efficient audit is one that reduces the audit risk to the targeted level, ensures that there
are no errors contained in the financial statements while completed on time and
within the budget. To ensure an efficient and cost-effective audit, we must
understand the roles and responsibilities of both the client, or more specifically,
the board of directors, and the company’s external auditor.
Responsibilities of the
The primary role of an external auditor is to protect the
interests of shareholders. Audits are conducted by an independent external
auditor which makes it possible to take the interests of the shareholders into
account. External auditors report the state of a company’s finances and
attest to the validity of financial reports that may have been released. They
conclude whether the information provided to shareholders and the board of
directors are accurate and reliable.
By conducting risk assessments,
external auditors help the implementation of good corporate governance.
Auditors review the security measures that a company has in place against
corporate fraud or corruption. In addition to assessing potential risks,
auditors also analyse the overall risk tolerance of the company as well as the
efforts the company has made towards mitigating risks.
auditors help clients implement effective internal controls to ensure efficient
internal systems. During an audit, the external auditor will evaluate the
current controls in place and recommend adjustments or new controls to be implemented.
For example, a recommendation to implement a creditor’s reconciliation at the
end of every month which the director will be required to mark and sign off
An external auditor will help ensure
a good relationship with regulators. Regulators tend to be collaborative with
companies that appear to have transparent operations. External auditors
evaluate the company for compliance with regulations. Regulators are also more
likely to trust company disclosures after an auditor attests to them.
External auditors may introduce
measures and policies designed to compel accountability in the workplace. For
instance, auditors could recommend consequences for managers who manipulate
accounting records to show a profit and ensure that they receive a bonus at the
end of the financial year. Penalties for such acts could include stripping the
manager of his/her position or his/her compensation, such as reducing annual
Responsibilities of the board of directors
The directors and senior management are required to be fundamentally
concerned with evaluating an organisation’s management of risk. For example,
risks to the reputation of the company, unhappy customers, health and safety
risks, accounting risks, accountability risks, legislation risks, risks
associated with market failure and financial risks. To ensure the
organisation’s success and take the interest of stakeholders into account,
these risks must be managed effectively.
- Evaluating and improving
Directors and senior
management should continuously evaluate the effectiveness and efficiency of
current internal controls and consider improvement. For example, a major new
project is being undertaken – the assigned directors and senior management can
help to ensure that project risks are clearly identified and assessed with
action taken to manage them. From this assessment, controls can be implemented
to ensure the project flows effectively and complies with the tone and risk
management culture of the organisation.
- Analysing operations and
Achieving objectives and managing valuable organisational resources
will require systems, processes and people. Directors work closely with line
managers to review operations and report their findings. The directors must be
well-versed in the strategic objectives of their organisation and the sector in
which it operates, so that they can have a clear understanding of how the
operations of any given part of the organisation fit into the bigger picture.
It is senior management’s job to identify the risks facing the
organisation and to understand how they will impact the delivery of objectives
if they are not managed effectively. Directors and senior management need to
understand how much risk the organisation is willing to live with and implement
controls and other safeguards to ensure these limits are not exceeded. Some
organisations will have a higher appetite for risk arising from changing trends
and economic conditions. This risk-based approach enables the directors and
senior management to anticipate possible future concerns and opportunities for providing
assurance, advice and insight where it is most needed.
With the above roles and responsibilities fulfilled and working
efficiently, the year-end audit will be smooth-running. Unnecessary
frustration, time and money will be saved by both the client and their external
‘Efficiency is doing better what is already being done’.
Should you have any questions regarding this article, feel free
to contact Elandré Jansen Van Rensburg at firstname.lastname@example.org
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)