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The need for regulation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › The need for regulation

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by MikeLittle.
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  • Author
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  • July 11, 2015 at 11:10 am #260549
    srijana12
    Member
    • Topics: 24
    • Replies: 22
    • ☆

    Hi mike,

    Hope you are fine! I got a sentence from my text book.i.e
    The requirement for audited f/s was seen as a way to protect the world at large from abuse of limited liability status.will you clarify this for me?

    Thanks in advance!

    July 11, 2015 at 4:20 pm #260558
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    With limited liability, if any wrong is done by a company, the shareholders are protected (limited liability)

    So shareholders of small companies, often being in charge of management as well as ownership, may produce figures in financial statements that are drawn from the land of the fairies and bear no relationship to reality.

    The introduction of the requirement for auditors has removed much of that fanciful / fraudulent activity

    Well, it would have done (and it did do in the past) except that small / private companies are no longer required to have an audit.

    A cynic might view this as open season wherein small private companies are able freely to produce financial statements showing whatever results and financial position they feel like without the inconvenience of having those financial statements audited

    Hmmm.

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