Question

Why do you think audit reports are important? What are some of the most important factors or skills for auditors? Have you heard about Forensic Accounting? 

Answer 1

Generally, Audit Reports refer to reports issued by Independent Auditors of any company over the financial statements of the company. In the Audit report, the auditors report whether entity's financial statement present a true and fair picture of entity's business operations in all material repect.

Importance of Audit Reports:

1. Audit reports are a mandatory thing in almost all countries around the world. In many countries wherever a reference is made to a financial statement it is meant to refer to the entity's audited financial statement. Audit reports enhance the trust which stakeholders put in financial conditions of an entity before making any decision.

2. Audit reports are made after independent examination of an entity's financial transactions. Audit reports takes into all accounting practices and policies followed by an entity. It gives a clear opinion whether all material transactions which ought to have been accounted are accounted for and whether they are accounted for in the correct manner.

3. Audit reports comment and ensure three fundamental accounting assumptions - 1.Going Concern, 2.Consistency, 3.Accrual. Whether there is any violation of these 3 assumptions which may lead to inappropriate accounting and as a result also lead to inappropriate presentation of financial statement.

4. Audit reports take into consideration whether the entity is adhering to applicable financial reporting framework or not.

5. Audit reports are issued after testing the assertions with respect to various statement of Profit and Loss items and balance sheet items. These assertions are as follows:

Assertions tested :

i. Occurrence,

ii. Cut off,

iii. Accuracy,

iv. Completeness,

v. Valuation

vi. Rights and obligation,

Important qualities of Auditors:

Professional Skepticism: Auditors never accept anything without testing and he shall possess questioning mind always.

Independence: Auditors shall be independent while doing his audit work, i.e. he shall not be bound by anyone orders except the orders as provided by the law or his own audit firms or seniors.

Ethical Requirements: Auditors shall abide by the ethics codes issued by their respective governing bodies.

Professional Judgement: While making any judgment during audit, auditor shall be objective and not subjective to the situation i.e. he shall not take biased decisions in any situation.

Obtaining Sufficient and Appropriate Audit Evidence: Before issuing audit reports auditor has to obtain sufficient and appropriate audit evidence to take decision.

Forensic Accounting:

Generally, auditors by nature of duties are not bound to detect frauds while carrying out their audit procedures but in forensic accounting, auditors go one step further to investigate whether there is an existence of any fraud and if yes how was the fraud perpetrated.