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Control Structure within the OrganizationA companys board of
directors is responsible for operating the company in the
interestsof shareholders and other stakeholders. To do this it
needs to ensure that all themechanisms for good corporate
governance are in place.
Financial Reporting
Management is responsible for preparing financial statements
which give a true and fairview of the companys results for the
period under review and its financial position at theyear end.
In order to do this the directors are required to:
select suitable accounting policies and apply them
consistently
make udgments and estimates that are reasonable and prudent
design and implement internal controls relevant to the
preparation of financialstatements and to prevent and detect fraud
or error.
Responsibilities of the External Auditors
The Audit OpinionThe auditors main responsibility is to form an
opinion on whether the companysfinancial statements give a true and
fair view. In some urisdiction the e!ternal auditorshave further
reporting responsibilities" e.g.
The auditors of listed companies in the #$ report on certain
aspects of thedisclosures of directors remuneration
Auditors in the %epublic of Ireland report on certain aspects of
the adequacy of acompanys capital
What the Auditors are not Responsible forThey are notresponsible
for:
preparing the financial statements
choosing accounting policies
implementing systems and controls
establishing the mechanisms for ensuring that good standards of
corporategovernance are maintained.
Other Responsibilities and ConsequencesThe e!ternal auditors are
responsible for:
planning their work
gathering sufficient appropriate audit evidenceso that the risk
that they may come to the wrong conclusion is reduced to
anappropriately low level
As a consequence they are interested in
the quality of accounting systems from which the financial
statements areproduced
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the internal controls operated by the company to ensure that its
financialinformation is as complete and accurate as possible
the standards of corporate governance including the
effectiveness of the internalaudit function
because all of these factors will reduce the risk of
misstatement in the financial
statements
Counicating with those Charged with !o"ernanceThe I&As and
in particular I&A '() *ommunication of audit matters with those
charged
with governance" places some further responsibilities on the
e!ternal auditors.
The main forms of formal communication are:
the letter of engagement
the management letter + sent at the end of the audit
There may also be ad hoc needs to communicate particular matters
at other times.
Also" communication generally should be two,way and ongoing"
with either partykeeping the other informed about relevant matters
throughout the year.
-Audit matters of governance include:
effects of significant accounting policies
potential financial effect of risksuncertainties
material audit adustments
disagreements with management concerning the financial
statements
e!pected modifications to the audit report
internal control weaknesses including fraud.
Responsibilities of #nternal AuditorsInternal auditors are
either:
employees of the organi/ation they are auditing or
contracted to provide internal audit services through an
outsourcing arrangement
I&A (0) *onsidering the work of Internal Audit gives the
main activities of the internalaudit function as:
monitoring of internal control
e!amination of financial and operating information
review of the economy" efficiency and effectiveness of
operations including non,financial controls of an entity
review of compliance with laws" regulations and other e!ternal
requirements andmanagement policies and directives and other
internal requirements
special investigations into particular areas" for e!ample"
suspected fraud.
As assurance professionals" internal auditors are responsible
for conducting their workbearing in mind the requirements for:
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independence
obectivity
compliance with the ethics rules of any professional body to
which they belong
S$stes and Controls%irectors need to establishsuitable systems
and controls to:
safeguard the companys assets
enable financial statements which give a true and fair view to
be produced
prevent and detect fraud
External auditors need to re"iewsystems and controls to:
assess whether the systems are such that the risk of material
misstatement inthe financial statements is reduced.
if they are to rely on the operations of controls in a system so
that the e!tent of
the procedures which they carry out will be reduced" they will
need to test thosecontrols and document their findings.
If the e!ternal auditors discover weaknesses in systems and
controls" they willreport their findings to those charged with
governance in their managementletter.
#nternal Auditors
May be given an assignment to review systems and controls and to
report tomanagement about their effectiveness
The nature of the work carried by internal audit in these
circumstances will bevery similar to that performed by the e!ternal
auditor.
