Autidors Role in Reporting on Illegal Acts

Autidors Role in Reporting on Illegal Acts

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Chapter one on Autidors Role in Reporting on Illegal Acts

INTRODUCTION

Background of the Study

The term illegal acts, for purposes of this section, refers to violations of laws or governmental regulations. Illegal acts by clients are acts attributable to the entity whose financial statements are under audit or acts by management or employees acting on behalf of the entity. Illegal acts by clients do not include personal misconduct by the entity’s personnel unrelated to their business activities. Whether an act is, in fact, illegal is a determination that is normally beyond the auditor’s professional competence. An auditor, in reporting on financial statements, presents himself as one who is proficient in accounting and auditing. The auditor’s training, experience, and understanding of the client and its industry may provide a basis for recognition that some client acts coming to his attention may be illegal. However, the determination as to whether a particular act is illegal would generally be based on the advice of an informed expert qualified to practice law or may have to await final determination by a court of law. The practice of an auditing in a primitive form can be traced back to ancient times accounting existed before the advert of reading and writing in those early stages metal records where adequate demand.  Audit is derived from Latin word “Audire” meaning to “here” the word auditor soon acquired a secondary meaning i.e. one who examines the accounting statement and satieties himself as the truthfulness and fairness of the statement. Under the method of primitive forth but with the advert of writing and increasing complexity of business activities. Stewards began to keep some forms of writing records and the master examine such records so that act of book keeping and the practice of auditing involved side by side originally most enterprises where owned by individuals who finance privately and so the capital available to industry was strictly limited, there was therefore no need for audit as it exist today as enterprises greatly expanded and due to the evolution of mechanized factories provision for finance has to increase, as a result of this, men who entered into contractual relationship with one another, there arose the need to ensure the accuracy and liability of the resulting information. Under the method o limited liability, share holders are usually disposed and majority of them do not have the technical knowledge of understand how there funds are being used.  The share holders appoint a body to which then delegate the day to day running of the business to enable the share holders know the financial positions and performance of the company.This body know as the board of directors present an account to them at the end of each financial period, a problem was then problem is that of believing that they funds have been honestly and prudently managed to take care of the practice of appointing auditor whose duty it was to verify on behalf of the share holders the account of directors and to report there on to ht share holders developed. The joint stock company act of 1844 was the first enactment in the UK to require all incorporated company’s to have their annual financial statement audited.  Under the act professional qualification was not a prerequisite to the auditing assignment.  The auditor should also not be independent on the management.  The auditor considers laws and regulations that are generally recognized by auditors to have a direct and material effect on the determination of financial statement amounts. For example, tax laws affect accruals and the amount recognized as expense in the accounting period; applicable laws and regulations may affect the amount of revenue accrued under government contracts. However, the auditor considers such laws or regulations from the perspective of their known relation to audit objectives derived from financial statements assertions rather than from the perspective of legality per se. The auditor’s responsibility to detect and report misstatements resulting from illegal acts having a direct and material effect on the determination of financial statement amounts is the same as that for misstatements caused by error or fraud as described in AS 1001, Responsibilities and Functions of the Independent Auditor. It was the company act of 1990 which first made if legally compulsory for every company to have an independent auditor and provided for him a remuneration, but the auditor was required to report on the “truth and correctness” of the company’s financial affairs as shown in the balance sheet this at recognize the need for him to be professionally qualified. Auditing is not limited to liability company’s account only, it also extends to government accounts, therefore auditing also has it’s origin form formation of nations and the need to account properly to the citizens who own the resources.  Auditing usually arise when a group of persons handle money or money worth on behave of some other group of persons.  This is done to satisfy the beneficial owners of the funds that their funds are being honestly and prudently managed. Therefore, the study tends to examine the auditors role in reporting on illegal acts.

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