Complaints made against the auditors, Business Law and Ethics

Complaints made against the auditors:

These are the most simple principles that such have to be applied to cases of this description.

I protest, however, against the notion that an auditor is bound to be suspicious as distinguished from reasonably careful.  To situate the one expression for the other may easily lead to serious fault......  Auditors are, however, in my opinion bound to see what exceptional duties, if any, are cast upon them through the articles of the company whose accounts so they are recognized upon for audit.  But ignorance of the articles and of exceptional duties imposed through them would not afford any legal justification for not observing them....... Like as taking stock further.  The complaints made against the auditors in this specific case... is, in which they failed to inspect certain frauds.  So however there is no charge of dishonesty on the part of the auditors.  They did not certify or pass anything which they did not honestly just believe to be true.  Therefore it is said like they were culpably careless...... frauds were committed through the manager, that who in order to bolster up the company and to make it appear flourishing when it was the reverse, deliberately exaggerated mutually the quantities and values of the cotton and yarn in the company's mills.... I confess I cannot see that their omission to check his like i.e. manager's returns that was a breach of their duty to the company.  Therefore it is no part of an auditor's duty to take stock..... Thus he must rely on other people for details of the stock in trade on hand.  Further in the case of a cotton mill he must rely on some skilled person for the materials compulsory to enable him to enter the stock-in-trade at its proper value in the balance sheet.  Hence there in this case the auditors relied on the manager.  Because of he was a man of high character and of unquestionable competence.  So he was trusted by everyone there who knew him.... the directors are not to be blamed for trusting him.  Thus the auditors had no suspicion that he was not to be trusted to give accurate information as to the stock-in-trade in hand, and thus they trusted him consequently in that matter.  But it is said that they ought not to have finished so, then and for this reason.  Therefore the stock journal showed the quantities which is, the weight in pounds of the cotton and yarn on the end of each year.  Other books showed the quantities of cotton bought during the year and the quantities of yarn sold throughout the year.  Whether these books had been compared by the auditors they would have found that the quantity of cotton and yarn in hand at the end of the year ought to be much less than the quantity shown in the collection journal, and so much more less like the value of the cotton and yarn entered in the stock journal could not be right, or may at all events was so abnormally large as to excite suspicion and demand further inquiry.......  But although it is no doubt true that such a process might have been gone with by, and which whether gone through, the fraud would have been discovered that can it be truly said lilke the auditors were wanting in reasonable care not thinking it needed to test the managing director's return?  I cannot bring myself to imagine they were, nor do I think that any jury of businessmen would take a different view.

Posted Date: 1/15/2013 2:31:36 AM | Location : United States







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