An auditor cannot directly prevent errors and frauds within an organization, but he plays an important role in advising the client about effective ways to minimize such risks in the future. It is the responsibility of the client to act upon the auditor’s recommendations to ensure the accuracy and reliability of accounts.
The auditor examines accounts at regular intervals, and this continuous review creates a sense of responsibility among employees of the accounting department. When employees know that their work will be checked, they are more likely to maintain accurate and complete records of business transactions. This effect is often described as moral pressure created by the auditor’s presence.
The auditor is also responsible for protecting the property of the business and ensuring accountability of management. Since he is appointed by shareholders, he acts as their agent and represents their interests in examining financial records.
Justice Lopes, in the famous case of Kingston Cotton Mills in 1896, stated that an auditor is a watchdog and not a bloodhound. In that case, management had manipulated accounts for several years by overvaluing stock to show higher profits. The auditor relied on stock sheets prepared and signed by company officers and argued that there was nothing suspicious to question. This case clarified that while auditors must exercise reasonable care, they are not expected to assume dishonesty without cause.
What are the Rights of an Auditor
The rights of an auditor are granted by law to enable him to perform his duties effectively and independently. These rights ensure that the auditor has access to necessary information, can communicate with shareholders, and can protect his professional position.
Access to Books
The auditor has the right to access all books of accounts of the company. He may examine these records at the head office or at branch locations without the need to provide prior notice. This unrestricted access allows him to verify transactions and ensure that proper records are maintained.
Call for Information
1. Right to Seek Explanations
The auditor has the right to call for information and explanations from management. At times, entries in the books may not be clear, vouchers may be missing, or alterations may appear in records. In such cases, the auditor can request clarification in order to determine the accuracy and authenticity of financial information.
Branch Inspection
1. Inspection of Branches
The auditor has the right to visit branches of the company to examine their operations and accounting records. In the case of inland branches, he may directly inspect records, while for overseas branches, he may rely on reports submitted by other auditors.
Branch Audit
1. Audit of Branch Accounts
The auditor can audit the accounts of both inland and foreign branches. In some cases, management may appoint separate auditors for branch offices, and those auditors submit independent reports to the company for consolidation.
Receive Notice
1. Notice of Meetings
The auditor has the right to receive notices of company meetings. These notices are usually sent to his office during working hours and include details of the agenda, which allows the auditor to prepare for matters related to financial reporting.
Attend Meetings
1. Participation in Meetings
The auditor has the right to attend company meetings, especially the annual general meeting. During these meetings, financial statements are discussed, and the auditor may be required to clarify certain matters related to accounts.
Speak at Meeting
1. Right to Clarify Financial Matters
The auditor has the right to speak at meetings of the company. He may explain accounting figures, audit findings, and financial statements so that shareholders can clearly understand the financial position of the business.
Remain Present
1. Presence at Important Discussions
The auditor has the right to remain present during meetings where business accounts are presented for approval. His presence ensures that any queries raised by shareholders can be addressed properly and transparently.
Receive Remuneration
1. Right to Fees
The auditor has the right to receive remuneration for the work performed. The amount of fee is usually determined by management or shareholders, depending on who appoints the auditor, and it reflects the nature and volume of audit work.
Seek Opinion
1. Consultation with Experts
The auditor has the right to seek opinions from experts when dealing with complex or technical matters. Since business operations may involve specialized knowledge, consulting experts helps the auditor form a more accurate and reliable opinion.
Make Corrections
1. Right to Correct Statements
The auditor has the right to correct any written or verbal statements if errors are discovered. He may issue revised reports or provide updated explanations to ensure that shareholders receive accurate information.
Make Representation
1. Right to Defend Position
The auditor has the right to make representations, especially when there is a proposal to remove him from office. He can present his case before shareholders and defend his position if changes are made to the terms of his appointment.
Conclusion
The rights of an auditor are essential for carrying out audit work effectively and independently. These rights allow him to access records, obtain necessary information, communicate with shareholders, and protect his professional integrity.
Without these rights, the auditor would not be able to perform his duties properly or provide a reliable opinion on financial statements. Therefore, these rights not only support the auditor but also strengthen the overall system of accountability and transparency within a business organization.
