What are Duties of an Auditor? The auditor is responsible for detection and prevention of errors and frauds. He knows his duty to detect errors and frauds. He takes such measures to prevent errors and frauds in future. In fact, it is difficult for him to do so because officers usually commit frauds because they are presumed to be honest and sincere in their duties.
He must take reasonable skill and care in performing his duties. He should complete vouching and routine checking carefully. He should checkbooks of accounts and other financial matters properly.
His job is over when he feels that he has exercised reasonable skill and care even if he fails to detect errors and frauds. He is free from liabilities when he certifies that accounts are correct even though accounts may have errors and frauds.
Duties of an Auditor
Let’s discuss the different responsibilities of an auditor below. We may divide them into further three categories.
- Duties under Companies Ordinance 1984
- Duties under Court Cases
- Professional Duties
Duties under Companies Ordinance 1984
- Certify Statutory Report
The auditor certifies statutory report when a company is formed. The report contains information relating to share allotted, cash received for shares issued, receipts and payments made by the company.
- Report for Prospectus
They prepare report for a prospectus. The company issues prospectus for sale of shares, terms and finance certificates. It is a legal requirement to prepare the report for inclusion in a prospectus.
- Report on Annual Accounts
The auditor prepares a report on audited annual accounts. The report contains information about trading profit and loss account, balance sheet and cash flow statement. He can state that accounts show true fair view or not.
- Certify Solvency
The auditor certifies solvency of company when a decision is made to close the company. Shareholders may pass a special resolution for winding up. The solvency certificate provides a guarantee for full payment to creditors.
- Assist Public Prosecutor
It is a legal duty of the auditor to assist the public prosecutor in case of prosecution of directors. There may be a court case against directors of a company. The auditor is bound to help public prosecutor if so required.
- Help Inspectors
There is a legal duty of an auditor to help inspector. The government can appoint an inspector for collecting information about company matters. He is bound to provide true information to the inspector.
- Sign Report
The auditor has a duty to sign audit report. The report is prepared according to established rules of an audit. The report becomes valid after signature of auditor: It is presented at an annual general meeting after approval of auditor.
Duties under Court Cases
- Articles of Association
The auditor must examine articles of association. He must satisfy that accounts are correct and meet the terms and conditions laid down. The auditor is liable for negligence if he does not examine the documents. (Leeds Estate Building and Investment Society Ltd vs. Shepherd 1887)
- Duty to Outsiders
The auditor has no duty to outsiders. The auditor is appointed by shareholders so he is bound to protect rights of them. The auditor may. Commit fraud and as a result, the third party can suffer a loss so he has a duty to the third party. (Liever and Dennies vs. Gould 1893)
- Accuracy of Accounts
The auditor must satisfy himself about the accuracy of accounts and records. The balance sheet must disclose true financial position. The final accounts must be prepared as pas law (London and General Bank Ltd 1895).
- No Doubt
The auditor should start his work without a doubt. There must be no suspicion in the beginning. In case the doubt arises he must go through the record to clear the doubt or confirm it. (Kingston Cotton Mills Co. Ltd.)
- Rely on Certificate
The auditor is entitled to rely on a certificate of a responsible officer of the company but at the same time he must exercise reasonable care and skill’ to test their accuracy otherwise falsification of accounts is possible. (Irish Woollen Co. Ltd. Vs. Tyson and others 1901)
- Verify Assets
The auditor must verify the existence of all assets stated in the balance sheet. The auditor must be held liable for not verifying the existence of petty cash in hand. (London Oil Storage Co Ltd vs. Seear Hasluck & Co. 1904)
- Complete Report
The auditor must make a complete report about the affairs of the company any provision in the articles of association restricting the statutory duties of an auditor will be void. (Newton vs. The Birmingham Small Arms Co. Ltd. 1906)
- Reasonable Care
The auditor must verify and properly check each transaction with reasonable care. He should not blindly pass transactions though these might be certified to be correct by the directors. (Union Bank of Allahabad Ltd 1925)
- Secrecy
It is the duty of the auditor to maintain the secrecy of business matters of his client.
- Know Law
It is the duty of the auditor to know company law. The auditors must acquaint themselves with their duties under the articles of association. Ignorance of articles of association is not excused when these are in existence.
- Verify Securities
It is the duty of auditors to verify company securities. He must see that these are in safe custody. The auditor should make a personal inspection of securities that are in the custody of a person or company with whom it is not proper that they should be left. (The City Equitable Fire Insurance Co. Ltd, 1925)
- Secret Reserves
It is the duty of the auditor to report if secret reserves created in the past are used for increasing the current profit. (Royal Mail Steam Packet Co. Ltd. Vs. Klylant 1931)
- Qualify Report
It is the duty of an auditor to qualify his report for errors in the balance sheet due to non-compliance with the terms of the debenture trust deed. (Davar and Sons Ltd. Vs. M. S. Krishnaswamy 1932)
- Asset Valuation
It is the duty of an auditor to detect overvaluation or undervaluation of assets and liabilities if sufficient evidence is available even though a certificate of proper valuation is issued by the management. (Westminster Road Construction and Engineering Co. Ltd. 1932)
- Submit Report
It is the duty of the auditor to submit his report to the company is not a part of his duty to see that a general meeting is convened and his report is placed before the members. (Allen Braig and co. Ltd 1934)
- No Advice
The auditors are not bound to give advice either to directors or members. They are not concerned how the business is carried on. The duty of advice arises when they are allowed to give a piece of advice as per engagement letter.
Professional Duties of an Auditor
- Application of Standards
The auditor has professional duty to apply auditing standards as laid down by their standards committee. The quality of work depends upon the auditing standards.
- Follow Ethics
It is the professional duty of an auditor to follow ethical standards as laid down by the professional body of the Institute of Chartered Accountants of Pakistan. It is a moral duty auditor to protect the people who rely on him.
- Agreement
It is the duty of the auditor to perform all work under the ‘terms of employment in addition to his statutory duties. As per employment contract, statutory duties of an auditor cannot be reduced. The auditor can perform extra duties underemployment letter but legal duties will remain unchanged.
