Analysation on the Role of Auditor and the Board on Financial Preparation of Statement and Fraud Prevention

Economic statements are records which consist of the information concerning the financial stand and enactment of a firm. The info contained in the monetary records is used widely by shareholders, including investors, for making commercial resolutions. The widely held amount of time, the stockholders who own a corporation are not the ones that run it. As a result, independent assurance gives investors and other stakeholders for example contractors, and customer’s peace of mind that the monetary reports which correctly reflects the corporation’s financial status and presentation in all material respects. To optimize the level of self-confidence in the financial declarations, a competent exterior distinct individual identified as an auditor is hired to inspect the monetary statements, includes related management disclosures, and give their professional opinion on whether they fairly reflect the company’s financial performance over a certain duration, an income statement, and financial position as of a specific date following relevant general statutory requirements. The general aim of this essay is to critically illustrate the examination of the auditor’s and board of directors’ roles in the creation of financial statements and the prevention of deceit. The examination of the actions taken by the government in the United Kingdom and regulatory authorities in financial humiliations.

Role of auditor and board of directors concerning financial fraud and financial statement

An accountant’s objectives generally are to determine realistic guarantee that the monetary reports as a substantial wrong statement interpretation, be it because of deceit or misinterpretation and to issue an inspector’s statement with the auditor’s view included. Rational declaration requires a high level of certainty. Even yet, an audit in the United Kingdom in accordance with International Standards are not a guarantee of success. If a significant deception occurs, the Standards on Auditing will always reveal it. Fraud or error can lead to inaccuracies. They are considered material if they have the potential to impact users,’ individually or collectively, economic decisions are based on these monetary reports. Documentation identified and evaluated of the dangers of material inaccurate report of the entity’s or, if appropriate, associated financial reports, whether owing to deception or otherwise, designs and executes audit processes that are approachable to such threats, and resulted assessment evidence that is effective and suitable to back up the auditor’s assessment. Because scam might entail conspiracy, counterfeit, wilful oversights and blunders, falsifications, or the evasion of interior controls, the risk of failing to discover a considerable misapprehension of statement arising due to deception is much higher compared to the menace of detection when one resulting from an inaccuracy. The auditor discusses how successful the audit was in detecting abnormalities, such as fraud, in the auditor’s report (Indarto & Ghozali, 2016). Obtains a thorough sympathetic of relevant internal controls to improve assessment processes that are suitable for the situation, but not with the persistence of assessing the unit’s or, if applicable, the group’s inner control effectiveness. Examines the appositeness of accounting methods as well as the levelheadedness of secretarial evaluations and revelations made by the executives.

Conclusions grounded on an auditor’s confirmation obtained, whether the directors’ basic usage in terms of profitable concerned elementary of secretarial is appropriate, and whether there is a serious uncertainty relating to events or conditions that could jeopardize the individual’s records, or the group’s, capability to endure as a going apprehension. In case the audits find that in the ongoing unease foundation of accounting is adequate and that no serious indecisions have been uncovered; the auditor accounts these inferences in the auditor’s report. Whether or not the directors’ choices are appropriate. If the accountant believes that a serious ambiguity subsists, the auditor is expected to highlight the appropriate disclosures in the commercial declarations in the auditor’s statement, or to amend the auditor’s view if such disclosures are insufficient. An auditor report summation is established on audit evidence gathered up to the date of the report. Upcoming events or circumstances, on the other hand, could cause the company or organization to stop operations as a going apprehension. Examines the financial statements’ overall presentation, structure, substance, and disclosures to see if the underlying activities and events are accurately reflected in the financial statements. When an inspector is obliged, he or she gets sufficient acceptable audit confirmation on the commercial evidence of the professional accomplishments inside the group to make an opinion on the merged financial declarations in order to report on consolidated financial statements based on the financial information of the companies. The group auditor is in charge of overseeing, supervising, and executing the group audit. The group auditor is principally responsible for the audit opinion.

It’s the auditor responsibility to interconnects with those in charge of supremacy on the audit’s estimated scope and schedule, as well as any significant audit outcomes, such as any substantial failures in internal control identified during the audit. In the case of listed entities and public interest entities, the auditor also provides a statement that he or she has complied with relevant ethical independence requirements, such as the Financial Reporting Council, all relationships and other matters that could reasonably be regarded to bear on the auditor’s independence, as well as relevant protections, are communicated to them under the Ethical Standard. When the auditor is required to provide a report on important audit issues, he or she chooses the ones that are most important in the current period’s financial accounts. As a result, the essential audit matters are distinguished from The issues were brought to the attention of those in charge of governance. The auditor describes these matters in the auditor’s final statement unless a law or regulation prohibits public disclosure of the matter, or unless the auditor determines, in exceptional circumstances, that the negative consequences of communicating the matter in the auditor’s report would reasonably be expected to outweigh the public interest benefits of such communication.

The auditor adequately refers to or describes the applicable financial reporting framework when producing and reporting financial reports. The significant accounting policies established and followed are correctly disclosed in the economic statements. The auditor looks at the accounting policies to check if they are applicable to the company and are presented in a clear and intelligible manner. The accounting procedures created and implemented are appropriate and compatible with the applicable monetary reporting structure; The directors’ accounting estimations are fair, and the financial statement data is relevant, dependable, and correct. The auditor examines whether the information that should have been included was included, as well as whether it was properly categorised, aggregated, and described; whether the overall presentation of the financial statements has been affected, and whether the financial statements provide acceptable revelations as a result of providing information that is not relevant or obscures a correct understanding of the topic reported; and whether the financial statements provide acceptable revelations as a result of providing information that is not relevant or obscures a correct understanding of the topic reported.

Board of directors and their roles concerning financial scandal

The functions and responsibilities of corporate boards are abundant. The board must consider the influence on employees, customers, suppliers, communities, and shareholders in every decision it makes. Board directors’ key responsibilities include oversight and planning. Despite the differences, board directors may assign certain duties to the chief executive office under specific circumstances. Some of the board’s functions are frequently outsourced to board committees. The board of directors’ enterprises board committees are a subcategory of the overall board. The time and possessions needed for topics that the entire board does not have time to handle are provided through committees. Committees delve into matters in depth, frequently soliciting the assistance of experts. Committees are required to report to the board on the problems they are responsible for on a regular basis.

Government action in the United Kingdom and the regulatory authorities to financial scandals

Following financial scandals, firms and accountants have slammed plans to restructure UK auditing and corporate governance, alleging that the changes will impede growth and raise expenses. Following a string of financial scandals involving BHS, Carillion, and Patisserie Valerie, the government proposes overhauling auditing and corporate governance. Ministers seek to hold company directors personally liable for their companies’ financial statements, akin to the Sarbanes-Oxley Act passed in the United States after the Enron scandal (Pargendler, 2016). The British government is also proposing the creation of a robust audit watchdog to oversee the corporate governance code that the UK’s largest publicly traded corporations are required to follow. The United Kingdom governance and authorities in charge apply various ways of preventing financial scandals, which include;

Comprehension of a specific situation: Companies should thoroughly understand their own compliance system’s current situation, both in terms of regulations and substance. Companies should consider their adherence to formal laws and regulations and their trustworthy and authentic feedbacks to stakeholders such as business associates, clienteles, and employees, as well as the legitimacy of their business activities in the context of broader social norms. In this situation, corporations should not take their long-standing internal duties and industry practices for granted (Kewo & Afiah, 2017). They should also be mindful of how norms are perceived in society throughout time. Companies should ensure that their systems for analysing current events run continuously and autonomously.

Fulfilment of individual responsibilities: Administration should constrain to the amenability effort and make that commitment public on a frequent basis. To avoid inducing non-compliance, management should set corporate objectives and conduct operations in accordance with the company’s actual capabilities and market conditions. The relevance of their disciplining role should constantly be remembered by audit and supervisory authorities. They should take proactive measures based on accurate and timely information, as well as objective analysis and evaluation. Companies should consider the correct organizational design and resource allocation to enable the smooth operation of the aforementioned.

Communication: The encouragements of two-way communication between management and the workforce in the companies, allowing both parties to feel compliant. In this setting, middle management’s knowledge and actions are critical in gathering employee feedback and communicating it to top management. This improved communication will aid in the early detection of incidents of noncompliance.

To effectively respond to corporate financial scandals, the government should develop effective methods for detecting noncompliance, implement uniform business management (Budiasih, Wirajaya, & Suprasto, 2019) across the whole corporate group and in light of the relevant supply chain, they are likewise accountable. To prevent individual cases from developing into large-scale corporate scandals, companies should identify instances of noncompliance early on and respond immediately. Companies should incorporate an early detection, swift response, and subsequent remedial action cycle into their organizational culture. Effective company management should be implemented across the entire corporate organization. When designing their management structure, its compulsory for corporations to pay close attention to the importance of each group company as well as the potential hazards that come with it, in accordance with its overall structure and features. Ultramarine holdings and assimilated subsidiaries in a highly effective administration that is adapted to their unique requirements. Cooperates awareness of their involvement in important supply chains so that they can meet their duties if a severe problem emerges at one of their outsourced contractors, suppliers, or distributors.

Conclusively, a competent exterior individual known as an auditor is employed to analyses the financial statements, including relevant disclosures made by management, to raise the level of confidence in the financial statements. In the event of a financial scandal within a corporation, the board of directors and the auditor should be held accountable. Oversight and planning are the primary responsibilities of the board of directors. The immediate repercussions are that the firm collapses, is purchased, or, at the very least, its stock price plummets, resulting in investor losses. When there is a debate, there are almost always victims, both innocent and guilty. Typically, there is an immediate uproar and demands for action. Finally, to respond effectively to corporate financial scandals, the government should develop effective mechanisms for detecting noncompliance, implement uniform business management across the whole corporate group, and be accountable in light of the relevant supply chain.

References

Awolowo, I. F., Garrow, N., Clark, M. C., & Chan, D. (2018). Accounting scandals: Beyond corporate governance. In 9th Conference on Financial Markets and Corporate Governance (FMCG).

Indarto, S. L., & Ghozali, I. (2016). Fraud diamond: Detection analysis on the fraudulent financial reporting. Risk governance & control: financial markets & institutions, 6(4), 116-123.

Kewo, C. L., & Afiah, N. N. (2017). Does the quality of financial statements affected by an internal control system and internal audit? International Journal of Economics and Financial Issues, 7(2), 568-573.

Pargendler, M. (2016). The corporate governance obsession. J. Corp. L., 42, 359.

Rengganis, R. M. Y. D., Sari, M. M. R., Budiasih, I. G. A. N., Wirajaya, I. G. A., & Suprasto, H. B. (2019). The fraud diamond: element in detecting financial statement of fraud. International research journal of management, IT and social sciences, 6(3), 1-10.

Rengganis, R. M. Y. D., Sari, M. M. R., Budiasih, I. G. A. N., Wirajaya, I. G. A., & Suprasto, H. B. (2019). The fraud diamond: element in detecting financial statement of fraud. International research journal of management, IT and social sciences, 6(3), 1-10.

Zaki, N. M. (2017). The appropriateness of fraud triangle and diamond models in assessing the likelihood of fraudulent financial statements-An empirical study on firms listed in the Egyptian Stock Exchange. International Journal of Social Science and Economic Research, 2(2), 2403-2433.