The role of auditors in a Limited Company
Auditors are an important part of public companies, and their roles can vary depending on the company.
In some cases, auditors may be responsible for checking financial statements and other reports to make sure they are accurate. Other times, auditors may be responsible for reviewing products or services offered by public companies to ensure they meet the needs of their customers.
The auditor is a crucial part of a company’s management team. In simple terms, an auditor is responsible for auditing and assessing a company’s financial statements. There are strict laws around auditing, including accounting rules and regulations to ensure that it is done fairly and the statements give a fair and realistic picture of the company’s finances. The auditor is generally independent of the company, as they report directly to the board of directors, shareholders or a combination of the two.
Auditors are responsible for independently evaluating a company’s financial performance and ability to meet financial goals. In most cases, auditors perform their audits in cooperation with management.
Ownership and Control
In a limited liability company, there is a separation between ownership and control. In other words, the people who own the company are not necessarily the ones who are running it.
Shareholders are the owners of a limited company, and they may or may not participate in its day-to-day operations. Rather, they appoint directors who take care of this for them. Therefore, directors have to make the right decisions on behalf of shareholders.
A part of making the right decisions is ensuring that the limited company is following the law. An important legal requirement for a limited company is that it must have its financial statements- the income statement and the statement of financial position (or the balance sheet)- audited annually. Shareholders are the ones who appoint external auditors.
Role of Auditors
There are two broad types of audits: internal and external audits. The company’s employees conduct internal audits to ensure that the company’s policies are being followed. External audits are conducted by auditors who are not affiliated with the company.
Legally, external auditors are required to perform the following functions:
- The auditor is responsible for assessing the general compliance with the law and also the specific compliance with the requirements of the limited company. That means looking at the accounts, the financial statements, the annual return, and anything to do with the business and ensuring that it is all in line with the law.
- They also make sure that the limited company is meeting all its liabilities and all its financial obligations. This also means reviewing the contracts and agreements relating to the business.
- They must be independent of the company to check its accounting records. The directors must not influence them in any way.
- They must be unbiased in their opinion and base their judgements on the evidence the directors provide them.
- They should ensure that the company’s accounting records comply with international accounting standards and the laws put forth in the Companies Act.
- They should determine if the company’s financial statements provide a true and fair view of the company to shareholders so that they are not misled.
- They should ensure that the records are free of significant errors.
In addition, the appointed auditors must be qualified enough to examine the company’s financial records. Moreover, the directors should make sure to provide them with sufficient information and access to the records.
Responsibility of Auditors
Auditors serve a critical role in assuring public firms’ financial accounts’ accuracy and dependability. They are responsible for analysing a company’s financial records, systems, and controls to determine if they comply with generally accepted accounting principles (GAAP) (GAAP). Auditors also review a company’s internal control procedures and the risks that could result in financial misstatements.
At public companies, auditors are responsible for more than simply financial statements. In addition, they are accountable for discovering and reporting any substantial faults or material weaknesses in the internal control system of a corporation. These flaws could lead to financial reporting fraud or inaccuracies, affecting the company’s brand and investor confidence. Investors rely on the auditor’s report because it gives an independent and objective evaluation of a company’s financial status.
Auditors must also maintain their independence and objectivity. They should have no financial or personal ties to the company they are auditing, as this could impair their objectivity and judgement. The Sarbanes-Oxley Act of 2002 requires auditors to rotate their lead partner every five years and prohibits delivering non-audit services to audit customers. These steps are meant to protect the auditors’ independence and prevent the likelihood of conflicts of interest.
Auditors serve a crucial role in guaranteeing the quality and dependability of financial accounts for publicly traded corporations. Their role extends beyond only financial statements and includes discovering and reporting any substantial weaknesses in a company’s internal control system. Auditors must stay impartial and objective in their work to provide an unbiased assessment of a company’s financial status.
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