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Hi Opentuition,
I’m currently researching the groups of users that can rely on the opinion of the audit report. At the moment; the taxman, government, management and potential shareholders all exist within users of the audit report.
However, can they truly rely on the opinion of the audit report and hence the auditor? The profession has been under fire in recent times. I’m looking around factors such as audit liability, the nature of risk management and potential costs involved in internal organizations – wanting to move up, make the company look favorable.
Research papers are greatly appreciated 🙂
Firstly you need to understand that Audit is just an OPINION and by that I mean ASSURANCE that financial statements are free from Material errors and comply with IFRS/IAS.
It is by no means 100% that financial statements are correct, but yes they are free from Material misstatements.By material misstatements it means that errors do not deceive users of financial report.
Secondly shareholders have to rely because
1) They are the One who can appoint Auditors/ Remove auditors if they have doubt over their reliability.
2) Even if Management of company appoints Auditors there are special committee that comprises NED’s that recommend and oversees external Auditors, courtesy UK Corporate Governance code.
3) Due to recent crisis FRC (Financial Reporting Council) issued UK Corporate Governance code 2010 which outlines best practices, among many principles. includes principles regarding Relationship with auditors and Board effectiveness.
This not only improves the confidence of investors but also decreases the potential of fraud.UK Corporate governance isn’t necessary to follow… but now most of the big listed organisations do adopt it as it is the criteria for the listing on Stock Market and attract investors.
You can Google for more details…
Regards
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