Reflection

EXTERNAL AUDIT, DEVELOPMENT AND CONTRIBUTION IN AN ORGANIZATIONS Audit is a professional job that is considers the most prestigious in the business world. Audit is the appraisal of a corporation, process, system, product, project, and company. Auditors are the supervisory body that observes the managerial activities of an organization. Auditors are independent body, the independence segregate the auditors from those bodies or persons who have interest in the audited company. The duty of auditor is to scrutinize the accounts and final statements of a company and give reasonable declaration that all accounts of a company were maintained fair and free from any ambiguous data. The auditor also gives declaration that all accounts were maintained as per accounting standards. It is to determine the strength and trustworthiness of the information given in financial statement of an organization and also give an evaluation of a system internal management. The objective of the audit is not fulfilled if the users of the financial statements feel that the auditors were under the influence of the organization. The audit has some practical constraints and can also provide assurance that the financial facts are mentioned in report as per given guidance. Audit is an essential part of accounting. The approach of audit was up to the collecting information regarding financial system and financial data of an organization. Now the scope of the audit has been extended to further categories as security risk, information system performance and environmental performance. A company gets analogous services from internal and external auditors. The auditors give assurance to administration that all necessities are met and business is running efficiently. The independent opinion of the auditors satisfies and motivates the investors to keep relation with business in future. External auditors are those professionals who perform on behalf of audit firms. The auditors are assigned responsibilities from their firm to audit a company and give an independent opinion in respect of following, That the financial statements are free from any material error whether due to fraud and any other negligence, That the accounts were maintained under given rules and regulations. That the financial statements comply with the associated accounting standards and disclosure, That the internal control management is performing activities as per pertinent requirements and not varies with rules of the council and the auditor must disclose that they have covered all the associated risk and have been identified and addressed. There is a difference between audit and financial audit. Financial audit is restricted to review of financial statement of a corporate body in order to make sure comprehensiveness and precision of the fixed assets accounts. The financial auditor provides appropriate, precise, genuine, reasonable and comprehensive financial information for publication. Specialist accountants who have specific finance degree and having good experience to compile the financial information in a company annual report perform the financial audit services. The financial statement seems reliable after auditing from external auditors. Auditor independence is an important issue in development of fair remarks about company financial position. In UK it is forced with various regulations. Company Act 1985 and 1989 shelters the independence of an auditor. They are also support by professional accounting bodies e.g. Accounting practice Board and International Accounting Standards or International Financial reporting Standards. The Company Act 1985 gives the responsibility to shareholder that they select the audit firm for external audit. The Company ACT 1989 secure the independency of external auditor by make the audit firm compulsory that it must have membership of recognized supervisory body before initiating of business. External Audit Development the 1st charge for auditing of state expenses was given to the pioneer in audit field for auditing Public Accounts was appointed. When management of an organization and audit professional cross their limit. Changes are made in the rules and regulation to run the System successfully and to save the interest of the corporate users from criminals and change of economic conditions. Enron was dealing in energy sector. He had a largest market share in energy sector. Arthur Anderson was a well-reputed audit firm. He was serving to Enron being an external and internal auditor. Enron scandal was the biggest scandal of accounting of 21st century. Enron and Arthur Anderson both violated the corporate rules and regulation. Enron did not disclose some of liabilities in order to obtain more fiancé from bank or any other financial institution on their own favorable terms. Finally M/S Enron was declared bankrupt. Arthun Anderson is the fifth largest Audit firm worldwide was lost their reputation and banned to audit the Public companies due to this fraud. The other big scandal is M/S Worldcom. The Chief Executive of the Company expended the business on large scale. It was the time of late 1990’s when entire communication sector was at the stage of declining and reported loss in the financial statements. It was only WorldCom Which was in profit because they transfer the liability reserve to Operating income and in all 3.85 (B) expenses was not reported in the Accounts in order to show company high profitability. Consequently the Higher management was fired and external auditors including Arthur Anderson was black listed. After these scandals the internal audit was given more importance and necessary changes were made to strengthen the internal auditors and also the management access to financial data was restricted. ROLL OF EXTERNAL AUDITOR IN 2009 many organizations are supporting their country Regulatory Authorities, for external and internal audit, to enhance the professionalism of audit firms, to develop anti fraud strategies and funds management techniques. Support for improvement in governance and management & Committee of Sponsoring Organization of the Tread way commission are in action to help the member’s countries to make stronger their Supreme Audit Institution. SIGMA helps to produce strategic development plan. SIGMA center two major departments Public Internal Financial Control Development of Anti Fraud Structure Public Internal Financial Control The internal audit is as important as external audit. Sarbanes Oxley Act section authorizes external auditors to check reliability of internal audit. Public accounting Oversight Board section 5 authorizes the external auditors to perform duty to audit of internal control over financial exposure. SIGMA also put vital contribution to strengthen the Public Internal Finance Control, to amend the statuary regulation of PIFC, cash administration and control system within budgetary limits, recommend centralization to harmonized method on internal control and internal audit, financial systematize action at central and local level, budget control and accounting. The audit fee is the earning of an audit firm, which is used to pay expenses. The company pays for auditing that the audit firm or auditor does not want to do any thing that put at risk the income. The auditor relies on audit fee from company audited that can affect the independence of an auditor. If the auditor gives preference to its fee he will not take into account the interest of shareholders or other users of financial information. In order to maintain the independence of auditor he must be protected from the board of directors. If auditor gets security of job and they were able to challenge financial statement and other data, they will work with more confidence and independence. It has been reminded many times through proposals to change the recent procedure and give high monetary benefits to auditors to act their responsibilities with out having their business interest negotiated by client relationship.