2014 is almost over, so it is imperative that financial statements are finalised ready for audit. But firs,t lets try to remind ourselves as to why financial statements are audited. The General objective of an audit is to express an opinion as to whether the financial statements present fairly, in all material respects, the financial position, performance and cash flow of an entity in accordance with the applicable financial reporting framework (IFRS). Other Questions may arise as to why there is need for this opinion. Continue reading......... The main necessity for conducting the audit of financial statements stems from the fact that the persons responsible for the preparation of financial statements are often different from the owners of large corporations. management and ownership is normally separate in the case of large companies that often have thousands of shareholders. In large corporations, shareholders appoint directors to run the enterprise on their behalf. This separation of ownership and control creates the need for external audit. Financial statements are the main source of accountability of management performance by the shareholders. However, as the management is responsible for the preparation of financial statements, shareholders have to rely on external verification by auditors in order to gain reasonable assurance that the accounts are free from material misstatements and can therefore be relied upon to be presenting true and fair view of the affairs of the company. Apart from the needs of owners, other users of financial statements may need to place reliance on the financial statements. External audit is a means of providing a reasonable basis for the users to place reliance on financial statements. Examples of stakeholders (other than shareholders) that rely on audited financial statements include the following: Tax authorities rely on audited financial statements to determine the accuracy of tax returns filed by the companies. Financial institutions require audited accounts (or prospective financial information) of prospective borrowers for assessing the credit risk by analysing their liquidity and financial position. Management uses the audit exercise to re-evaluate the companys risk management processes and internal control system by considering the feedback given by external auditors during the course of the audit in this regard
Posted on: Mon, 22 Dec 2014 08:30:09 +0000
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