The activity of checking a company's account books, financial statements and accounting procedures is as a rule entrusted to other accountants than those who prepared the accounts. These are called auditors and are independent, their duty being to inform the shareholders about their findings. Internal auditors are appointed by the board of directors or by the share holders’ Annual General Meeting. In Britain, it is a legal requirement that auditors should be certified or chartered accountants that is they should be members of specialized professional organizations. In certain countries the law requires that external auditors should decide if they give a true and fair view of the company’s financial situation, whether generally accepted accounting principles have been
applied in the drawing up of financial statements, whether the accounting principles have been consistently applied in different accounting periods.
Auditors draw up a report. This states whether they are entirely satisfied with the accounting methods used and with the picture of the company’s financial situation as it comes out from the financial statements. A clean report means the auditor has no objection, whereas a qualified report means the auditor has some misgivings on the correctness of the reports or that he points out some deviations from generally accepted procedures. He may make some recommendations for improving the company's accounting methods.
The auditor’s report should be attached to the balance sheet and the other documents presented to shareholders at the A.G.M. Auditors are liable to shareholders and third parties if they fail to disclose irregularities conducive to financial losses for the investors.
In some cases investors have sought redress from auditor's malpractice in court. To prevent such unfortunate cases a number of regulation forms have been suggested to EC countries such as the prohibition for the auditors to carry out consultancy assignments for their audit clients or to have periodic compulsory rotation of auditors and others. If these measures will be respected, then problems in a good checking of the companies’ account books, financial statements and accounting procedures will diminish and a correct financial situation of each company will be presented in front of the shareholders at the Annual General Meeting.
Auditing written by Cristina Nuta for FamousWhy.com
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