Saturday, April 18, 2015

Auditor is a Watchdog in the Business Organization

At one time the audit was conducted primarily to inform management of irregularities and inefficiencies in the business. Due to which the world’s conception for the auditor was developed as bloodhound who is responsible to detect and prevent fraud and irregularities. Later on the concept was gradually changed as the auditor’s role as a watchdog more than the bloodhound due to inherent limitations of audit. The audit was intended only for a limited number of business which gradually was broadened to a wide range of business. The need for independent audits was generated by public ownership of business enterprises and by the requirements of the investors, investment specialists, stockholders and lenders demanded more reliable information. It is now well recognized that the audited financial statements are even intended for the use of third parties who have no contractual relationship with the auditor. The auditor's function has expanded from that of a watchdog for management to an independent evaluator of the adequacy of disclosures and fairness of results depicted by the financial statements issued by management to stockholders, creditors and others.
It is the responsibility of auditor to provide independent opinion on the truthfulness and fairness of the financial statements during the course of audit, the auditor may also provide the details (error and irregularities either intentional or unintentional). In case of any abnormal situation, the remedial action has to come from the owner of the entity. He has to discharge his responsibility by informing about the irregularity found in the normal course of audit.