Shareholders Employers Government Banks Other Competitors Accounting Essay


Stakeholders: - Stakeholders are a set of groups /individuals who are inclining of the performances of a particular company .simply the people who are interested in knowing what is going on in and around the company.

E.g. - Shareholders, employers, government, Banks & other competitors etc…

Because of unqualified audit opinions that not true and fair some of world companies got bankrupt and shows loss in their financial statements. Because of loss in financial statement the price of the shares decreases in the stock market and it is a reason to a company to get bankrupt. For example; Lehman Brothers, incorporated in the tax haven of Delaware, was audited by the New York office of Ernst & Young. On January 28 2008, the firm gave a clean bill of health to Lehman accounts for the year to November 30 2007. The auditor's report (page 75 of the accounts) says, "Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances". Lehman Brothers filed quarterly accounts with the SEC for the period of May 31 2008 and on July 10 2008 and these (see page 52) too received a clean bill of health. Despite the deepening financial crisis, auditors did not express any reservations about the value of the derivatives or any scenarios under which company may be unable to honor its obligations. Just two months later, Lehman collapsed.

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During 2007, Ernst & Young collected fees (see page 43) of $31,307,000 from Lehman Brothers, compared to $29,451,000 for 2006. The fees for 2005 and 2004 were $25,324,000 and $24,748,000 respectively. Over the last four years, Ernst & Young collected over $110m in fees, of which nearly $14m is for advice on tax and other consultancy services.

But in this case we have to give the first place to financial audit because this is a financial institute (service organization). So we have to keep the weight to financial audit because it is a risky business and they handling the outsider's money every day. So the financial audit should be 100% perfect otherwise people are demotivated to save their money in these firms. There is a true behind the prem sikkas story. Because when it comes to banks the risk is very high because they are dealing the others money (customers or investors) so in that case there should be 100% prefect finance audit report to get a clear idea about the firm to stakeholders to invest or to take their decisions. In this situation we can't strait away pointed and blame to auditors because there should be a partial responsibility to both side management and auditors. When it comes to auditing, auditors are create the report according to the final statements in this year. So to get the best and correct results managers also responsible to give the correct figures to auditors.

Management responsibility is preparing the financial statements in a fair manner and according to the IFRS, is a responsible of the management, this includes:-



Maintaining internal control

Selecting and applying appropriate accounting policies

Marking accounting estimates that are reasonable

(Financial accounting: 2006)

Auditors responsibility based on the audit they should give their opinion and views of the financial statements. The audit should be conducted according to their standardards of international auditing. It requires being ethical in order to planning and performing the audit to gain reasonable assurance.

Further they should assets the risks of the material misstatement of the financial statements taking into consideration internal control which is relevant to the fair preparations. Entities financial statements should be presented and designed fairly and in a way appropriate to the circumstances. It should not be expressed as an opinion on the effectiveness a of the entity internal control. The overall presentation of be evaluated. Further the evidence collected from the audit should be reliable and proper to provide a basis for audit opinion of the auditors.

If statements are audited is to get the review of the auditors as to where the financial statements are fair and true on the affairs of the entity at the end of the year and of its profit or loss.

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Auditors are independently experts on financial reporting thus an audit will add some creditability to the financial statements since it earns the auditors opinion.

Other duties of auditors

Make a report truth and fair of the entities annual accounts.

To monitor if the statements are been prepare according to the relevant legislation.

Report the true and fair view of the financial statements.

(Financial accounting: 2006)

Auditor's process and power

Auditors are appointed by the shareholders at the Annual General Meeting (A.G.M). These auditors are normally works until the next A.G.M. and company act gives the auditor power to fulfill their statutory duties given to them under local legislation relating to entities. An auditor's power varies from country to country.

Main step of an audit are as followers

Auditor appointed

Evidence collected

Auditor attends AGM

Audit report published

Audit opinion formed

Figure 1: Audit process (financial accounting: 2006)

Mainly auditors gather information's for their preparation of their accounts fewer than two phase.

Book keeping phase

Book keeping is the primary or the basic accounting which menace recording all the transactions & the incidents which will make an effect on the company.

Accounting phase

In accounting phase auditors should review the accounting rules created by management can acceptable and, whether that statement gives a true and fair view about the finance during the year.

Audit report

An auditor report gives the financial and clear explanation of opinion on the financial statements, and also it is a written statement which made by a charted accountant stating that all the financial reports are true and fair. In an audit report auditors should control the quality procedure in the afire of the policies and the system of the firm related to the individual auditing.

Qualified report

Qualified reports are required where there has been a limitation on the scope of the auditor's examinations or the auditor disagrees with treatment or disclosure of a matter in the financial statement. Such limitation areas when evidence that is necessary to complete the audit. Simply qualified report means it's not good at all. If firm gets a qualified report that firm performance are not good n stakeholders are not goanna invest in that firm before they invest they have to think twice.

Is the

D disagreement


Are the Financial




Does it effect



Except for qualification

Adverse opinion

Emphasis of matter

No further action required






Figure 2: classifying the disagreement of the financial statements (financial accounting:2006)

Finally auditors are responsible to give a true and fair opinion to the stakeholders, about the financial statements, to get an idea about the particular organization. And also in prem sikkas argument bankers should published true and fair reports.