Independent Auditors: Their Duties and Responsibilities

Independent certified public accountants can be likened to referees in the court, only that they play the field in the financial reporting arena. Normally, it is the CPA who performs the audit functions of the company’s accounting system and prepares the report that is reflected in the company’s financial statements. Financial reports of publicly owned businesses must be audited annually by independent CPA firms. On the other hand, businesses that are privately owned also go through audit procedures as it can add more credibility to their financial reports. Generally, the financial report is considered a reliable document wherein everything that a company needs to know about its financial condition can be readily found on it.

An auditor determines whether the accounting procedures used by the business are in adherence with the Generally Accepted Accounting Principles or GAAP. By also examining the financial statement, the auditor can tell by observing indicators whether the company is going well or heading for trouble.  When an auditor sees that a business’s ability to maintain normal operations is not enough to suffice financial crunches, it could mean that the business has low cash balance, which could mean that the company has insufficient cash balance, overdue liabilities, or expenses arising from legal suits in which the company does not have enough cash to defray.

Apart from good technical grasp in auditing, an auditor should also be stiff on the accounting procedures used by the client. He must, at all times, exercise professional skepticism, which means that he or she must constantly challenge his client’s accounting procedures as well as reporting practices so that the resulting financial statement will be in conformity to the generally accepted accounting standards and that the reports are presented as fair, transparent and accurate as possible. Simply put, the auditor must always live up to the words ‘fairly presented’, as what is normally used in his report, in carrying out his functions. It is important for an auditor to strictly uphold the GAAP at all times and leave no room for the prospect of committing accounting fraud.

There may be instances when the auditor may intentionally fail to see discrepancies in some companies that engage in accounting fraud. Take Enron, for instance.  Enron’s auditing firm, Arthur Anderson, was then found guilty of obstruction because the auditing firm, Arthur Anderson was found guilty of obstruction of justice because it was discovered that it destroyed audit evidence.