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Role of external auditors - Coggle Diagram
Role of external auditors
The auditors objectives are to obtain reasonable assurance about whether the financial statements prepared by the company's directors overall are free from material misstatement, whether due to misunderstanding error or fraud and to issue a report to the members of the company
Audits are carried out in accordance with International standards on Auditing and although reasonable assurance is intended to provide a high level of assurance, it is not guaranteed that the audit will detect a material misstatement when it exists
Misstatements in the financial statements can be caused by error or deliberate fraud
Misstatements including omissions are considered to be material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements
During the course of an audit, the auditor exercises professional judgement and should maintain professional scepticism throughout the audit
At the conclusion of the audit, the auditor must make a report to the company's members. For private companies, the audit report must be sent to members, for public companies the audit report must be laid before the members in general meeting
Duties of auditor
An auditor must carry out sufficient investigations so that they can form an option as to whether
Adequate accounting records have been maintained
The accounts are consistent with the accounting record
In the case of a quoted company, the auditable part of the directors remuneration report is consistent with the accounting records
If in the opinion of the auditor, one or more of these statements cannot be made, that fact must be stated in their report
If the accounts do not contain the details of directors remuneration, pensions and/or compensation for loss of office , the missing information must be contained within the auditors report
If the auditor does not obtain all the information or explanations they require, this fact must be stated in the reprot
If the directors have prepared accounts taking advantage of the regime available to small companies and in the opinion of the auditor the company does not qualify as a small company, this fact must be stated in the auditors report
If the company is required to prepare and include in the directors report a corporate governance statement in respect of the financial year and has not done so the auditor must state this fact in the audit report
Auditors right to information and access
An auditor of a company enjoys certain stuatory rights to information in connection with the exercise of their duties and they include a right of access at all times to the companys books, accounts and records
In addition to this right, the auditor can require individuals connected with the company to provide information or explanations necessary for the purposes of undertaking the audit
These individuals include
Any officer or employee of the company
Any person holding or accountable for any of the companys books accounts or vouchers
Any subsidiary undertaking of the company which is a body corporate incorporated in the UK
Any officer, employee or auditor of any such subsidiary undertaking or any person holding or accountable for any books, accounts or vouchers of any such subsidiary undetaking
A parent company, having a subsidiary undertaking that is not a body incorporated in the UK shall if its auditors require take all such steps as are reasonably open to it to obtain from the subsidiary, its officers, employees and auditor, and any person holding or accountable for any books, accounts or vouchers of any such subsidiary undertaking such information and explanations as the parent company auditors may reasonably require
The auditor is entitled to attend any general meetings of the company and to receive all notices and other communications relating to any general meeting. They may also speak on any business of the meeting that concerns them as auditor
Auditors report to members
The auditor is required to report to the members on their audit of the financial statements
The report must include an introduction identifying the company, a description of the accounts, including the financial year they cover and the financial reporting framework applied, together with a description of the scope of audit work carried out and the accounting standards adopted
The audit report must state clearly whether in the auditors opinion the accounts
Have been properly prepared in accordance with the relevant financial reporting framework
Have been prepared in accordance with the requirements of the Act and where relevant IAS Regulations and have given a true and fair view
In respect of the balance sheet of the state of affairs of that company at the end of the financial year
In respect of the profit and loss account in respect of the financial year
In respect of group accounts of the state of affairs of the group at the end of the financial year, the P&L account and any udertakings included in the consolidation as they affect the members of the company
The auditors report must
Be either unqualified or qualified
Include a reference any matters to which the auditor wishes to draw attention by way of emphasis without qualifying the report
Include a statement on any material uncertainty, relating to events or conditions that may cast signficiant doubt about the company's ability to continue to adopt the going concern basis of accounting
Identify the auditors place of establishment
The auditor must state in their report whether, in their opinion, based upon their work undertaken during the course of the audit
The information given in the strategic report and the directors report for the financial year for which the accounts are prepared is consistent with those accounts and any strategic report and the directors report have been prepared in accordance with applicable legal requirements
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, they have identified material misstatements in the strategic report or the directors and if applicable give an indication of the nature of each of the misstatements
Report to PIE Audit Committees
The identity of the audit partner responsible for the audit
If some of the audit work has been undertaken by another statutory auditor that is not a member of the same network or has used the work of external experts, a statement of that fact and that the auditor has received confirmation from the other auditor or external expert regarding their independence
A description of the scope and timing of the audit
A description of the methodology used, including which balance sheet items have been directly verified and which have been verified based on system and compliance testing, any substantial variation in the fighting of system and compliance tests should be explained even if the previous years statutory audit was carried out by another auditor
The quantise level of materiality applied including qualitative factors considered, to perform the statutory audit for the financial statements as a whole and where applicable the levels for particular transactions, balances or disclosures
Any signficiant deficiencies in the audited entity or in the case of consolidated financial statements, the parent undertakings internal financial control and/or accounting systems
Any signficiant matters identified during the audit involving actual or suspected non-compliance with applicable laws, regulations or the Articles, considered to be relevant in order to enable the audit committee to fulfil its tasks
Any signficant difficulties or matters encountered in the course of the statutory audit and that were discussed, verbally or in writing with management
Any other matters arising from the statutory audit that in the auditor's professional judgement are signficiant to the oversight of the financial reporting process
Signing of audit report
The auditors report must state the name of the auditor and be signed and dated
In the case of an auditor who is an individual, the report must be signed by that individual
Every copy of the audit report that is published must state the name of the auditor and where appropriate the name of the senior statutory auditor.
CA2006 provides a limited exemption allowing the name of the auditor to be omitted if there are reasonable grounds to believe that the auditor or anyone associated with the auditor is at risk of violence or intimidation. Where advantage of the exemption is taken, the company must give notice to the Registrar stating
The name and registered number of the company
The financial year of the company to which the report relates
The name of the auditor and if applicable, the name of the person who signed the report