The Need for an Audit

If you take an example of a modern large liability company, we can clearly distinguish between the providers of funds and those who control those funds. The providers of funds are the shareholders, creditors, and other third parties who have given loans to the company. Those charged with the responsibility of controlling those funds are usually called directors and management. We can also clearly see that the company has resources, (assets), and claims against those resources, (Liabilities and capital.)

Since the providers of funds are divorced from the control of those funds it would seem logical that the controllers should on a regular basis give a report to the providers of the funds on changes in the resources and claims. This report of the controllers or directors according to the Kenya Companies Act should be in the form of annual accounts which consist of the balance sheet and the profit and loss account. The accounting profession has extended the accounts by requiring that a Cash Flow Statement be also appended to the accounts as part of the accounts.

The report of the directors in the form of accounts lacks credibility, in that:

 
a) It may contain errors;

b) It may fail to disclose frauds;

c) It could be misleading inadvertently;

d) It could be misleading deliberately;

e) It may fail to disclose all relevant information.

Posted Date: 12/3/2012 4:32:51 AM | Location : United States

Ask an Expert

Related Discussions:- Need for an audit, Assignment Help, Ask Question on Need for an audit, Get Answer, Expert's Help, Need for an audit Discussions

Write discussion on Need for an audit
Your posts are moderated

Write your message here..

Related Questions

Auditing evidence, what is confirmation letter? what is confirmation letter?

Litigation and claims, Litigation and claims ISA 501 Audit Evidence -... Litigation and claims ISA 501 Audit Evidence - Additional Consideration for exact Items requires such auditors should carry our process to become aware of any material litig

Control over fixed assets.., internal control procedures to be put in place... internal control procedures to be put in place when purchasing a motor vehicle

Auditors procedures - audit process, Auditors Procedures - Audit Process ... Auditors Procedures - Audit Process The relevant authority on post balance sheet events is ISA. The preparation of loss and profit account and balance sheet will forever inclu

Discovery of unlawful acts, Discovery of unlawful acts When an auditor ... Discovery of unlawful acts When an auditor discovers unlawful acts, usually he is not expected to disclose to the police or other authorities unless: The client authorise

Qualities for final accounts, Qualities for Final Accounts The qualiti... Qualities for Final Accounts The qualities needed of the final accounts: the final accounts must possess specified qualities and these are: a) Utilize of acceptable account

Audit, Why is studying Auditing different from studying other accounting to... Why is studying Auditing different from studying other accounting topics?

Auditor, auditor is a watch dog not a blood hound auditor is a watch dog not a blood hound

Limitation of audit evidence, Limitation of Audit Evidence The quantit... Limitation of Audit Evidence The quantity and quality of evidence is constrained through the following factors as: Absolute proof is not possible; Some assert

Auditor, The most effective means for an AUDITOR to confirm his understandi... The most effective means for an AUDITOR to confirm his understanding how internal control over financial reporting is designed and operates to test and evaluate its effectiveness.