Auditing refers to the examination and evaluation of a company’s or an organization’s financial statements to ascertain whether they are accurate. Auditing is done by auditors; an auditor is certified public accountant or a chartered accountant mandated to examine financial statements of business firm or an individual. The main idea behind auditing is to deter fraud and misstatements in any company’s or individual financial operations. Independent financial auditing is done by persons who are not affiliated to the firm or individual to be audited. Independent financial auditing is done by independent auditors. Relying on independent auditors to audit a company’s financial statement is preferred by many stakeholders, creditors, and investors over several reasons.
Independent Auditors Are Unbiased
The need for transparency in financial operations of any business entity is very paramount. Users of company’s financial statements expect the financial statements of a company to be accurate. In circumstances where the authenticity of financial statements is questionable, then an independent audit is called for. Users of financial statements believe that independent auditors can detect fraud in financial statements because they serve no favors or dislikes of any individual in the business firm being audited. Independent auditors are not influenced by internal operations or management of any company they audit. The chances of detecting fraud in financial statements of a company are therefore high for independent auditors.
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For instance, fraud in a company’s financial statements can be covered through bribing the auditor to cover for the fraud. Bribing of auditors mostly occurs for internal auditors whose salary is determined by some individuals in the company. In this case, an internal auditor will work towards impressing some specific individuals in a company in order to secure his or her job and salary. However, independent auditors are not influenced by any individual in a company; thus, their audits are reliable to users of company’s financial statements. Independent auditors are in most case suggested by company’s shareholders and investors; which minimizes the chances of internal influence on them by a company’s management.
Independent Auditors Work towards Gaining Trust from Their Clients
Independent auditing is mostly called for in circumstances where internal auditing cannot be relied on by a company’s shareholders and investors. For example, if the users of a company’s financial statements suspect some form of fraud in the company’s financial statements, then they call for an independent auditor. Independent auditors in this case will focus on detecting any misstatements and chances of fraud in the company’s financial statements. The independent auditors’ focus will be towards pleasing the company’s shareholders and investors by unveiling any financial misappropriations in a company. Besides, independent auditors’ credibility in auditing firms and companies enhances their job opportunities in the future. Therefore, the independent auditors only focus on being trustworthy for the sake of expanding their job network.
Independent Auditors Have Professional Skepticism to Detect Fraud in Financial Statements
Fraud in financial statements is mainly done by misstatements which are done deliberately by some individuals for personal gains. Some of these financial misstatements are difficult to detect by normal persons who do not have accountancy skills and knowledge. For this reason, independent auditors become the only option to rely on to detect fraud in a company’s financial statements. Companies’ shareholders and investors believe that independent auditors can give a more detailed and simplified report on financial statements because they have reliable knowledge on accountancy and financial matters. Independent auditors have a questioning mind and are alert to conditions which may indicate possible misstatement due to error or fraud. Independent auditors also have a special ability to critically assess audit and professionally give evidence on fraud. The professional skepticism to detect fraud in financial statements makes it reasonable for users of a company’s financial statements to expect independent auditors to detect fraud.
Independent Auditors Have the Mandate to Assess Every Sector of a Company
Another characteristic which makes it reasonable for users of a company’s financial statements to depend on independent auditors to detect fraud in financial statements is the free reign to examine and assess every aspect of a company’s operations. Independent auditors are allowed to fully assess and scrutinize every financial statement without any internal control from the company. A company’s shareholders and investors are usually in full control of the independent auditors and they usually report to them. Thus, it is more likely that report obtained from independent auditors is credible and reliable. For instance, a company’s management might rely on internal auditors to audit its financial statements and end up manipulating them. In that case, some of the company’s financial statements may be misstated or deliberately misplaced. When an independent auditor is brought in by the shareholders and investors, then he or she is able to detect all those errors and point them out. Independent auditors help shareholders and investors to keep a good track record of how their money is being spent by a company.
Conclusion
It is always reasonable for users of a company’s financial statements like shareholders, investors, creditors, and the general public to rely on independent auditors to point out errors in financial statements. The users of a company’s financial statements are in full control of the independent auditors under all circumstances. The independent auditors work independently and are not limited to any company’s internal operations. In fact, the independent auditors come in when the users of a company’s financial statements cannot agree with a company’s management over financial statements. The chances that independent auditors will work trustfully are therefore very high and dependable.
