.
(iii) Sale of investments at less than purchase price: Where the company is not an
investment company or a banking company, the auditor is required to see whether it has sold
any shares, debentures or other securities at a price which is lower than their price purchase.

(iv) Loans and advances shown as deposits: He has to see whether loans and advances
made by the company have not been shown as deposits, so as to avoid scrutiny by the
members or others.

(v) Personal expenses: He should enquire whether any personal expenses have been charged
to revenue accounts of the company, so as to improperly utilise the funds of the company for
the individual benefit of any person directly or indirectly in control of the affairs of the
company.

(vi) Allotment of shares for cash: Where it is stated in the books and papers of the company
that any shares have been allotted for cash, the auditor must enquire whether cash has
actually been received in respect of such allotment, and if no cash has actually been received,
whether the position as stated in the account books and the Balance Sheet is correct and
regular.

(3) Duty to sign report: It is the duty of the auditor to sign the report prepared by him. In
case the auditor is a firm, only a partner of the firm practising in India may sign the report.

(4) Duty as to statutory report: It is the duty of an auditor to certify statutory report as
correct to the extent it relates to:

(i) Shares alloted by the company,

(ii) Cash received in respect of such shares and

(iii) Receipts and payments of the company.

(5) Duty as to prospectus: It is the duty of the auditor to certify informations given in the
prospectus with regards to certain matters.
(6) Duty as to report under voluntary winding up: If a company goes into voluntary
winding up, the directors are required to file a declaration of solvency. Thus, it is the duty of
the auditor to give a report about such declaration.

(7) Duty to assist investigation: Where an inspector is appointed to investigate the affairs of

the company, it is the duty of the auditor to assist investigator in connection with the
investigation.

(8) Duty of care and caution: The auditor holds himself out as an expert and must act
honestly and exercise due care and caution in the performance of his engagement. As an
expert, he cannot set up ignorance as a defence. He must prove that in the course of his audit
he has employed skills that would reasonably be applied by any other auditor.

2.5   Concept of Fraud and Error

You must be knowing that the primary objective of an audit is to express an opinion on the
truthfulness and fairness of financial statements. And to form such an opinion, an incidental
objective works simultaneously which is to detect and prevent frauds and errors. Unless an
auditor establishes that there are no frauds and errors in the books of account, he cannot
express his opinion on the true and fair view of financial statements. Thus, locating the
possibility of errors and fraud is important.

An error may be defined as an unintentional mistake in the measurement or presentation of

financial information. However, fraud refers to an intentional misstatement in financial
statements. It may be committed by the client’s employees, the management, or third parties
so as to obtain an illegal or personal gain out of the business of the client.
The main difference between an error and a fraud is that of intent. While frauds are
committed intentionally, errors are not.

Further, the responsibility of an auditor for detecting errors and frauds is the same as both of
them result in misstatements in financial statements. But the distinction between them is
important because the existence of fraud raises questions about the integrity of the client’s
management and those charged with governance.

Difference between Error and Fraud

In the context of an audit, the following points of difference can be drawn between an error
and a fraud:

Error Fraud

Meaning of Error Meaning of Fraud

The term “Error” refers to an unintentional A fraud indicates an intentional misstatement that is
mistake in the measurement or presentation of material to financial statements. Materiality means
accounting and/or financial information. that the existence of fraud is such that it can affect
financial statements to a large extent.

Unintentional Intentional

Errors are unintentional. Frauds are committed intentionally. The objective is

to derive some personal gain or an unfair advantage.

Types of Errors Types of Frauds

An auditor may come across many types of errors On the other hand, fraud may take the form of
in financial information. These may be clerical misappropriation of assets, manipulation or
errors (i.e., errors in recording and posting of falsification of accounts, and so on. The purpose
transactions), errors of principle (i.e., failure to may be to deliberately misrepresent the financial
comply with generally accepted accounting position to evade taxes or to show a better
principles), compensating errors, or errors of performance of the management than it actually has.
duplication where a single transaction is recorded Further, it may be either employee fraud or
twice. management fraud.

Consequences of an error on the audit work Consequences of fraud on the audit work

Once errors are detected, the auditor should ensure When an auditor identifies or suspects fraud, he
that the financial statements are adjusted in regard should consider its effect on financial statements
to them. All material errors should be and communicate to the appropriate level of
communicated to the management. management. He should examine the reliability of
management’s representation in this regard. He
should ensure that appropriate disclosure of
identified misstatements is made either in the
financial statements by management or in his audit
report. Finally, he should further consider whether
he should withdraw from his engagement.

The possibility of detection is more The possibility of detection is less

Errors can be detected more easily. The possibility of detection of fraud is

comparatively less because the management makes
conscious attempts to conceal it.

Auditor’s duty with regard to detection of fraud and errors

Even though the primary responsibility for the prevention and detection of fraud rests with
the management, auditors are expected to adopt a careful approach and an attitude of
professional scepticism at all times.
According to SA 240, an auditor conducts a financial audit of an entity in order to obtain a
reasonable assurance (and not absolute assurance) that its financials are free from any
fraud/error and material misstatements.

On identification of misstatements or where the auditor suspects fraud, he must communicate

it to the appropriate level of management. If he suspects the management’s involvement in
fraud, he must communicate the same to those charged with governance and must discuss
with them the nature, timing, and extent of audit procedures necessary to complete the audit.

Moreover, if there is a responsibility to report the occurrence of misstatements to regulatory

or enforcement authorities under any law, the auditor must abide by that. For instance,
reporting frauds to the Central Government under Section 143 of the Companies Act 2013.
The auditor is also required to consider the implications of fraud and errors, and frame his
audit report appropriately. Where there is fraud, the same should be disclosed in the financial
statements. If adequate disclosure is not made, there should be a suitable disclosure in his
audit report. Whichever way it may be, it is crucial to disclose the existence of fraud and
errors, if any.
CHAPTER THREE

3.0   Introduction

3.1   Method of Data Collection

Organizations storing customer credit card information, individuals’ medical records, or other
personally identifiable information (PII) are required by certain laws and regulations to
protect this data from hackers or other users with malicious intent. The loss of customer data
results typically in reputational damage and unexpected legal fees.

What Is a Third-Party Audit?

Since companies routinely partner with other organizations, they must ensure their partners
are protecting their customer data. One way to ensure data protection is to conduct a third-
party audit. In a third-party audit, an independent auditor is hired by the organization to
review its partner’s operations. The scope for a third-party audit is typically limited to only
the area in question, in this case, the adequacy of data protection over shared data. One of the
most common types of audits is certification audits. In certification audits, certification
bodies are conducting audits to certify that one party can meet the requirements they agreed
to in a contract. For example, if a company contracts a software vendor to host their data
under a contractual provision to maintain SOC 2 controls or another standard, one of the
certification bodies will perform an audit of the software company’s ability to meet the
requirements. If the partner is found to meet the requirements of the chosen standard, the
company is certified as in compliance. If issues are found, a remediation plan is put in place
to meet the requirements of the chosen standard as soon as possible.
Companies that outsource payroll, healthcare processing, and other processes containing PII
can obtain a SOC 2 report. Based on the AICPA’s WebTrust principles, a SOC 2 reportis an
independent certification of outsourced service providers (OSP) non-financial reporting
controls, including security, processing, confidentiality, and privacy controls. The OSP (i.e.,
third party) engages a firm to perform the attestation (audit) and then provides the detailed
audit results to any interested customer.

But PII is not the only type of critical data shared with third parties. It’s common for
organizations to share other sensitive and essential data, such as trade secrets with joint
venture partners and subcontracted manufacturers or future strategic decisions with
consulting firms and outside counsel. Besides reputational damage and legal fees, the loss of
trade secrets and strategic information can significantly lose revenue, market share, and
shareholder value.

Unfortunately, it is uncommon that these strategic third parties provide a SOC 2 report or
other means of independent data protection control assurance (e.g., an ISO 27001
certification). It is interesting to see that while management is spending more and more on
internal controls and protection of key data, very little, if anything, is done to verify that
externally held essential data is just as protected.

According to PwC’s 2015 Global State of Information Security Survey, organizations with
annual revenues exceeding $1b had $11m budgeted for security spend in 2014. However,
when executives are asked how third parties protect critical data, initial responses include
references to contract clauses indemnifying the company if data is lost or blind trust in the
third party. As one executive states, “If our supplier can’t protect our, and their other
customers’ key data, they wouldn’t be in business.”

How Do You Conduct a Third-Party Audit?

Conducting a third-party audit starts with identifying the scope of the review. The scope
should be specific and in line with the potential risk exposure. At this point, an independent
auditor is hired by the organization to perform the audit. Independence is essential to the
success of this engagement to preserve the relationship between the two parties. This is
especially true when we consider third-party relationships beyond the company/vendor
relationship. If we are considering an audit of a board member, an independent party is the
only way to conduct an audit free from bias. After they perform the audit, the independent
auditor will issue a 3rd Party Audit Report. The 3rd Party Audit Report will include detailed
information describing the outcome.

A proactive and forward-looking Internal Audit department can help bring the needed
awareness to the lack of focus on external data protection controls compared against the high
level of attention given to internal data protection controls.

What Should Internal Auditors Consider When Performing a Third-Party Audit?

Internal Audit can assure their Board of Directors and executive team whether or not a
process is in place to manage risks of third parties maintaining critical data. That third parties
have their data protection controls in place. Suppose the Chief Audit Executive can
successfully recommend a third-party data protection control audit. In that case, Internal
Audit should consider including third-party governance, contracts, and third-party data
controls in the scope of their engagement.

Third-Party Data Governance

To determine if management is adequately protecting critical data stored at third parties, an

understanding of all third parties with key data should be obtained by audit. Vendors are
quick to be included and assessed for this type of project. Still, the Internal Auditor should
also consider third parties such as customers, joint venture partners, contractors, and even
their board of directors.

Customers and joint venture partners may co-develop proprietary technologies and new
products. Some companies may also make investments in start-ups or smaller organizations
to develop specific technologies and evaluate if the invested company’s data is critical. And
while an organization’s Board of Directors is usually considered (top) employees of an
organization, most are independent and send and receive information that is more often than
not strategic, confidential, or both.

Next, does the organization have policies and procedures dictating how to classify, handle,
transmit, store, and share critical data? Do the policies and procedures dictate the individuals
in the organization that have the authority to determine what data can be shared and what data
cannot be? A lack of policies and procedures can sometimes mean a lack of process. And a
lack of a process almost always means a lack of control.

If third-party data protection policies and procedures do not exist, different departments in the
organization may still have a role in protecting data. For example, as part of the vendor due
diligence process, Procurement personnel may be asking new third parties about their data
protection controls and how they classify data. While Procurement’s process may not cover
all third parties with critical data, it will include some, and the organization should take credit
for their work.

Contracts

While contract clauses such as data confidentiality and “right to audit” are standard in most
key vendor and distributor contracts, other contract clauses are more suited to protect critical
data. Internal Audit should look for or recommend specific clauses highlighting the partner’s
data processes. Specifically, does the third party have someone in charge of classifying
critical data, document how key data should be handled and transmitted, and how critical data
is destroyed once the critical data is no longer needed?
Another contract clause gaining popularity as a result of all of the recent cyber hacks is the
notification of a successful cyber-attack. Internal Audit should verify that company contracts
require third parties to notify the company as soon as possible (generally within 24 – 48
hours) when their network has been successfully breached. Timing is essential to cease
sharing their critical data and begin their disaster recovery plans if data was lost.

Finally, suppose the third party is sharing critical data with other subcontractors or third
parties. In that case, management can require through contract clauses that the third party has
a process to monitor the subcontractor’s data protection controls. Contract language should
include how often the third-party audits their subcontractors and the level of detail of their
review (inquiry only, inspection testing, or independent verification from a qualified auditor).

Third-Party Controls

Internal Audit can also have a role in evaluating third-party data protection controls. In
addition to auditing the contract clauses mentioned above, many other third-party controls
can and should be evaluated. These include the amount of training and awareness provided to
third party employees on data protection requirements, whether or not desktops, laptops, and
other mobile devices are encrypted, and if mission-critical data is segmented from the other
third party data.

To determine what controls Internal Audit should review, key data business owners and the
information security department should be asked for insight. Also, cybersecurity control
frameworks such as the SANS Institute’s Critical Security Controls for Effective Cyber
Defense, Top Cyber Security Controls, NIST’s Framework for Improving Critical
Infrastructure Cybersecurity, or ISO’s 27001 Information Security Management Standard
should be leveraged as much as possible by IT security.
 Chief Information Officers and Chief Compliance Officers spent significant time and
resources protecting PII by identifying and tagging PII and bolstering the organization’s
network and cybersecurity defenses. While tagging PII partially addressed compliance risks,
the risk of unprotected critical data stored at third parties may still exist. If this is the case, the
well-informed Chief Audit Executive has an opportunity to enable positive change by
bringing attention to this enterprise risk.

3.2   Method of Data Analysis

This article provides some insight into the matters which need to be considered by auditors
when using data analytics. The Advanced Audit and Assurance syllabus includes the
following learning outcomes:

 Assess and describe how IT can be used to assist the auditor and recommend the use of
Computer-assisted audit techniques (CAATs) and data analytics where appropriate, and
 Discuss current developments in emerging technologies, including big data and the use of
data analytics and the potential impact on the conduct of an audit and audit quality.

In addition, candidates are expected to have a broad understanding of what is meant by the
term 'data analytics', how it may be used in the audit and how it can improve audit efficiency.

What is data analytics?

Data analytics has been around in various forms for a long time, but businesses are finding
increasingly sophisticated and timely methods to utilise data analytics to enhance their
operations. Data analytics enable businesses to identify new opportunities, to harness costs
savings and to enable faster more effective decision making. Whether it is the ability to
identify potential for new products and services or to detect the potential loss of clients in
order to direct efforts to encourage them to stay, data analytics is everywhere in business
today.

At a basic level data analytics is examining the data available to draw conclusions. This isn’t
a new concept but there are growing trends towards more integrated and more timely use of
data from multiple sources to help inform business decisions or to draw conclusions. The data
used by companies is likely to be both internal and external and include quantitative and
qualitative data. This is often aided by specialised software which may have to be developed
to enable the information from many different sources and formats to be first combined and
then analysed. In some cases the formats covered include audio and visual analysis in
addition to the usual text and number formats.

What are the uses of data analytics?

The possible uses for data analytics are as diverse as the businesses that use them. They can
be as simple as production of Key Performance Indicators from underlying data to the
statistical interrogation of scientific results to test hypotheses. Firms may use data analytics to
predict market trends or to influence consumer behaviour. Data mining of customer feedback
for repeated common phrases might give insights into where improvements in customer
service are needed or to which competitor customers may be most likely to move to. Voice
pattern recognition can be used to identify areas of customer dissatisfaction. Police forces can
collate crime reports to identify repeat frauds across regions or even countries, enabling
consolidated overview to be taken. The possibilities with data analytics can appear limitless
as emerging artificial intelligence can allow for faster analysis and adaptation than humans
can undertake.

How can data analytics be used by audit firms?

The IAASB defines data analytics for audit as the science and art of discovering and
analysing patterns, deviations and inconsistencies, and extracting other useful information in
the data underlying or related to the subject matter of an audit through analysis, modelling
and visualisation for the purpose of planning and performing the audit

The larger audit firms and increasingly smaller firms utilise data analytics as part of their
audit offering to reduce risk and to add value to the client. Bigger firms often have the
resources to create their own data analytics platforms whereas smaller firms may opt to
acquire an off the shelf package. There is no one universal audit data analytics tool but there
are many forms developed in-house by firms. These tools are generally developed by
 specialist staff and use visual methods such as graphs to present data to help identify trends
and correlations.

For auditors, the main driver of using data analytics is to improve audit quality. It allows
auditors to more effectively audit the large amounts of data held and processed in IT systems
in larger clients. Auditors can extract and manipulate client data and analyse it. By doing so
they can better understand the client’s information and better identify the risks. Data analytics
tools have the power to turn all the data into pre-structured forms/presentations that are
understandable to both auditors and clients and even to generate audit programmes tailored to
client-specific risks or to provide data directly into computerised audit procedures thus
allowing the auditor to more efficiently arrive at the result.

Examples of the use of data analytics to perform audit procedures include:

 
* NRV testing – comparing the last time an inventory item was purchased with the
last time it was sold and at what price

* Analysis of revenue trends by product and region

* Matching purchase orders to invoices and payments

* Segregation of duties testing by identifying combinations of users involved in

processing transactions from the metadata attached to transactions

Benefits of data analytics

The increased access and manipulation of data and the consistency of application of data
analytics tools should increase audit quality and efficiency through:

 increased business understanding through a more thorough analysis of a client’s data and the
use of visual output such as dashboard displays rather than text or numerical information
allows auditors to better understand the trends and patterns of the business and makes it
 easier to identify anomalies or outliers

 Better focus on risk. This increase in understanding, aids the identification of risks associated
with a client, enabling testing to be better directed at those areas. This is further enhanced by
freeing up auditor time from analysing routine data so that more time can be spent on areas of
risk

 Increased consistency across group audits where all auditors are using the same technology
and process, enabling the group auditor to direct specific tools for use in component audits
and to execute testing across the group. This would require appropriate consent from all
component companies but if granted enables a more holistic view of a group to be undertaken

 increased efficiency through the use of computer programmes to perform very fast processing
of large volumes of data and provide analysis to auditors on which to base their conclusion,
saving time within the audit and allowing better focus on judgemental and risk areas. For
example much larger samples can be tested, often 100% testing is possible using data
analytics, improving the coverage of audit procedures and reducing or eliminating sampling
risk

 data can be more easily manipulated by the auditor as part of audit testing, for example
performing sensitivity analysis on management assumptions

 increased fraud detection through the ability to interrogate all data and to test segregation of
duties, and information obtained through data analytics can be shared with the client, adding
value to the audit and providing a real benefit to management in that they are provided with
useful information perhaps from a different perspective.

Challenges of data analytics

The introduction of data analytics for audit firms isn’t without challenges to overcome. At
present there is a lack of consistency or a widely accepted standard across firms and even
within a firm*. At present there is no specific regulation or guidance which covers all the
 uses of data analytics within an audit. This results in difficulty establishing quality guidelines.
It also means that firms with the resources to develop their own data analytics tools may have
a competitive advantage in the market place effectively increasing the gap between the
largest firms and smaller firms, reducing effective competition in the audit industry.  Other
issues which can arise with the introduction of data analytics as an audit tool include:

 Data privacy and confidentiality. The copying and storage of client data risks breach of
confidentiality and data protection laws as the audit firm now stores a copy of large amounts
of detailed client data. This data could be misused by the firms or illegal access obtained if
the firm’s data security is weak or hacked which may result in serious legal and reputational
consequences

 for a variety of reasons, including the above, and also due to a perception that it may be
disruptive to business, the audit client may be reluctant to allow the audit firm sufficient
access to their systems to perform audit data analytics

 Completeness and integrity of the extracted client data may not be guaranteed. Specialists are
often required to perform the extraction and there may be limitations to the data extraction
where either the firm does not have the appropriate tools or understanding of the client data to
ensure that all data is collected. This may especially be the case where multiple data systems
are used by a client. In addition, it may be possible for clients to only make selected data
accessible or to manipulate the data available for extraction 

 compatibility issues with client systems may render standard tests ineffective if data is not
available in the expected formats

 audit staff may not be competent to understand the exact nature of the data and output to
draw appropriate conclusions, training will need to be provided which can be expensive

 Insufficient or inappropriate evidence retained on file due to failure to understand or

document the procedures and inputs fully. For example, a screen shot on file of the results of
an audit procedure performed by the data analytic tool may not record the input conditions
 and detail of the testing*, and

 Practice management issues arise relating to data storage and accessibility for the duration of
the required retention period for audit evidence. The data obtained must be held for several
years in a form which can be retested. As large volumes will be required firms may need to
invest in hardware to support such storage or outsource data storage which compounds the
risk of lost data or privacy issues

 an expectation gap among stakeholders who think that because the auditor is testing 100% of
transactions in a specific area, the client’s data must be 100% correct.
CHAPTER FOUR

4.0   Introduction

4.1   Presentation and of Data Analysis

Data analytics are increasingly making their mark on the audit world, as they can help
auditors find actionable audit insights throughout their work. The rise of audit analytics
software is also making it easier for auditors to analyze large data sets and generate data
analytics on their own, rather than only data scientists or related experts being able to do so.
In this article, we’ll dive more into some of the top benefits of data analytics for internal
audit, including:

1. Better risk management

2. Greater assurance
3. Enhanced efficiency
4. Clearer reporting
5. Improved audit quality

1) Better risk management

One of the top benefits of using data analytics for internal audit is that they can improve risk
management throughout an organization. Trying to review all data manually typically isn’t
feasible, whether you’re trying to analyze accounting practices to spot financial risks, IT
records to identify cybersecurity risks, or pretty much anything else.
When an auditor then uses limited data sampling methods to compensate for what would
otherwise be information overload, that can leave risk management gaps. Within a full data
set, there might be unrealized yet important outliers. Data analytics for internal audit can help
you spot and understand these risks by quickly reviewing large quantities of data.

2) Greater assurance

Related to improving risk management, another benefit of data analytics for internal audit is
that they can be used to provide greater assurance, including combined assurance. Data
analytics can provide a more systematic, complete review of business processes that make it
easy to see whether findings from different departments align.

For example, an internal audit team might use data analytics to review financial data such as
transaction logs to see if there are any anomalies. These results can easily be shared with
other departments, such as enterprise risk management (ERM) and compliance, to see if the
findings are in sync.

Using audit analytics software makes it particularly easy to visualize and compare results. In
contrast, with sampling or other more manual, limited processes, you might not know if you
missed something that would indicate whether the audit findings align with ERM’s results.

3) Enhanced efficiency

Not only can data analytics for internal audit improve risk management and assurance, but
they can also save time. Trying to review hundreds of thousands of data entries in Excel, for
example, can be incredibly time-consuming, to the point that this analysis often isn’t even
attempted.

Yet audit analytics software like TeamMate Analytics can review over 1 million rows of data
and already has a library of over 150 built-in tests that you can run instantly. From there, the
findings can easily be presented in a visual format. Altogether, an internal auditor can use
data analytics and audit analytics software to improve their efficiency in terms of planning,
conducting and presenting an audit.
4) Clearer reporting

Data analytics can also be used to facilitate more digestible, impactful reports. In particular,
using audit analytics software can help your audit function create data visualizations, such as
charts and graphs, that clearly communicate audit findings.

Without data analytics, internal auditors might have to communicate via lengthy tables and
wordy explanations, which overwhelm the audience. But with data analytics, you can create
clear reports for senior management, the audit committee or other stakeholders, helping them
get the most out of presentations.

5) Improved audit quality

Overall, data analytics can help improve audit quality at each stage of the audit process,
leading to improved audit quality as a whole. From audit planning to testing to reporting, 
internal auditors can use data analytics to better understand their work and collaborate with
other stakeholders.

More specifically, data analytics can be used to more systematically and efficiently conduct
audit procedures such as Benford’s testing, stratification, Monetary Unit Sampling, and gap
and duplicate detection.
CHAPTER FIVE

Summary, Conclusion and Recommendations

5.0   Summary

The research findings show that;

The obligations of auditor to their client and third parties are commendable. These goals
include that auditor must have steps to protect the interest of those who will use his report
from being misled either on the nature of his opinion.

The audit must exercise in independence, which is considered to be an attitude of the mind
and also an important concept is respect of being independent of management influence.

Confidentiality must be maintained with respect to all information and document made
available to him in the cost of his professional work.

The auditor should have an independent approach, which is free from bias or prejudice in all
matters relating to his audit assignment.

Independence is equally considered as an expression of professional integrity of the

individual.

Competence must be exhibited in the performance of his work, this can be achieved through
motivation training and re-training top meet the current development of professional
requirement in relation to economic statutory expectation.

5.1   Conclusion
The role of auditors with their clients and third parties has a large extent remained
commendable. By virtue of the company decree and the companies and Allied matters decree
(CAMD) there must be disclosure of all reserves, expected in the cases of special classes of
companies specified in part III of the eight schedules.

The auditor must ensure that “secret reserve” are not created. He must verify the existence of
assists as reasonably possible and he cannot absolute himself from his duty by accepting the
certificate of an official. He must certify what he does not believe to be true his business is to
ascertain that position? By examine the books of the company. But he does not discharge his
duty by doing this without examine and without taking the trouble to see that the books of the
company itself show the company, its true position.

In case of company, an auditor must see that the position of the memorandum and articles of
association is carried out. In case of private firms it is of the almost important that the exact
scope of the auditors contract with his client be ordered in writing. The question of auditor
legal responsibilities is one of supreme importance every practicing accountant. It is however,
a most difficult one. The auditor’s roles and the principles involved by case of several
directions inflating. In case of a company the auditors to limit the responsibilities by the
terms of contract with the event and therefore, has responsibilities can be limited by
agreement, but in practice, it is found that in many cases, there is no written evidence of the
exalt term of the contract. In conclusion, it may be said that it is very unlikely that an auditor
will be held personally liable provided that he possessed such in all case, taking every point
before he certifies the accounts.

5.2   Recommendation

However, it is suggested that more research should be carried out in some other accounting
firms it was discovered that most companies are always trying to avoid the qualification of
their accounts by auditors in their audit report and hence to exercise some degree of secrecy
while dealing with auditors.

This is characterized by insufficient information being given to their auditor that of all
information by top level officers of the company before been available to the auditor. Also
most companies treat their auditors term in such a manner depending on their decision or
shining of some vital information realer required by the auditor in question, this is always
characterized company’s handshake as it is called.

5.3   Suggestions

To obtained in-depth knowledge in various aspects of auditing research works could be

carried out in these areas.

1. The auditor must have a recognized qualification as a mark of competence

2. The auditor must be independent

3. Rotation of auditing appointment so that an audit will not be too familiar with their
client

4. Establishment of audit committee.

       

Bibliography
References:

https://www.vedantu.com/commerce/concept-of-auditing

https://static.careers360.mobi/media/uploads/froala_editor/files/Fraud-and-Responsibilities-
of-the-Auditor-in-this-Regard(1).pdf
https://kb.icai.org/pdfs/PDFFile5b3b4e86220198.62789266.pdf
https://hrmars.com/papers_submitted/2862/
Article_35_The_Auditors_Responsibility_for_Finding_Errors.pdf
https://www.ibntech.com/blog/roles-responsibilities-third-party-audit-firms/
https://www.accaglobal.com/my/en/student/exam-support-resources/professional-exams-
study-resources/p7/technical-articles/data-analytics.html`1````