Role Played by Professional Auditors in Uganda free essay sample

Role played by professional auditors in Uganda Auditing is the independent examination of financial statements and the underlying books of account so as to form an opinion on whether they are prepared in all material aspects in accordance with the financial reporting framework. Such reporting framework includes International Accounting Standards (IAS), the Companies Act Cap 110 (for Uganda) and any other relevant legislation. This is however carried out by a person termed as auditor. Internal Audit, Internal audit is conducted by the internal auditor who is an employee of an organization. The main purpose of internal audit is to find out whether the internal control system is working successfully or not. The report of the internal audit is used only by the management for the improvement of internal control system. The internal auditor carries out checking work throughout the year. Although, he is an employee of the organization but he is given some form of independence in order to perform his duties more efficiently. We will write a custom essay sample on Role Played by Professional Auditors in Uganda or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page External Audit, These are the audit other than internal. They are performed by external auditors. The main purpose of this audit is to report on the true and fair view of the accounts. Statutory audit, Conducted in accordance to the Companies Act requirement and its main objective is to prove the true and fair view. Auditors’ scope of work is defined by statute. It is commonly done by the following limited companies, cooperative societies, government, insurance companies, building societies, banks and parastatals. Private Audits, Non statutory audit’s main objective is to detect and prevent errors and fraud. The auditor’s scope of work is decided on by an agreement between the management and the auditors. The auditors of a company other than internal auditors are appointed by members (shareholders) in an annual general meeting; however, the directors can appoint the first auditor to fill a casual vacancy this requires the members’ approval at the next annual general meeting. Auditors are appointed to runs from one annual general meeting to the next one. Internal auditor of a company is an employee of a company and therefore he/she is appointed by the management of the company. He/she is also expected to carry out his/her duty according to the directive of the management. Private companies no longer have to hold an annual general meeting if an elective resolution is made. In these circumstances the auditor is automatically reappointed unless a shareholder objects (Small companies can elect to dispense with the requirement for an annual general meeting). Below are the roles of auditors of a company External Auditors Ensure that any capital expenditure that is, purchase or sales of a fixed asset, capital commitment, and payment of a major liability have been duly authorized by the meeting minutes of the Board of Directors. The auditor of a company shall make report to the members on the accounts examined by them and on every balance sheet, every income statements and on all group accounts laid before the company in a general meeting during their tenure of office Every company must hold an annual general meeting of its members in each calendar year. At that meeting, annual report and audited accounts (including balance sheet and income statement and in the case of a holding company, a group accounts) are laid before the meeting. Included in the annual report and accounts, there must be a report by the auditors on the accounts examined by them The auditor usually appointed at annual general meeting and hold office from the end of that meeting until the end of the following annual general meeting, which is his tenure of office. He reports on the account presented within his tenure office. The auditor report shall be read before the company in a general meeting and shall be open to inspection by any number. Content of the report It requires that in his opinion, auditor state whether the report is; †¢The statement of financial position and income statement have been prepared in accordance with the provision of the company Act †¢The statement of financial position shows a true and fair view of the state of the company affairs as at the end of its financial year †¢The income statement shows a true and fair view of the company profit or loss for its financial year However there are two complications with this area †¢Group accounts have to be prepared for holding company and these also have to be prepared to comply with the company Act and shows a true and fair view Certain company (Bank, shipping company, insurance company) are exempt from certain company Act requirements and the charge to the auditor is to give an opinion on whether or not the accounts have been properly prepared in accordance with the provision of the company Act Auditor duty to carry out investigation so that they can form an opinion on; †¢Whether proper books of accounts have been kept by the company †¢Whether proper returns adequate for audit purposes have been received from branches not visited by the auditor †¢Whether the statement of financial position and the income statement is in agreement with the books of accounts and returns If the investigation shows that proper books of accounts have not been kept, proper returns not received or the accounts are not in agreement with the books and the return, then the auditor must say so in his report Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company and to such information and explanation as he thinks necessary for the performance of the duties of the auditors Note: The auditor can ask for such information and explanation as the auditor thinks necessary, if the auditor fails to obtain all the information and explanation which to the best of their knowledge and belief are necessary for the purposes of their audit, they shall state that fact in their report The auditor of a company shall be entitled to attend any general meeting of the company and to receive all notices of and other communications relating to any general meeting which any member of the company is entitled to receive and to be heard at any general meeting which they attend on any part of the business of the meeting which concern them as auditors. It’s sometime remarked that if the auditor does not receive notices of the meeting, he will not attend as he will not know of the meeting. In summary, the roles of the auditor are as below: To make a report to the members on all accounts laid before the members in a general meeting during his tenure of office †¢To include in the report statements on the accounts whether it is in compliance with the company Act and whether it present a true and fair view †¢To investigate whether or not; proper books of accounts has been ke pt, proper returns have been received from branches not visited by the auditor, the accounts are in agreement with the book s of accounts and returns. †¢To include in his report any instances where the investigation shows that proper books of accounts had not been kept, proper returns had not been received or the accounts were not in agreement with the books and returns. †¢If the auditor fails to obtain all the information and explanation which he thinks he needs in carrying out his audit, then he must includes also that fact in his report. Internal Auditors †¢To safeguard the company’s fixed assets To assist the management as far as possible to run the business efficiently and in orderly manner. The auditor by doing so advise the management on the area of weaknesses within the internal control that need to be strengthened up †¢To act as a consulting department to other departments †¢To detect and prevent errors and frauds perpetrated by the client st aff †¢To help in the maintenance of a strong internal control system employed by the management †¢To help the client to reduce the audit fee of the external auditor †¢Assist in risk management within the company †¢Education and training to the organization personnel †¢Effective corporate governance and compliance issues Role in the integrity in the organization financial The auditors in performance their duties do encounter some challenges. This can be elaborated as below The challenge of independence on its own which may create misunderstanding, it does not supposed that a person exercising professional judgment ought to free from all economic, financial and other relationship. Every member of the society has relationship with other. Therefore, the significance of economic, financial and other relationships should also be evaluated in the light of what a reasonable and informed third party having knowledge of all relevant information would reasonably conclu de to be unacceptable. The remedial strategy to this required both independence of mind and independence of appearance. Independence on mind is the state of mind that permits the provision of an opinion without being affected by influence that compromise professional judgement allowing an individual to act with integrity, and exercise objectivity and professional skepticism. Independence on appearance is the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm, or a member of the audit team’s integrity, objectivity or professional skepticism had been compromised. The challenge of the resolution of the ethical conflicts, this could be circumstances like; †¢Pressure from overbearing supervisor, partner, or family/personal relationships †¢Relationships likely to, or appear to, impair objectivity †¢Gifts/entertainment, which might reasonably be believed to have a significant and improper influence on their professional judgement of those with whom they deal. †¢Ability of personal engaged on professional services to adhere to the principle of objectivity †¢Divided loyalty as between the auditor’s superior and the required professional standards †¢Misleading information is published which may be to the disadvantage of the employer or client and which may or may not benefit the auditor as a result of such publication. The auditor should be constantly conscious of and be alert to the factors, which give rise to conflicts of interest. An honest difference of opinion between an auditor and another party is not in itself an ethical issue. The facts and circumstances of each case need investigation by parties concerned. When auditors are faced with these challenges of ethical conflicts, the following can be strategies to help in the situation; †¢Follow the established policies of the organization to resolve the conflict †¢Review the conflict problem with the immediate supervisor †¢Seek counseling and advice on a confidential basis with professional accountancy body †¢Consider resigning as the last resort Report to the external body for example a supervisory body †¢Any auditor should endeavor to ensure that policies within his or her employing organization seek resolution of conflicts †¢Member bodies are urged to ensure that confidential counseling and advice is available t o members The following rights of auditors should be made known to the company as it is provided for in the company Act in the auditor performance of his duty of audit. This will help to eliminate some of the threats which would pose challenge to the auditor. These rights will help to provide remedy to some of the obvious challenges of auditors; The duties of an auditor are somewhat nerous and to assist him the companies Act have given him some rights including; †¢Right of access at all times to the books accounts and vouchers of the companies †¢Right to require from officer (directors and employees) of the company such information and explanation as the auditor thinks necessary †¢Right to receive notice of and attend meetings and to report on any matter which concerns him as auditor †¢Right to make report on his finding to the numbers including failure on the part of the directors and employees of the company to supply him with all the information and explanatio n which he deems necessary However the auditor should employ the following standards to help solve some of the challenges faced by the auditors in performance of their duties in the field, in reporting or in their general audit. †¢The audit is to be conducted by a person or persons having adequate technical training and proficiency as an auditor. In all matter relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors †¢Due professional care is to be exercised in the performance of the audit and the preparation of the report †¢The work to be adequately planned and assisted , if any, are to be properly supervised †¢A sufficient understanding of the internal control structure is to be obtained to plan the audit and to determine the nature, timing and extent of tests to be performed †¢Sufficient competent evidential matter is to be obtained through inspection, observation, enquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. The report shall state whether the financial statements are presented in accordance with the Generally Acceptable Accounting Principles (GAAP) †¢The report shall identify those circumstances in which such principles have not been consistently observed in the current period and the area of weaknesses within the internal control in relation to the proceeding period †¢Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report †¢The report shall either contain an expression regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be express, the reasons therefore should be stated. In all cases where an auditor’s name is associated with the financial statements, the report should contain a clear-cut indication of the ch aracter of the auditor’s work, if any, and the degree of responsibility the auditor is taking.