?CEDRIC KONAN- FIRST DRAFT Firstly, auditing has a great importance both for the company and shareholders. Companies management is now the task of professional managers group (Porter et al, 2014). Hence, managers must inform its partners on the outcomes obtained. According to Chow (1982), users of financial statements need to be sure of their reliability. Accordingly, by using auditors, companies can reliably communicate.
Besides, Porter et al, (2014) argue that auditing is important to allow that financial statements are reliable. Indeed, managers and users do not have the same goal. The aim of the users is that the financial statements reflect the financial reality, while the managers want to publish good results (Chow, 1982). By auditing, companies prove that their reports reflect reality.
It improves credibility of companies. About shareholders, they can’t audit the financial statements themselves. Furthermore, shareholders may live away from the company whose financial statements they would like to examine (Chow, 1982). Therefore, a third part is necessary to evaluate the financial statements (Porter et al, 2014). The shareholders will trust at financial statements, even remotely.
Also, investors can lost their money, If they base decisions on unreliable information, such as whether to invest in the company. So that, it’s important for them to have the assurance that the information is reliable before taking decision (Porter et al, 2014).Secondly, auditing is important for state and financial institutions. Alfraih (2016) argues that the state needs to have the assurance that the financial statements that serve as a basis for calculating of taxes are reliable. Indeed, companies calculate their own taxes. It is important for the state to be assured that the taxes reported by the companies reflect the financial reality of the company (Armstrong et al, 2010). The way for the state to have this assurance is the auditing. In addition, the payment of the tax being proportional to the contributive capacity of the companies (Armstrong et al, 2010).
It is imperative for the state to have reliable financial information in order to make a fair classification of the companies and to favor the payment of the taxes (Alfraih, 2016). As regards financial institutions, the trust in the integrity of capital markets is important. It is obvious that there is a link between continue to invest in capital markets and the well-being of the economy and investors (Alfraih, 2016). However, the fact to invest is based on the trust of investors in the financial statements which help them to make decision (Armstrong et al, 2010). So, financial institutions need of assurance given by auditing to better carry out their analysis before making a decision.Despite the assurance given by auditing in the society, there are many challenges which must be solved. Indeed, the auditors are exposed at many threats.
Lee (2013) argues that there is self-interest threat which arises when the auditor has an interest with its client which might cause the auditor not to work with objectivity. As an illustration, this threat may arise, if the auditor has a financial interest with the client. Moreover, According to Lee (2013), there is the self-review threat which arises when the auditor provides non-audit services which will have effects on financial statements. To illustrate, Arthur Andersen’s auditors prepared the financial statements of Enron which they subsequently audited. In 2002, Arthur Andersen was accused of disclosing false information about Enron’s financial statements. However, in the past two decades the authorities have taken measures to improve auditing procedures and increase its reliability. The goal of these measures is to give the confidence that the auditor has no interest with the client (Porter et al, 2014).
For example, cannot be auditor of a firm, the member of this enterprise Likewise, in 2002 an accounting act has passed by the authorities It is one of consequences of different financial scandals revealed in the early 2000s, such as Enron case. The purpose of this law is to increase corporate responsibility, to make financial reporting more reliable and to combat companies deviant and fraudulent behavior (Porter et al, 2014).ReferencesAlfraih, M.M., 2016. The role of audit quality in firm valuation.
International Journal of Law and Management, vol. 58, no. 5, pp. 575-598.Armstrong, C. S., Guay, W. R.
, & Weber, J. P., 2010. The role of information and financial reporting in corporate governance and debt contracting.
Journal of Accounting and Economics, 50(2-3), 179-234.Chow, C. W., 1982.
The demand for external auditing: Size, debt and ownership influences. Accounting review, 272-291.Lee, H. L., & Lee, H., 2013.
Do Big 4 audit firms improve the value relevance of earnings and equity? Managerial Auditing Journal, 28(7), 628-646.Porter, B., Jon, S., & David, H., 2014.
Principles of external auditing. Fourth edn, Wiley, Chichester, West Sussex.
