The document discusses the role of auditors in small business organizations. It explains that auditors play an important role by verifying financial statements and ensuring management fulfills their responsibilities. The auditor assesses the business's internal controls and accounting practices to determine if financial reporting is accurate. Management is responsible for preparing financial statements according to accounting standards, maintaining adequate records, and designing internal controls, while the auditor provides an independent examination of the statements.
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*Statutory Declaration - The Slides are congested as they contain a number of animations. Please download it and play Slideshow for proper understanding. Thank You.
Financial accounting is the process of Accounting all incomes, expenses, assets & liabilities in monetary terms, thus enabling preparation of principal financial statements. This first lesson as a part of Financial Accounting is brought to you by Welingkar’s Distance Learning Division.
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AUDITOR, ROLE OF AN AUDITOR, KINDS OF AUDITOR, INTERNAL AUDITORS, GOVERNMENT AUDIOTRS, INDEPENDENT AUDITORS, IMPORTANCE OF AUDITOR & PROBLEM FACED BY AN AUDITOR.
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*Statutory Declaration - The Slides are congested as they contain a number of animations. Please download it and play Slideshow for proper understanding. Thank You.
Financial accounting is the process of Accounting all incomes, expenses, assets & liabilities in monetary terms, thus enabling preparation of principal financial statements. This first lesson as a part of Financial Accounting is brought to you by Welingkar’s Distance Learning Division.
For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
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AUDITOR, ROLE OF AN AUDITOR, KINDS OF AUDITOR, INTERNAL AUDITORS, GOVERNMENT AUDIOTRS, INDEPENDENT AUDITORS, IMPORTANCE OF AUDITOR & PROBLEM FACED BY AN AUDITOR.
auditing is an examination of accounting
records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.
Start-ups urged to limit the sale of equity to develop working capital and in establishing product, service or process. A very expensive way to finance a start-up.
THE NATURE AND IMPORTANCE OF ENTREPRENEURSFallahchay Ali
This is first chapter of Entrepreneurship and Business Planning.
After the lesson, reader must be able to:
1. Describe Nature, Development and History of Entrepreneurship
2. Identify The Entrepreneurial Decision Process
3.Describe different types of Start-ups
4. Recognize Role of Entrepreneurship in Economic Development
5. Identify Entrepreneurial Careers and Education
6. Identify Different types of Skills Required for Entrepreneurship
7. Describe Ethics and Social Responsibility of Entrepreneurs
THIS E BOOK IS VERY HELPFUL FOR ENTREPRENEURIAL
IDEAS AND SKILLS
FOR BEGINNERS AND START UPS. THIS E BOOK ALSO CONTAIN LINKS OF PHYSICAL BOOKS YOU CAN BUY
STUDY ABOUT ENTREPRENEUR IDEAS AND START UPS'
Enter the World of BusinessWarren Buffet The Oracle of OmahaW.docxelbanglis
Enter the World of Business
Warren Buffet: The Oracle of Omaha
Warren Buffett did not change his life plans when he was rejected by Harvard. An avid reader with a photographic memory, he persevered. He researched other universities and discovered that Benjamin Graham, the author of the The Intelligent Investor, was a professor at Columbia University. He immediately enrolled there, was accepted, and became the star pupil and eventual partner of the famous Graham. After graduating, Buffett started a lucrative career, taking ownership in companies that he believed would do well in business.
Buffett’s company, Berkshire Hathaway, has become a conglomerate with ownership in well-performing companies, including Geico, Heinz, Benjamin Moore, and See’s Candies. Because Berkshire Hathaway owns companies in so many different industries, it reduces the risk that the failure of any one industry will significantly affect the company. Most importantly, Buffett believes in these firms and their value, a strategy that has made him one of the 10 richest people in the world.
Leading such a variety of companies comes with challenges as well. Companies require leaders who know the business and have specialized expertise—something nearly impossible for one person to do with so many different business areas. For this reason, Buffett depends on his managers to lead the various companies. He believes giving his managers autonomy allows them to achieve their highest performance. He wants his managers to “own” their job. By hiring knowledgeable managers and empowering them to run the companies as they believe best, Buffett is able to lead his vast business conglomerate successfully.
Buffett’s organizational leadership philosophy includes focusing on the business. At his headquarters, 25 people run the organization. He encourages entrepreneurs “to focus on the business and not growing a large staff.” Buffett has earned the moniker “Oracle of Omaha” because he has lived there most of his life and many investors follow his advice and decisions.1
LO 1-1
Define basic concepts such as business, product, profit, and economics.
Introduction
We begin our study of business in this chapter by examining the fundamentals of business and economics. First, we introduce the nature of business, including its goals, activities, and participants. Next, we describe the basics of economics and apply them to the U.S. economy. Finally, we establish a framework for studying business in this text.
The Nature of Business
A business tries to earn a profit by providing products that satisfy people’s needs. The outcomes of its efforts are products that have both tangible and intangible characteristics that provide satisfaction and benefits. When you purchase a product, you are buying the benefits and satisfaction you think the product will provide. A Subway sandwich, for example, may be purchased to satisfy hunger, while a Honda Accord may be purchased to satisfy the need for transportation and ...
Similar to Role of Auditor : entrepreneurship and small business management (20)
This ppt has everything about Nissan Micra (India).
Nissan : History, about the company
Micra : Product, price, place, promotion
Competition, Market Share
Consumer Survey
Law of Variable Proportions and Law of Returns to ScaleAyush Parekh
This presentation puts emphasis on
Law of Variable proportion and Law of Returns to Scale
It also puts light on production function, cost function, etc.
This presentation contains details of the company Bisleri.
Its 4Ps, brand positioning, Future and Recommendations.
Presentation By:
Leanne Vas, Sampurna Chawdhary, Suchit Chauhan and Ayush Parekh.
The presentation describes growth of mutual funds sector with an emphasis on indian market. Its history, types, advantages, disadvantages, how to invest, where to invest, etc.
Anything and everything about Mutual Funds.
This presentation poster infographic delves into the multifaceted impacts of globalization through the lens of Nike, a prominent global brand. It explores how globalization has reshaped Nike's supply chain, marketing strategies, and cultural influence worldwide, examining both the benefits and challenges associated with its global expansion.
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Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the what'sapp number.
+12349014282
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the what's app number of my personal pi vendor to trade with.
+12349014282
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the what'sapp contact of my personal pi vendor
+12349014282
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the what'sapp number of my personal pi merchant who i trade pi with.
Message: +12349014282 VIA Whatsapp.
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
3. & 3&
Introduction
We often hear that so and so is an entrepreneur who has
started his or her own business. It is also the case that
when we hear the term entrepreneur, we tend to associate
it with a person who has or is starting their own ventures
or in other words, striking it on their own. This is
indeed the case as the formal definition of
Entrepreneurship is that it is the process of starting a
business or an organization for profit or for social
needs. We have used the phrase for profit or for social
needs to delineate and separate the commercial
entrepreneurship from social and charitable
entrepreneurship. After defining entrepreneurship, it is
now time to define who an entrepreneur is and what he
or she does.
An entrepreneur is someone who develops a business
model, acquires the necessary physical and human
capital to start a new venture, and operationalizes it
and is responsible for its success or failure. Note the
emphasis of the phrase responsible for success or failure
as the entrepreneur is distinct from the professional
manager in the sense that the former either invests his or
her own resources or raises capital from external sources
and thus takes the blame for the failure as well as reaps
the rewards in case of success whereas the latter or the
professional manager does the job and the work assigned
to him or her for a monetary consideration. In other
words, the entrepreneur is the risk taker and an innovator
in addition to being a creator of new enterprises whereas
the professional manager is simply the executor.
4. & 4&
Attributes of Entrepreneurs
Moving to the skills and capabilities that an entrepreneur
needs to have, first and foremost, he or she has to be an
innovator who has a game changing idea or a potentially
new concept that can succeed in the crowded
marketplace. Note that investors usually tend to invest in
ideas and concepts which they feel would generate
adequate returns for their capital and investments and
hence, the entrepreneur needs to have a truly innovative
idea for a new venture.
Leadership Qualities
Apart from this, the entrepreneur needs to have excellent
organizational and people management skills as he or she
has to build the organization or the venture from scratch
and has to bond with his or her employees as well as vibe
well with the other stakeholders to ensure success of the
venture.
Further, the entrepreneur needs to be a leader who can
inspire his or her employees as well as be a visionary and
a person with a sense of mission as it is important that
the entrepreneur motivates and drives the venture. This
means that leadership, values, team building skills, and
managerial abilities are the key skills and attributes that
an entrepreneur needs to have.
Creative Destruction and Entrepreneurship
We often hear the term creative destruction being spoken
about when talking about how some companies fade
away whereas others succeed as well as maintain their
leadership position in the marketplace. Creative
destruction refers to the replacement of inferior
5. & 5&
products and companies by more efficient, innovative,
and creative ones wherein the capitalist market based
ecosystem ensures that only the best and brightest
survive whereas others are blown away by the gales
of creative destruction. In other words, entrepreneurs
with game changing ideas and the skills and attributes
that are needed to succeed ensure that their products,
brands, and ventures take market share away from
existing companies that are either not creating values or
are simply inefficient and stuck in a time warp wherein
they are unable to see the writing on the wall. Therefore,
this process of destroying the old and the inefficient
through newer and creative ideas is referred to as
creative destruction which is often what the entrepreneur
does when he or she launches a new venture.
An Entrepreneur is a Risk Taker
We have discussed what entrepreneurship is and the
skills and attributes needed by entrepreneurs along with
how they engage and indulge in creative destruction.
This does not mean that all entrepreneurs are successful
as the fact that they can become victims of creative
destruction as well as due to lack of the other traits
means that a majority of new ventures do not survive
past the one year mark of their existence. Now, when
ventures fail, the obvious question is who takes the
blame for the failure and whose money is being lost. The
answer is that the entrepreneur puts his or her own
money or raises capital from angel investors and venture
capitalists which means in case the venture goes belly up,
the entrepreneur and the investors lose money. Note that
as mentioned earlier, the employees and the professional
managers lose their jobs and unless they are partners in
6. & 6&
the venture, their money is not at stake. Therefore, this
means that the entrepreneur is the risk taker in the
venture which means that the success or failure of the
firm reflects on the entrepreneur.
Some Famous Entrepreneurs
Given this basic introduction to entrepreneurship, we can
now turn to some famous examples of entrepreneurs who
have succeeded despite heavy odds because they had
game changing ideas and more importantly, they also
had the necessary traits and skills that would make them
legendary. For instance, both the founder of Microsoft,
Bill Gates, and the late Steve Jobs, the founder of Apple,
were college dropouts though their eventual success
meant that they had not only truly innovative ideas, but
they were also ready to strike it out for the longer term
and hang on when the going got tough. Even the founder
of Facebook, Mark Zuckerberg, as well as Google’s
Larry Paige and Sergey Brian can be considered as truly
revolutionary entrepreneurs. What all these legends have
in common is that they had the vision and the sense of
mission that they were going to change the world and
with hard work, perseverance, and a nurturing
ecosystem, they were able to self actualizes themselves.
Entrepreneurship Needs a Nurturing Ecosystem
Finally, note the use of the term nurturing ecosystem.
This means that just as entrepreneurs cannot succeed if
they lack the necessary attributes, they cannot succeed
even having them but living in an environment or a
country that does not encourage risk or tolerate failure
and more importantly, is unable to provide them with the
monetary and human capital needed for success. This
7. & 7&
means that the United States remains the preeminent
country for entrepreneurship as it has the ecosystem
needed for these entrepreneurs to succeed whereas in
many countries, it is often impossible or difficult to find
funding, work through red tape, and ensure that the
environmental factors do not inhibit entrepreneurship.
Factors affecting Entrepreneurship
Political Factors
Political factors play a huge role in the development of
entrepreneurship in a given geographical area. This is
because politicians decide the type of market that is in
place. The market could be capitalistic, communist or
some countries have adopted a mixed economy. Each of
these three markets has very different implications for
the way in which entrepreneurs are required to function.
Capitalism requires breakthrough innovation whereas
communism requires entrepreneurs to be well connected
with the political class. Therefore, it has been observed
that the more capitalistic any country is, the more
entrepreneurship flourishes in the region.
Legal Factors
Entrepreneurs are dependent upon law for a wide variety
of factors. The strength and fairness of the legal system
of a nation affect the quality of entrepreneurship to a
large extent. This is because entrepreneurs require a wide
variety of legal services to function. For instance,
entrepreneurs would require the courts to enforce the
contracts that were entered to between parties. In many
countries such contracts are not enforceable and
therefore the resultant risk prohibits the development of
8. & 8&
entrepreneurship. Then again, the entrepreneurs are
dependent on the courts for the protection of their
property rights. Also, many advanced countries have
noticed that the provision of declaring bankruptcy has
been positively associated with the development of
entrepreneurship. Entrepreneurs do fail a few times
before they find the right innovation that leads to their
success. The United States is amongst the countries with
the highest rate of entrepreneurial development and it is
also known to have one of the most advanced bankruptcy
laws! Even business legends like Henry Ford had
declared bankruptcy in their early days.
Taxation
The government can also influence a high degree of
control on the market through provisions of taxation.
Some amount of taxation is necessary for the government
to maintain the legal and administrative systems in place
for the entire economy. However, a lot of times
governments resort to excessive taxation. They usually
adopt the policy of beggaring the rich and giving it off to
the poor. This goes against the basic tenets of
entrepreneurship which believes in survival of the fittest.
Therefore, countries where tax regimes are restrictive
find an outflow of entrepreneurs. In short, entrepreneurs
want to set up shop in places where there is minimal
interference from the government.
Availability of Capital
The degree to which the capital markets of a nation are
developed also play a huge role in the development of
entrepreneurship in a given region. Entrepreneurs require
capital to start risky ventures and also require instant
9. & 9&
capital to scale up the business quickly if the idea is
found to be successful. Therefore, countries which have a
well developed system of providing capital at every stage
i.e. seed capital, venture capital, private equity and well
developed stock and bond markets experience a higher
degree of economic growth led by entrepreneurship.
Labor Markets
Labor is an important factor of production for almost any
kind of product or service. The fortunes of the
entrepreneurs are therefore dependent on the availability
of skilled labor at reasonable prices. However, in many
countries labor has become unionized. They demand
higher wages from the entrepreneurs and prohibit other
workers from working at a lower price. This creates an
upward surge in the costs required to produce and as
such has a negative effect on entrepreneurship.
With the advent of globalization, entrepreneurs have
witnessed the freedom to move their operations to
countries where labor markets are more favorable to
them. This is the reason why countries like China, India
and Bangladesh have witnessed a huge rise in
entrepreneurial activity in their countries.
Raw Materials
Just like labor, raw material consisting of natural
resources is also an essential product required for any
industry. In some countries this raw material is available
through the market by paying a fair price. However, in
some countries seller cartels gain complete control over
these natural resources. They sell the raw materials at
inflated prices and therefore usurp most of the profit that
the entrepreneur can obtain. Therefore, countries where
10. & 10&
the supply of raw material faces such issues witness
depletion in the number of entrepreneurial ventures over
time.
Infrastructure
Lastly, there are some services which are required by
almost every industry to flourish. These services would
include transport, electricity etc. Since these services are
so basic, they can be referred to as the infrastructure
which is required to develop any business. Therefore, if
any country focuses on increasing the efficiency of these
services, they are likely to impact the businesses of
almost all entrepreneurs in the region. Therefore,
countries which have a well developed infrastructure
system witness high growth of entrepreneurship and the
opposite is also true.
Of course, the above list of factors is not exhaustive.
Entrepreneurship is far too complex a subject to capture
in a few bullet points. However, the above list does
provide an indication towards the type of factors that can
play an important role.
11. & 11&
Small Business Management
A small business is a business that is independently
owned and operated, with a small number of
employees and relatively low volume of sales.
Different countries have slightly different description for
a small business.
For example, in United States a business have less than
100 employees is considered as a ‘small business’,
whereas it is under 50 employees to qualify as a ‘small
business’ in European Union.
In Australia, a small business is defined as 1-19
employees.
Small businesses are normally privately owned
corporations, partnerships, or sole proprietorships.
Apart from number of employees other criteria for
classifying a business as ‘small’ are:
Amount of capital employed
Annual Sales turnover
Value of assets
Profits
Importance of small business in the
economy
As we all know that small firms are important for the
economy.
Small businesses employees majority of the
workforce in any country.
Every business starts small.
Small businesses are flexible and respond easily to
changes in demand.
Small firms often cater to local demands.
12. & 12&
In difficult economic times, such as a recession,
small business can be an important source of
providing employment.
Small firms provide competition to larger firms
through providing customised goods and services.
Small firms provide niche products and services,
which a larger firm might overlook.
Small businesses face the following
problems
Under capitalization
Poor debt management
Lack of managerial skills of the owner
Cannot retain experienced staff
Usually find it difficult to attract skilled staff
Poor stock management
How can small business survive?
Small firms survive by being different (product
differentiation). They can survive by
• Segmenting the market by income. They can target
niche market segments of high income customers,
position their product as a ‘premium brand’ at a
high ‘premium price’ eg Morgan sports cars
• Small firms have the advantage of being able to
respond quickly to change - they do not have the
bureaucratic procedures often a feature of large
firms where decisions are made only after endless
meetings. This means they can be quick to exploit
new market trends.
• The Internet also allows small firms direct access to
consumers, by passing intermediaries. The web
13. & 13&
gives small firms the opportunity of international
marketing.
• Small independent firms can join together to form a
buying group to negotiate discounts on joint orders.
• Small firms can survive by selecting a premium
niche and offering an exclusive brand’ that exactly
meets the customer requirements of their target
segment. They will need to be totally customer
orientated.
14. & 14&
Auditors in Small Company
In the past, companies often relied on accountants from
their audit firms to assist in reconciling accounts,
preparing the adjusting journal entries and writing
financial statements.
Small companies, in particular, often lacked the level of
accounting sophistication necessary to carry out these
tasks. Relying on the audit firm often made sense from
the perspective of efficiency and cost containment.
But an increased focus on auditor independence has
come about during the last decade in new requirements
by the American Institute of CPAs and a host of related
regulatory guidance issued by the Securities and
Exchange Commission, the General Accounting Office
and the U.S. Department of Labor.
The standards generally restrict the nonattest services –
such as tax or consulting services – that auditors may
perform and the circumstances under which those
services may be allowed. The increased regulations serve
to muddy an already often-misunderstood set of
expectations.
Role of Auditors
The outside, independent auditor is engaged to render an
opinion on whether a company’s financial statements are
presented fairly, in all material respects, in accordance
with financial reporting framework. The audit provides
users such as lenders and investors with an enhanced
degree of confidence in the financial statements. An
audit conducted in accordance with GAASand relevant
ethical requirements enables the auditor to form that
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opinion.
To form the opinion, the auditor gathers appropriate and
sufficient evidence and observes, tests, compares and
confirms until gaining reasonable assurance. The auditor
then forms an opinion of whether the financial statements
are free of material misstatement, whether due to fraud or
error.
Some of the more important auditing procedures include:
✎ Inquiring of management and others to gain an
understanding of the organization itself, its operations,
financial reporting, and known fraud or error
✎ Evaluating and understanding the internal control
system
✎ Performing analytical procedures on expected or
unexpected variances in account balances or classes of
transactions
✎ Testing documentation supporting account balances or
classes of transactions
✎ Observing the physical inventory count
✎ Confirming accounts receivable and other accounts
with a third party
At the completion of the audit, the auditor may also offer
objective advice for improving financial reporting and
internal controls to maximize a company’s performance
and efficiency.
What auditors don’t do?
For a clear picture of the role of external auditors, it
helps to understand what you should not expect auditors
to do. The emphasis is on “independent.”
First and foremost, auditors do not take responsibility for
the financial statements on which they form an opinion.
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The responsibility for financial statement presentation
lies squarely in the hands of the company being audited.
Your external auditor may perform some of these duties
under guidelines of the American Institute of CPAs,
Department of Labor, Government Accountability
Office, Securities and Exchange Commission or Public
Company Accounting Oversight Board. However, these
same guidelines may preclude the auditor from
performing some of these functions.
Management’s responsibilities in an audit
The words, “The financial statements are the
responsibility of management,” appear prominently in an
auditor’s communications, including the audit report.
Management’s responsibility is the underlying
foundation on which audits are conducted. Simply put,
without management having responsibility for the
financial statements, the demarcation line that determines
the auditor’s independence and objectivity regarding the
client and the audit engagement would not be as clear.
It is important for a company’s management to
understand exactly what an audit is – and what an audit
does and does not do. The auditor’s responsibility is to
express an independent, objective opinion on the
financial statements of a company. This opinion is given
in accordance with auditing standards that require the
auditors to plan certain procedures and report on the
results of the audit, while considering the
representations, assertions and responsibility of
management for the financial statements.
As one of their required procedures, auditors ask
management to communicate management’s
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responsibility for the financial statements to the auditor
in a representation letter. The auditor concludes the
engagement by using those same words regarding
management’s responsibility in the first paragraph of the
auditor’s report.
Auditors cannot require management to do anything or to
make any representation. However, to conclude the audit
with the hope of a “clean” unqualified opinion issued by
the auditor, management has to assume the responsibility
for the financial statements.
Auditing standards are very clear that management has
the following responsibilities fundamental to the conduct
of an audit:
1. To prepare and present the financial statements in
accordance with an applicable financial reporting
framework, including the design, implementation and
maintenance of internal controls relevant to the
preparation and presentation of financial statements that
are free from material misstatements, whether from error
or fraud
2. To provide the auditor with the following information:
✎ All records, documentation and other matters relevant
to the preparation and presentation of the financial
statements
✎ Any additional information the auditor may request
from management
✎ Unrestricted access to those within the organization if
the auditor determines it necessary to obtain audit
evidence objectivity.
It is not uncommon for the auditor to make suggestions
about the form and content of the financial statements, or
even assist management by drafting them, in whole or in
part, based on information provided by management. In
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those situations, management’s responsibility for the
financial statements does not diminish or change.
Conclusion
An auditor must act honestly and with reasonable care
and skill; otherwise he may be sued for damages.
Further, it is the duty of an auditor to verity with skill,
care and caution which a reasonably competent, careful
and cautious auditor would use. What is reasonable skill,
care and caution must depend on the particular
circumstances of each case. An auditor is not bound to be
a detective or to approach his work with a foregone
conclusion that there is something wrong. He is a watch-
dog but not a blood hound. He is justified in believing
tried servants of the company and in assuming that they
are honest provided he takes reasonable care.
On the other hand if there is anything calculated to excite
suspicion, he should probe it to the bottom, and he must
not confine himself merely to the task of verifying the
arithmetical accuracy of the balance-sheet but should
ascertain by comparison with the books of the company
that it was properly drawn up so as to show the correct
financial position.
An auditor must satisfy himself that the securities of the
company in fact exist and are in safe custody. This duty
is discharged by their making personal inspection of the
securities in question.
Auditors are not concerned with the policy of the
company or whether the company is well or ill managed.
It is not his duty to give advice, either to directors or
shareholders, as to what they ought to do.