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The object of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework such as ISAs – International Standards on Auditing.

 

In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to be able to draw conclusions on which to base that opinion.

 

The auditor’s opinion enhances the credibility of financial statements by providing a high, but not absolute, level of assurance.

 

The management is responsible for preparation of financial statements and primarily responsible for the detection of error and fraud and maintaining of internal control. The auditor is also required to consider the likelihood of fraud in the conduct of an audit.

 

 

 

Auditing has traditionally been a discipline with determinable objectives, an established methodology and an established regime of regulation. However recent changes brought about mainly through economic imperatives have profoundly changed the approaches to auditing in recent years. The main change has been from a systems and/or substantive based approach to a risk based approach. The risk based audit approach involves analyzing overall audit risk (that an appropriate audit opinion will be given) over its components of inherent, internal control and detection risk.

 

Audit firms are now being asked to take on all sorts of work which are generally categorized as “assurance engagements”. The objective of an assurance engagement is for a professional accountant to evaluate and measure a subject matter that is the responsibility of another party against identified criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter.

 

 

For many years corporate governance (how Companies are run and controlled) has been an issue in stock exchange, governments, company boardrooms, and among investors (especially the institutions), auditors and lawyers. Partly, this was due to a series of scandals involving unscrupulous directors and spectacular company failures.

 

The early guidance on corporate governance came from Canada and the US.

 

In the UK in the 1990s, there were a series of committees to look into and report on the issue. These were the Cadbury, Greenbury and Hampel reports, all named after their chairmen. The final report was issued in 1998 and the recommendations were embodied in the Combined Code of the Committee on Corporate Governance. Finally the Code was adopted by the London Stock Exchange as part of the requirements of the listing agreement for quoted companies. One of requirements under this Code thst all quoted companies must have the external auditor.