The problem that has always existed at the time when the manager reports to the owners is that: whether the owners will believe the report or not? This is because the reports may:
a. Contain errors
b. Not disclose fraud
c. Be inadvertently misleading
d. Be deliberately misleading
e. Fail to disclose relevant information
f. Fail to conform to regulations
The solution to this problem of credibility in reports and accounts lies in appointing an independent person called an auditor to examine the financial statements and report on his findings. A further point is that modern companies can be very large with multi-national activities. The preparation of the accounts of such groups is a very complex operation involving the bringing together and summarizing of accounts of subsidiaries with differing conventions, legal systems and accounting and control systems. The examination of such accounts by independent experts who are trained in the assessment of financial information is of benefit to those who control and operate such organizations as well as to owners and outsiders.
Many financial statements must conform to statutory or other requirements. The most notable is that all company accounts have to conform to the requirements of the Companies Ordinance 1984 but many other bodies (like: Charities, Building Societies, Financial Services business etc) have detailed accounting requirements as required by the relevant legislations. In addition all accounts should conform to the requirements of International Financial Reporting Standards (IFRSs).
It is essential that an audit of financial statements should be carried out to ensure that they conform to these requirements.
Why Is There A Need For An Audit?
