The role of auditors and their relationship with clients

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In many different countries, virtually all companies require to have an audit regardless of cost and regardless of whether the directors and shareholders want one. Also, we really need an audit to find solutions to the agency problems. In addition, reducing the cost of management remuneration will be one of the benefits from an audit to the owners. As we known there is a link between reported profit and management compensation so, the auditing will ensure the truthfully of the report. Dunn (1991).The Environmental Management System (EMS) audit is based on general concept of auditing which is comparison the actual conditions with expected conditions and to determinate if it conformance or not. However, there are several definitions of audit one definition of an audit is that, "An audit is a methodical review and objective examination of an item including the verification of specific information as determined by an auditor established by general practice. Generally, the purpose of an audit is to express an opinion or conclusion about what was audited." Dunn (1991). The natural works of an auditor is actually collect evidence and determine findings. The auditor can be comprised of several individuals on a team. There are requirements for auditors within MES to be qualified in their duties. This means the auditors must have received training in MES auditing. However, it could not be in the audit team members who do not have the training, but are on the team because of some unique experience such as, process, language and knowledge. From this point this essay is going to discuss some light on what type of works the auditor does in details.

Types of Auditors

Actually there are three types of auditors, theses types are independent auditors, internal auditors and governmental auditors. We are going to discuss what each one does. Kiger and Scheiner (1994)

Independent Auditors

Independent auditors or external auditors, means a person who can give an opinion about financial statements to make them more credible to users such as shareholders, investors, bankers, labor unions, governmental agencies and the general public. Because the public trust someone who has got a professional certificate such as CPA (Certificate Public Accountants) this person is authorized to practice as external auditor or Independent auditor. To be a professional you have to meet some requirement for instance, some states require a BA degree with a major in accounting and must have finished at least 150 hours of education. Other states require passing exams and have work experience in public accounts or as an auditor to have a license. However, the person who has got CPA is generally known to be a professional accountant and many people view that CPA equal to that of lawyer. Kiger and Scheiner (1994)

Internal Auditors

Internal auditors usually are employed by the organization for which they do audit. They have varied responsibilities and they may help the external auditors to complete financial statements. Lots of organizations have many internal audit staff to enhance and improve internal control. However, to become certified in CIA (Certified in Internal Auditor) you must meet requirements which are passing a four part examination and have got two years experience in auditing. Kiger and Scheiner (1994)

Governmental Auditors

Governmental auditors work general in different local, states, and federal government agencies performing financial audits. Local and state governments, for example; employ auditors to collect and remit taxes from businesses as required by law. The most widely governmental audit activity conducts by GAO (General Accounting Office). Kiger and Scheiner (1994)

Duties of Auditors

There is a contractual responsibility from the auditor towards the shareholders and an ethical responsibility towards the readers of his report. The examination must be conducted with reasonable care and skill. The error and misstatement can not be expected to discover in the financial statements. So the auditor has to report to the members on whether the financial statements of the company show a true and fair view and have been properly prepared in accordance with the Act.

Also the auditor has to consider whether the information in the Directors' Report is consistent with the financial statements or not. In addition, the auditor has to give an opinion on wither proper accounting records have been kept by the company and the company's balance sheet and its profit are in agreement with the accounting records and returns. On the other hand the auditor has to make other special reports in various circumstances for instance, 'statement of circumstances' when they stop to hold the office of auditor for any reason. Dunn (1991)

Audit Process Models

There are four steps for audit process as following:

Client Acceptance


Testing and Evidence

The audit report

Client Acceptance

The quality control of audit work depends on several things; firstly the auditor should evaluate the client's background and reasons for the audit. Secondly, he has to determine whether the auditor is able to meet the ethical requirements regarding the client. Thirdly, the auditor has to communicate with predecessor auditor. After that the fourth step is preparing the client proposal. Then, the client has to select staff to perform the audit. Finally, the client has to obtain an engagement letter with the auditor. John Wiley & Sons, (2008)


The auditor should plan the audit work so that the audit will be performed in an effective manner. However, Planning means developing a general strategy and detailed approach for the expected nature, timing and extent of the audit. The objective of planning is to determine amount and type of evidence assurance that there is no material misstatement of the financial statements.

John Wiley & Sons, (2008)

Planning an Audit and Designing an Audit Approach

The auditor has to plan and design an audit approach in four steps which are:

Accept client and perform initial audit planning.

Understand the client's business and industry.

Assess client business risk.

Perform preliminary analytical procedures.

Testing and Evidence

The information which the auditor obtains in order to arrive at his conclusion on the financial statements simply is the audit testing and evidence. The auditor is obliged to ensure that he has obtained a sufficient amount of evidence to support his opinion. If he has been unable to do so, he is required to qualify his audit report. However, the evidence from an independent source is more reliable than material which is prepared by the client's own staff. It may be possible to enhance the quality of evidence by corroborating different sources. There is no point for collecting more evidence if it is not necessary. Dunn (1991)

The audit report

The report of the auditor is a fundamental part of an audit. It is very important to be clear and understood to whom it is addressed to. The audit report of a limited company must be laid out the following standard format:


"We have audited the financial statements on pages …to… in accordance with Auditing Standers." In our opinion the financial statements give a true and fair view of the state of the company's affairs at 31 December 20...and of its profit and source and application of funds for the year then ended.

Signed (Auditor's name, qualification, address)


The audit report consists of three basic paragraphs: the title, the scope paragraph and the opinion paragraph. The title of the repot should identify those to whom it is addressed. It is addressed to members and others readers of the report. The scope paragraph identifies those parts of the statements which have been audited. The auditing standards which have been applied should be described by identifying in the scope paragraph. The auditor always must follow the Audit Standers. In the final paragraph the auditor should give clear opinion on the financial statements. He should state if the statements show a true and fair view. However, anything the auditor thinks might affect on the statements must be referenced.

The signature of the auditor should be dated because he has responsibilities extend up to this date. Dunn (1991)

Control of sales

There are an obvious relationship with sales and profits. It is very important for auditor to check that the recording of sales made at the beginning of following accounting period as if they had been during the year. Otherwise the income could be postponed by delaying the recording of sales to the later period in the year. However, the most important control which the auditor must ensure is that the staffs who are responsible of recording invoices are not the same staff who are involved in recording from debtors. The auditor has to request evidence of consequence checks that are being conducted in this control by using CAAT (Computer Assisted Auditing Techniques) to conduct a compliance test. However, if the sales invoices are prepared manually the details should be checked by someone else independent of the preparer. Finally the posting of invoices to the sales day-book should be checked to the general ledger. The auditor should ensure this is being done by reviewing a sample of these. Dunn (1991)

Testing of sales

The auditor has to select samples of credit sales, and the auditor should obtain the following for each item selected:

The customer's order.

The dispatch note.

The copy invoice.

The invoice is very important of these because this is posted to the general ledger. The prices and discount should be checked and compared with the company's official prices and discount list. The auditor has to check and ensure the value of the invoice comparing with the day-book or a print out summarizing sales. The total of records should be checked to ensure that the invoices which have been selected is included and posted to the sales account in the general ledger. Dunn (1991)

Control of Purchases

The auditor has to ensure that the samples of transitions from the purchases account in the ledger are valid. There are three main elements for the purchase cycle which must be separated:

The buying department should not have access to stock.

The staffs who are receiving stock in the stores department will not raise orders.

The staff passing the invoice for the payment and entering it to the computer should be different because they will not be able to overstate the amount of the purchase provided by the signature of cheques.

So the auditor should be checking the separation of these three elements by enquiry and observation. The auditor should ensure that the invoice of the purchase should be signed by two signatories. However, management could control the purchases by using budgets and standers costing techniques. The auditor should review the management reports to ensure any big differences have been made. Dunn (1991)

Testing of Purchases

The auditor has to check the total of entries of purchases account by day-book or invoice file. The invoices of suppliers sample items should be inspected. The validation of purchases should be checked in details against related order and goods. However, each selected invoices has been paid should be examined with print-out of bank credit transfers. Related goods should be checked it have been recorded in the correct accounting period. Dunn (1991)


To sum up, the audit process is a cumulative procedure that begins with planning and moves to gathering and evaluating of evidence and assess the risk of a material misstatement in the financial statements to draw the conclusion if the financial statements are, in all financial respects, fairly presented accounting principles in accordance with generally accepted. However, the opinion of the auditors should represent what the auditor found in the audit process, and discuss recommendations for improvements, before issuing the final report which it will be presented to readers.