The Importance of Auditing in the Authentication of Financial Statement


The art of auditing has been with man since age, and consequently cannot be said to be unexplored. To this end, many professional bodies on accounting and auditing, many various scholars have had to offer different definition and explanation as to what auditing is all about.

Accordingly to Gray and Mansion (1940) took auditing to mean “an investigation or a search for evidence to enable an opinion to be formed by a person(s) independent of the prepare and persons likely to gain directly from the use of the information with the intension of increasing it credibility and therefore its usefulness.

[widget id=”related-posts-by-taxonomy-2″]

Though, as detailed as the above positives view as to the meaning of the concept of auditing may appear, the international auditing practice committee gave a more all – embracing, and thus commonly accepted definition of the subject matter. To the committee, auditing is “an independent examination of and expression of opinion of the financial statement of an enterprises by an appointed auditor in pursuance if that appointment and compliance with any relevant statutory obligation”.

From these definitions, one can conveniently deduce that for any audit exercise to create the much desired impact of stratifying the interest of investors and other third parties, and of justifying management claims of resources entrusted in their care; the auditor must; attached to every set of financial statement to limited liability companies.

Also section 389 (1) of these decrees requires that auditors report to members at Annual General Meeting (AGM) on the set of financial statement examined by them during their tenure of office.
b). private Auditor: A private auditor is conducted into the affairs of unlimited liability companies such as, sole proprietorships and partnerships, not necessarily because it is under compulsory, but because the owner (s) of the business desires it. Therefore, in the absence of any regulatory frame work, the scope of the auditors is determined by the terms of reference under which he was hired.
c). Management Audit: This type of audit is concerned with determining how efficiency the enterprises have been to marry its corporate goal of profit maximization with its social responsibilities of her employees, customers and general public at large.
d). Internal Audit: This entails an independent review of operations and records within an organization by specially assigned staff of the organization, as a basis for protection and constructive services to management. Thus, the main objective of the discharging its to responsibilities and to evaluate compliance with corporate procedure.

The way and the manner in which the auditor approaches his work determine into which the following sometimes overlapping classifications an audit can be placed.
a. final audit: This involves conducting an audit through, the audit exercise is beginning just before the end of the accounting period but is completed at the end or a little before time after the end of the financial period.
b. Interim Audit: This is all about conducting an audit at a particular date within the accounting period.
c. Balance sheet Audit: This new system of auditing has its roof in U.S.A. It entails the tests and examination undertaken by the auditor to determine whether the accounts based on the system gave a true and fair view, and is more unduely used in mergers and acquisitions arrangements.
d. System Audit: This is an examination and review of the internal procedures and records of an organization in order to ascertain their reliability as a basis for the compilation of the final accounts and balance sheets, and
e. Continuous Audit: This entails having specific staff that would be continuously engaged on the audit throughout the financial period and serves as a tool employed by management to ensure that their organization is ran accordingly.

In all business set up, records of transactions are maintained by employees of the organization, and the information contained there is presented in financial statements prepares by the management of the same company. There is the opportunity for the result to be affected by ignorance. “Personal bias, self interest, carelessness or even outright dishonesty”.

Hence auditing aims at allaying such fears by reporting upon the “truth and fairness” of the financial statement.
Nyarks (1940) draw a fine line between the main and subsidiary objectives of auditing in the following word the ultimate objective of an examination of financial statement by an independent public accountant is usually the expression of an opinion through the medium of a report… (which is) intended to assure the stating of “the truth”, the whole truth and nothing but truth” both in the accountants report and in the financial statement”.
Therefore, the primary purpose of auditing is to produce a report by the auditor of his opinion in the truth and fairness of the financial statements as examined by him. So that any person reading or using them can have strong and absolute belief in them Conversely, the secondary or subsidiary objectives of an audit includes:-
(1) To detect errors and fraud
(2) To prevent errors and fraud
(3) To offer other services to the auditor’s client.
Such services includes accounting, taxation, investigation, aims of auditing etc.
Though it has been argued and accepted that the secondary aim of auditing are incidental to the main purpose, one thing is certain and that in making the ordinary examination, the independent auditor is aware of the possibility that fraud may exist.
Financial statement may be mis-stated as a result of defalcations and other similar irregularities or deliberate misrepresentations by management, or both. The auditor recognize that fraud, if sufficiently material may affect his opinion on the financial statements and his examination made in accordance with generally accepted auditing standard, gives consideration to his possibility”.

International auditing guideline requires that every audit report has the following basic components.
(a) Title
(b) The financial statements to which the report refer
(c) Those to whom the is addressed
(d) A reference to the statute under which the audit was carried out.
(e) The auditor’s opinion
(f) Auditor’s signature
(g) The date of the report, and
(h) The auditor’s address.
In a bid to ensure uniformity in reporting, all audit report must expressly state the following as schedule
(6) Six of CAMD 1990 requires.
(a) Whether the auditor has obtained all the information and explanation necessary for the purpose of an audit.
(b) Whether, in his opinion, proper books of accounts have been kept by the company, and proper returns adequate for the purpose and audit obtained from branches not visited.
(c) Whether the financial statements are in agreement with the book of accounts and returns.
(d) Whether in Auditor’s opinion the financial statement gives a true and fair view of the state of affairs, application of funds.
(e) Whether the financial statement have been prepared in accordance with the provision of CAMD 1990 and any other statute.
All audit processes are expected to produce a report for onward presentation by the auditor to his client. This instrument for meeting the requirements of section 359(1) of CAMD 1990, serves as a medium of communication between the auditor and the generality of the users of the report, especially shareholders.
IFURUEZE (1992) summarized the meaning of audit report in the following language, “a statement signed by the auditor in which he affirms that he has carried out the audit, gives as indication of the nature and scope of his examination and expresses an opinion regarding the financial statement examined.
These are publishable findings of the auditor after each audit examination and\or special investigation met for both internal and external users of accounting informations.
Formal reports can be further sub classified into
(a) Short form audit report – this is a statement describing the scope of the audit as well as the auditor’s opinion based on this finding.
(b) Long form audit report – is as much as this statement contains both the scope of the audit and the auditor’s opinion, it also includes comments on some matters considered to be of interest to the readers of the report and
(c) Special reports – this results when auditors are asked to conduct an unconventional audit. This may include reporting on the financial statements of non-profit making organizations, those companies that keep their records and prepare accounts on cash bases of accounting and so on.
Informal reports provides an auditor with an opportunity of bringing to the notice of an enterprises management matters which he prefers to exclude from the formal report because of their immateriality or the need to accord them urgent attention.
Informal reports may be a mere conversation with the relevant officers of the company in which case may be oral or written.
Auditing opinion refers to the view of the auditor as to the extent of truth and fairness of the financial statement as examined by him. As show below, various types of opinion are placed to the disposal of the auditor for his use in addressing any form of irregularities, whether deliberate or indelibrate. These include:-
(a) Unqualified Opinion:- is issued when after the examination the auditor agrees with the content of the financial statement.
That is, the auditor acknowledges without reservation that the stewardship account present a true and fair picture of the company state of affairs for the year ended.

This article was extracted from a Project Research Work Topic

Leave a Reply

Your email address will not be published. Required fields are marked *