Overview of Auditing in a Public Company

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Introduction

Every organization aims at ensuring that its resources are efficiently allocated for maximum returns. Up to quite recently, many public organizations were not monitored on how they used the money that was allocated to them. As a result, there was a lot of misappropriation of government resources, and many officials just aimed at enriching themselves. When the public complained a lot regarding this issue, an auditing department was introduced to help in the protection of public resources. To execute his or her functions well, an auditor will require independence especially from the top officials of the organization.

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Functions of an Auditor in a Public Company

An auditor has many functions to execute in any company including public institutions. First and foremost, an auditor is expected to come up with ways of stopping, reducing, or preventing fraudulent activities and their effects on the company and its assets. Therefore, an auditor should help in the implementation of the organization’s anti-fraud policies (Herda & Lavelle 2012). Secondly, it is the role of the auditor to ensure that risk management programs, as well as governance and control systems, are efficiently working and that they are in line with the firm’s goals and objectives. Additionally, an auditor is supposed to evaluate and ascertain that information security and other related risk exposures are controlled. Moreover, it is upon the auditor to identify any risk issues and internal control deficiencies and report the same to the audit committee (Nam & Ronen 2012). In addition, the auditor should give suggestions on how to improve any weak internal controls. On the same note, the auditor has to ensure that the organization is well prepared in case of any inconveniences. Another most important role of an auditor is to liaise with a legal counsel and ensure that the organization complies with all the regulatory requirements.

Importance of Auditor Independence

It should, however, be noted that for an auditor to comfortably carry out his or her duties, independence is crucial. An auditor will need to be free to investigate and report any issue without any fear or coercion from anybody. It is crucial to mention at this point that the auditor not only requires independence from management but also from each party that may be affected either directly or indirectly by the results of the audit. Auditor independence is crucial because it will ensure that the auditor is free to carry out his or her roles (Pomeroy & Reffett 2012). On the same note, investors’ confidence highly depends on the auditor’s independence. Therefore, investors will be willing to inject their money if they know that the auditing report they get represents a true and fair view of the firm’s affairs. Similarly, independent auditors produce reliable financial information which is what stakeholders want. Additionally, independent auditors do not work to protect any personal interest and thus give credible qualified or unqualified reports. Most importantly, auditor independence ensures that auditors fulfill all the professional requirements during their work and thus produce quality results.

How to Ensure Auditor Independence

Auditor’s independence is usually affected by the kind of relationship that exists between the auditor and the client. Therefore, to ensure that the auditor carries out his or her duties freely, it is crucial to regulate the kind of relationship maintained with the client (Hollingsworth & Li 2012). To begin with, an auditor should avoid relationships that can lead to a conflict of interests. In this regard, an auditor should not engage in some services like bookkeeping, actuarial services, and other expert services unrelated to the audit. Similarly, an auditor should avoid engagements that would lead to an employer-employee sort of relationship with the client since this is likely to compromise the independence of the auditor. In addition, any engagement with a client which requires the auditor to act as an advocate of the organization should be avoided as this jeopardizes auditor independence.

Role of the Audit Committee

All publicly held companies are required by U.S. Securities and Exchange Commission (SEC) to have an audit committee. The committee is responsible for overseeing the financial reporting and disclosure to ensure that due process is followed. In addition, the committee is expected to choose, implement and ensure compliance with accounting policies and principles. Besides, the committee is tasked with the responsibility of ensuring that strong internal control systems are developed and followed properly (Grenier, Ballou & Philip).

On the same note, the committee should hold separate open discussions with the management, internal auditors, and external auditors to ensure that they get reliable information. Furthermore, the audit committee supervises the process of hiring and performance of the external auditors to ensure that their independence is assured. Similarly, it is upon the audit committee to ensure that the company complies with all regulations besides acting as a whistle-blowing channel for the company. Finally, the committee is expected to liaise with the management in ensuring that risk management policies and practices are effective (Keinath & Walo 2009).

Conclusion

The auditor provides an assurance but not a guarantee that company assets are safeguarded. Nevertheless, each organization should strive to minimize misuse and misallocation of company assets. Therefore, it is upon the management to ensure that proper control measures are implemented to help in reducing or preventing fraudulent activities. However, the ultimate duty of ensuring that company assets are protected from egocentric individuals depends on each member of the organization.

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Reference List

Grenier, J, Ballou, B & Philip, S 2012, ‘Enhancing Perceived and Actual Audit Committee Effectiveness through Financial Expert Certification’, Current Issues in Auditing, vol. 6 no. 2, pp. A15-A25.

Herda, D & Lavelle, J 2012, ‘The Auditor-Audit Firm Relationship and Its Effects on Burnout and Turnover Intention’, Accounting Horizons, vol. 26 no. 4, pp.707-723.

Hollingsworth, C & Li, C 2012, ‘Investors’ Perceptions of Auditors’ Economic Dependence on the Client: Post-SOX Evidence’, Journal of Accounting, Auditing & Finance, Vol. 27 no. 1, pp. 100-122.

Keinath, A & Walo J 2009,’ Audit Committee Responsibilities’, The CPA Journal. Web.

Nam, S & Ronen, J 2012, ‘The Impact of Nonaudit Services on Capital Markets’, Journal of Accounting, Auditing & Finance, vol. 27 no 1, pp. 32-60.

Pomeroy, B & Reffett, A 2012, ‘When Do Auditor Defense Tactics Increase Rather than Decrease Perceived Auditor Negligence’, Current Issues in Auditing, vol6 no.2, pp P7-P12.

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BusinessEssay. 2022. "Overview of Auditing in a Public Company." May 3, 2022. https://business-essay.com/overview-of-auditing-in-a-public-company/.

1. BusinessEssay. "Overview of Auditing in a Public Company." May 3, 2022. https://business-essay.com/overview-of-auditing-in-a-public-company/.


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BusinessEssay. "Overview of Auditing in a Public Company." May 3, 2022. https://business-essay.com/overview-of-auditing-in-a-public-company/.