AUDITING COURSEWORK

“Critically evaluate the role, duties and responsibilities of FisherSmith in accepting Precision Tools Limited as an audit client”.

External auditors usually play a vital role in the validation of company information because potential investors and lenders usually require externally audited financial statements prior to conducting business with a company. The audit helps in detecting material misstatements. There are several roles, duties, and responsibilities of FisherSmith in accepting Precision Tools Limited as an audit client.

Firstly, it is the duty of FisherSmith to provide an opinion on Precision Tools Limited’s financial statements. FisherSmith is responsible for providing reasonable assurance that the firm’s financial statements are free from material misstatements and that they are prepared in accordance with the accounting framework (Gupta, 2005, Pg. 1139). The auditors only provide reasonable assurance and not absolute assurance of perfect company financial statements. For example, this role is in line with the lending credibility theory as it is the role of the auditor to ensure credibility to the financial statements. By providing an opinion on the financial statements, FisherSmith ensures that the audited financial statements are used by the management in enhancing the stakeholders’ faith in the management’s stewardship. Therefore, this role is effective in providing investors and lenders with an enhanced degree of confidence in the company’s financial statements (Ainapure & Ainapure, 2009, Pg. 221).

Secondly, it is the duty of FisherSmith to play a vigilant and objective role to ensure well-protection of the interests of shareholders. Shareholders always depend on efficiency and good faith of the company’s auditor in ensuring the actions of the company in the daily operations are verified. Therefore, FisherSmith is responsible for the detection and reporting of fraudulent activities within a firm. This duty is in line with policeman theory which states that the job of an auditor is to focus on the arithmetic accuracy as well as on the detection and prevention of fraud (Mathur, 2011, pg. 269). For example, just like a policeman, an external auditor is responsible for discovering fraud. This role is very crucial in clearing the firm of any business malpractices.

Thirdly, FisherSmith is responsible for ensuring that the company’s system of internal control is effective and that the financial reports are accurate. Also, it is the duty of FisherSmith to maintain an independent attitude as well as an appearance of independence from the firm. This role is in line with the theory of inspired confidence ((Millichamp $ Taylor, 2012: 266). It is the duty of the external auditor to ensure accountability on the part of the management to the stakeholders. They are responsible for ensuring that information that management provide is not biased as a result of lack of divergence between the management’s interests and those of the outside stakeholders. This duty is effective in ensuring that FisherSmith addresses audit problems in an effective manner thereby increasing the assurance and credibility of the external audit.

Finally, FisherSmith is responsible for policing and being watch-dog of management thereby enhancing or promoting good corporate governance practices. This is crucial in clearing the company of any business malpractices. FisherSmith has to ensure compliance with the company’s established internal control procedures. This indicates that an auditor is appointed in the interest of both management and the third parties of stakeholders which are in line with agency theory. For example, this role ensures that the auditor meet expectations and does not take adverse actions against the management and third parties (Mathur, 2011, pg. 269).

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