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“ROLE OF INDEPENDENT AUDITOR IN

CORPORATE GOVERNANCE”

An Assignment of “Principle Of Auditing”


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Presented To:

Sir Shoaib Ahmed

Presented By:

Hamid Ayub
Mi07BBA026
BBA-IR&M (6th, sem)

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Hailey College of Banking and Finance, Lahore.
Basic Terms to understand
Audit:

1. Accounting: Systematic examination and verification of a firm’s books

of account, transaction records, other relevant documents, and physical

inspection of inventory by qualified accountants (called auditors).

2. Quality Control: Periodic (usually every six months) onsite-verification

(by a certification authority) to ascertain whether or not a documented quality

system is being effectively implemented.

Internal Audit:

Frequent or ongoing audit conducted by a firm’s own (as opposed to

independent) accountants to monitor operating results, verify financial records,

evaluate internal controls, assist with increasing efficiency & effectiveness of

operations & to detect fraud.

Internal audit can identify control problems, and aims at correcting lapses

before they are discovered during an external audit. Although the internal

auditors are the firm’s employees, they normally do not audit themselves or their

own departments, but entrust it usually to independent auditors.

External Audit:

Periodic or specific purpose (ad hoc) audit conducted by external

(independent) qualified accountant(s). Its objective is to determine, among other

things, whether (1) the accounting records are accurate and complete, (2)

prepared in accordance with the provisions of GAAP, and (3) the statements
prepared from the accounts present fairly the organization’s financial position,

and the results of its financial operations.

Corporate Governance:

Traditionally defined as the ways in which a firm safeguards the interests

of its financiers (investors, lenders, and creditors). The modern definition calls it

the framework of rules and practices by which board of directors ensures

accountability, fairness, and transparency in the firm’s relationship with its all

stakeholders.

Understanding the Auditor's Report

If all the facts concerning financial transactions were properly and

accurately recorded and if the owners and managers of business enterprises

were entirely honest and sufficiently skilled in matters of accounting and

recording, there would be little need for independent auditing.

However, human nature being as it is, there probably will always be a

need for the auditor. Many businesses, depending on size and nature, employ

internal auditors. Their responsibilities and functions, while similar to those of an

independent auditor, are vitally different in a major respect having to do with

impartiality and independence. For the purpose of this discussion the terms

accountant, auditor and certified public accountant (CPA) are used

interchangeably and only refer to the "outside" independent auditor.

Independent Auditor:

Accountant who is not an employee of, and not otherwise related to, the

entity he or she is auditing.


General Powers & Duties of “Internal Auditor”

Internal Audit activities will be carried out in a professional manner, and

according to accepted standards of practice within the internal audit industry. In

order to ensure this level of performance, all personnel assigned to the

department must share responsibility for the completion of all assigned tasks in a

professional manner.

Internal Auditor: The Internal Auditor is generally responsible for the following:

1. Disclosing or declaring any impairment to independence or objectivity

that may exist.

2. Performing assigned tasks in an independent and self-directed fashion.

3. Completing assigned tasks in a timely, thorough, accurate and well-

documented manner.

4. Submitting all completed work papers to the Director of Internal Audit

for final review and approval.

5. Completing other tasks as assigned.

6. Conducting oneself in a professional manner at all times; avoiding those

situations that would lead to criticism by the area being audited, or by the general

public.

7. Assuming a friendly and cooperative demeanor with the audited area’s

staff. Disagreements should be reported to the Director of Internal Audit.


8. Conducting work so as to minimize disruption of the audited area’s

workflow or ability to service their customers.

9. Acquainting oneself with the premises, responsible employees, and the

location of records early in the audit.

10. Requesting any files that may be needed. Management of the audited

area should be made aware that the Internal Auditor has those files.

11. Safeguarding all files / records that have been entrusted to the

Auditor’s possession.

12. Returning all files / records to the person or area they were obtained

from.

13. Maintaining all records in the same or better condition than that in

which they were found.

14. Retaining all records on premises - never removing vital documents

from the premises.

15. Returning all documents taken to the Internal Auditor’s work area to

the records custodian by the end of the day if such return is requested.
Additional Responsibilities: The Internal Auditor also bears the following,

higher-level responsibilities:

1. Developing a familiarity with the organization and functions of the unit to

be audited.

2. Pre-planning the audit in accordance with the scope and complexity of

the area under review.

3. Ensuring that an assessment of risks is incorporated into, or forms the

basis of all audit work planned and performed.

4. To accept accountability for the audit performed on assigned projects.

5. Managing the audit in relation to time and resource budgets.

6. Ensuring that audit findings and recommendations made during the

course of the audit are promptly communicated to management.

7. Ensuring that all Worksheets issued are properly constructed,

supported, and communicated.

8. As work papers are completed, ensuring that all objectives have been

accomplished and all conclusions are properly supported.

9. Ensuring that the audit or review is conducted with the least amount of

disruption to the audited area as is possible.

10. Conducting “Exit Review” or briefing at the culmination of field work.

11. Drafting and seeking approval for a formal Audit Report.

12. Finalizing the audit file(s), and ensuring that all supporting

documentation is properly retained.

13. Performing follow-up work as necessary subsequent to the audit.


General Powers & Duties of “External Auditor”

The duties and responsibilities of the external auditor cover a large and

varied field, from recording deeds and other instruments, to serving as the

county’s chief ex-officio supervisor of all elections. These duties each require

knowledge in many different areas so that the office can be run efficiently and

effectively.

The major duties of the auditor have been listed by breaking the office

down into its major sections:

Financial Opinionate:

The very basic and first duty of an external Auditor is to give true and fair

financial picture of organization being audited. He is empowered to check and

brought upon any of financial instrument or any other documents which would be

helpful for him for the performance of auditing. However he is also responsible

for giving credibility report of the organization. Regarding business laws all over

the world, Auditor’s first job is to create opinion about the organization’s financial

position.

Recorder:

Documents recorded by the auditor include, but are not limited to, deeds,

real estate contracts, liens and other written instruments which are required by

law to be filed in the county. The records become public upon filing and are

indexed accordingly. The exact time of filing is recorded with a time stamp so that

if several instruments are filed on the same day, it is easy to determine priority of

a document when referring back to it. Many requests are handled by the auditor
for copies of various instruments. These requests are handled expeditiously with

the use of photo equipment. A small fee is charged for search of records and

copies of document and, when certified by the auditor, these documents are

admissible in courts of law.

Auditor:

The county auditor must audit all bills approved for payment by the board

of county commissioners before warrants are issued. It must be confirmed that

charges are legitimate and that there are adequate funds to cover the payments

in the proper departmental budgets.

Further duties of the auditor in this department include acting as

disbursing officer for taxing districts, for example, a fire district. The auditor is

required to keep warrant books and maintain payroll records.

The law requires the auditor to examine the county treasurer’s books each

month to check for accuracy. As ex-officio supervisor of the Division of Municipal

Corporations, the auditor is under direction of the chief supervisor, and is

responsible for numerous reports concerning county fiscal affairs which are

periodically turned over to the board of county commissioners and the State

Auditor. In addition, the auditor is involved with both the preparation and

administration of the county budget.


Clerk of the Board:

In some counties, the auditor serves as clerk of the board of county

commissioners, making a complete record of the proceedings of each meeting

held. These records contain resolutions, ordinances, claims approved for

payment, decisions on bids, votes on questions submitted to the board and all

official action taken by the board. A summary of these proceedings is published

quarterly. All actions are indexed for quick reference of individual matters.

Licensing:

Car owners should be aware of the auditor’s capacity as an agent of the

Washington State Department of Licensing. This responsibility not only

encompasses sale of motor vehicle licenses and collection of license fees and

excise tax, but also the transfer of vehicles from one owner to another, title

changes to add or delete a legal owner other than the registered owner,

collection of load fees on trucks and other transactions involving motor vehicles.

The auditor is also an agent for the Department of Revenue and collects

sales taxes on transfers of such vehicles made between individuals. In addition,

the auditor is responsible for watercraft titling and registration and issues

marriage licenses, dog licenses and various miscellaneous business licenses.

Finance:

In the non charter counties, the auditor maintains a central accounting

system for all of county government. This entails the control and issuance of

disbursements, financial accounting and reporting, grant accounting, payroll, and


fixed asset inventory. Additionally, some auditors also act as the county budget

officer. The internal audit duties may also fall under the direction of the county

auditor.

Elections:

The auditor is the ex-officio supervisor of all primary, general and special

elections for all state, county, city/town or school, hospital, fire, cemetery, water,

sewer, port, park and recreation, and public utility districts. In correlation with

election duties, the auditor is in charge of:

 Providing locations for holding elections

 Appointing precinct election officers and providing their compensation

 Preparing ballots, voting machines or other voting devices

 Seeing to the delivery and recovery of all election supplies

 Publishing and posting notices of elections

 Apportioning to state, city, county, town and district, their share of election

expenses

 Publishing a list of polling places and a sample ballot

The county canvassing board for all election returns is comprised of the

county auditor, the county prosecuting attorney and the chairman of the county

commissioners. The auditor works very closely with the Secretary of State and

sends complete abstracts of all election results to the Secretary of State’s office

in Olympia.
Voter Registration:

The auditor, as the supervisor of elections, is the chief registrar of voters

within the county. It is the auditor’s responsibility to close voter registration in

accordance with state law, prior to each election, and to publish requisite legal

notice of such impending closures.

 Miscellaneous Duties

 Serves as secretary of the County Finance Committee

 Serves as recording officer for City Selection Committee in Air Pollution

Authority Districts

 Serves as member of Judicial Districting Committee

Specific Duties of an Auditor

Under the general responsibilities listed above, the auditor will have

further specific duties which their job entails them to complete on a daily basis.

These specific duties will vary from auditor to auditor however many individuals

with this job will perform some if not all of the specific duties listed below.

One specific duty of an auditor in their daily job routines is to examine

company financial records. In doing so, the auditor will be looking to ensure that

the company is abiding by laws and regulations, keeping their books in order,

checking into insurance and unemployment coverage, examine tax documents

and determine if the objectives of the company are being actively pursued. These

are just some of the many examinations which take place by the auditor.

The auditor will also interview employees and supervisors of the company.

The reason for doing so is to ensure that the company’s goals are being realized;
the employees and supervisors are accurately filling out financial information and

determine that regulatory requirements are being met. By interviewing these

individuals, the auditor can fill in the blanks to determine what is missing in the

financial records themselves.

An auditor is also responsible for completing numerous financial reports

and charts. These reports and charts will detail the findings by the auditor and

put the results in a nice neat package for interested parties in the audit to review.

The reports which will need to be completed vary from entity to entity but the

auditor certainly has their work cut out for them with regard to recording findings.

The auditor will also need to address any issues regarding the findings

that they discovered during their audit. These issues will be discussed by the

auditor and numerous parties involved in the audit process such as superiors of

the company. The auditor will need to detail anything not included with the charts

and paperwork as well as answer further questions relating to the findings.

Auditor's role in ensuring financial propriety:

What actually is the role of an auditor in ensuring financial property? Why

didn't the auditors catch it? That's the first question many people ask when

confronted with a case of financial wrongdoing at a nonprofit organization.

Answering that question requires an understanding of the auditor's role.

An auditor is an outside accountant engaged by the board of a nonprofit to

review the financial statements prepared by the organization's staff. The auditor's

main job is to judge the accuracy of the financial statements and report back to
the board. To do this, auditors usually examine some typical transactions and

review internal controls, accounting procedures, and financial reporting systems.

Through the management letter, auditors also help nonprofits develop effective

financial controls.

An audit is a spot check of information, not an exhaustive review of all

financial transactions. Further, auditors are charged with determining the

accuracy of the financial statements only "in all material respects." A clean bill of

health from an auditor means that the auditor is convinced that the financial

statements do not misrepresent the organization's financial position in any

significant way; it does not guarantee 100 percent accuracy.

Auditors are not charged specifically with uncovering fraud. Since they rely

heavily on management to provide information and documentation, small-scale

fraud is extremely difficult for auditors to detect, particularly if it is being

perpetuated by more than one key staff person within the organization.

An important final point: all firms are not equally qualified to audit a

nonprofit organization. Nonprofits follow accounting conventions that are distinct

from those of business and government. A firm that is unfamiliar with these

guidelines or has little experience auditing nonprofits will be especially unlikely to

uncover financial malfeasance.


Beneficial Traits for an Auditor to Possess

An auditor has a very important role to fill in their profession. They must

possess certain traits in order to do their jobs to the best of their ability. Having

these traits will allow them to pursue financial answers while investigating

companies and corporations trying to uncover such answers.

One trait which all auditors should possess is preciseness. An auditor

must go over financial documents with a fine toothcomb and the results that they

pull up must be of such a condition that they are as exact as can be. An auditor

cannot be lazy in their job role as a few wrong numbers can throw the whole

financial accuracy of the audit off. Therefore, preciseness is an important trait for

auditors to possess. Auditors should also be hard workers. Since they will have

to look through voluminous amounts of financial documents and paperwork, they

must pursue it with a hard working attitude. This will enable them to do the job

the best that they can. An individual who is lackadaisical in their mannerisms will

not be the best type of auditor.

An auditor should also have good mathematical skills. As one who

completes audits will need to delve into many different tasks involving numbers

and finance, it is important to have somewhat of a mathematical mind. This will

make the job of the auditor much easier if they are used to dealing with numbers

and financial equations.


Good interviewing techniques are also a plus with regard to beneficial

traits which auditors should possess. Since individuals in this profession will need

to interview a variety of different people during their audits, they should have

necessary interviewing skills which will make the interviews go that much more

smoothly. One who has good people skills and relates well to others will also

have adequate interviewing skills.

Auditors should also be focused in nature. Since tasks such as these are

time consuming and involved, one who can focus on the task at hand will be the

best auditor possible. They will be able to concentrate well and complete each

task which comes their way to their fullest potential.

Conclusion

An auditor has an important job filled with many different in-depth tasks. In

order to complete these tasks as efficiently as possible, the auditor should

possess traits such as preciseness, a focused nature, and be hard workers. By

having these traits, one who is in the role of an auditor will be able to be the best

that they possibly can be in their profession. If one is interested in pursuing

multiple tasks and duties in a financial capacity, then becoming an auditor might

be a beneficial thing to do.

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