The problems the auditors face are different from
those of the directors. Their problems lie outside the area of simple
bookkeeping and arise when the financial statements incorporate judgments,
estimates and opinions.
For example, the accounts might contain an
estimate-made by the directors to the
estimate-made by the directors to the
best of their ability-of the potential
loss on a contract-but is it too much? Too little? Shouldn’t be there at
all?-the auditors have to decide what they think, based on the evidence they
can gather.
It is straightforward enough for a company to
ensure that all the transactions in the books are properly processed (and, as
we will see later in this book, there is an audit approach which doesn’t even
bother checking that this is so), but how do the auditors’ know that:
ensure that all the transactions in the books are properly processed (and, as
we will see later in this book, there is an audit approach which doesn’t even
bother checking that this is so), but how do the auditors’ know that:
·
All the
transactions that should be included have been included; and
All the
transactions that should be included have been included; and
·
How do
they know that all the transactions that are included are bona fide ones and
not transactions invented by the director to make the results look good?
How do
they know that all the transactions that are included are bona fide ones and
not transactions invented by the director to make the results look good?
So, because the auditors are expressing an opinion,
they use a term of art-‘true and fair’’. This carries with it implications of
honesty, integrity, impartiality and objectivity in the telling of a story,
which is what the accounts do, in as understandable a way as possible for the
benefit of the people who, after all, own the business or have a significant
vested interest in it.
they use a term of art-‘true and fair’’. This carries with it implications of
honesty, integrity, impartiality and objectivity in the telling of a story,
which is what the accounts do, in as understandable a way as possible for the
benefit of the people who, after all, own the business or have a significant
vested interest in it.
