Purpose of an audit of a limited company
Auditing procedures of a limited company entail a detailed and independent examination of the financial statements, policies, procedures, and records of the company to find out if it is running by the laid down standards. The audit report is of great importance to both the internal and external environment of the organization (Bill and John, 2009, p.34). Among the purposes of carrying out an audit include protecting the investors in the limited companies. That is, the investors will have authenticated financial information of the company on which to base their decision. An audit also ensures that the company accounts have met the required accounting standards to give a true and fair view of the company. As for the management, they gain more reliance on the accounts once an audit has been performed. The audit report, therefore, ensures a smooth running of the organization’s operations.
Responsibilities of directors, accountants, and auditors
The responsibility of preparation and analysis of the financial statements of a company is shared among the directors, accountants, auditors, and the whole workforce who participate directly and indirectly (Messier and Emby, 2005, p.67). The directors take full responsibility for the financial statements by making sure that they follow the International Financial Reporting Standards. They do this by putting in place internal control system that ensures conformity of the standards. The accountants of a limited company have the responsibility of preparing the financial statements in accordance with the International Financial Reporting Standards. The auditors come in last with the duty of checking compliance to the policy and accounting standards and thereafter give a true and fair view of the company.
The different types of opinion which can be given in the external audit report of a limited company
After the auditing procedure is carried out the auditors give an opinion based on the findings. There are different types of opinions that are given including; an unqualified opinion in which the auditor contends with the findings of the audit and has given the corrections to be made (Bill and John, 2009, p.34). A qualified opinion is one whereby the directors of the company have stated that in their opinion the findings of the audit report show a true and fair view of the company excluding some few reservations. An adverse opinion on the other hand comes about in circumstances where the auditors and the directors of a company are not on good terms. In that, they have failed to agree on the findings of the audit report. The disclaimer of opinion occurs where the auditors have failed to attain sufficient information from the company to be able to give an opinion on the findings of the audit report.
Benefits of an investor having an audit report
The audit report is beneficial to all the people associated with the company since it is used in making decisions and choices based on the findings. In the same case, an investor relies on the audit report to make the decision of whether to buy, hold or sell the stocks of the company (Messier and Emby, 2005, p.72). Therefore from the audit report, an investor is able to make a concrete decision.
Meaning and Importance of Corporate governance
Corporate governance essentially means the procedures put in place to administer and control an organization. In other words, it means the way the stakeholders of an organization relate and interact with each other to ensure the sustainability of the company. These stakeholders include the directors, shareholders, management as well as employees. Corporate governance is important as it ensures the smooth running of the company in terms of accountability, transparency, responsibility, and fairness.
Principles of Corporate governance
Corporate governance is administered by four key principles. The principle of Responsibility in corporate governance entails that the directors have the responsibility of taking strategic decisions to monitor and reward the management for good performance. Accountability is another key principle endorsed to the directors and shareholders who have the duty of providing reliable financial information. Transparency of financial information is an obligation of all the stakeholders of the company. The last principle is fairness which states that all the stakeholders are to be treated in an equal and fair manner.
Corporate governance in the UK
Corporate governance in the United Kingdom evolved in the period between the late 1980s and early 1990s (Bill and John, 2009, p.34). It was in this era that companies like Maxwell and Polly Peck had financial scandals. These and other companies led to subsequent evolution in corporate governance whose recommendations were used to a revision of the Combined Code of Corporate Governance published in the year 2003. This new publication made changes concerning the directors and their remuneration, accountability and audit, responsibilities, and relations of institutional shareholders.
The most useful and least useful aspects of corporate governance disclosures in a company
The disclosure of the information of corporate governance is useful to the stakeholders of the company since they use it as a basis for making their decisions. For example, it is important to the shareholders who are able to get an assessment of how effectively the company is making use of its resources.
Disclosures are however supposed to be clear, timely, and in the appropriate manner. It is thus less useful to disclose information that is not reliable such as unaudited financial reports. This is because they give a wrong implication of the company and hence lead to a wrong decision made.
References
Bill, C. and John, M. Financial Accounting & Reporting. McKeith McGraw-Hill, 2009
Messier, W and Emby, C. Auditing & Assurance Services: A systematic approach. McGraw-Hill Ryerson Limited, 2005.