Regulation of Auditors
Regulation, monitoring and Supervision
Each country's regulation of external audits will differ. Most regimes do have certain common elements
which we examine in detail below.
Briefly these are as follows:
a) Education and work experience: the IFAC has issued guidance on this
b) Eligibility: there may well be statutory rules determining who can act as auditors. Membership of an
appropriate body is likely to be one criterion.
c) Supervision and monitoring: these activities initially came under particular scrutiny in a number of
countries during the 1990s and these activities are again under the spotlight following the recent
global economic crisis. Questions have been asked about why auditors have failed to identify
impending corporate failures and whether they were being regulated strongly enough. The
supervision regime has come under particular scrutiny in countries where regulation and supervision
is done by the auditors' own professional body (self-regulation). Suggestions have been made in
these countries that supervision ought to be by external government agencies.
Eligibility to Act as Auditor
To be allowed to perform external audits, an individual must go through an approval process. The
individual must:
Pass an approved set of examinations set by a Recognized Qualifying Body (RQB). Examples of an
RQB include the ACCA and the ICAEW;
Become a member (and stay a member) of a Recognized Supervisory Body (RSB). The ACCA and the
ICAEW are also examples of RSBs.
In addition, the individual must not be either of:
A director or employee of the client or any of its associated companies;
A business partner or employee of a director or employee of the client, or any of its associated
companies.
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, Duties of an external auditor
The auditor must consider the following;
Maintenance of adequate accounting records The auditor while performing his duties must
check whether proper and adequate accounting
records have been maintained and prepared.
Compliance with legislation It is the duty of an auditor to ensure that all the
applicable regulations have been complied with
while preparing the financial statements.
Verification of records The auditor’s duty is to examine, compare and
verify the accounting records and returns with
the financial statements. If the accounting
records do not agree with the financial
statements or are incomplete, then it is the duty
of the auditor to report this fact to the
shareholders.
Truth and fairness It is the primary duty of the auditor to prepare a
report on the financial statements examined by
him and state whether, in his opinion and to the
best of his knowledge, the financial statements
provide:
A true and fair state of affairs at the end of
accounting period, in the case of statement
of financial position (SOFP) and
A true and fair view of the amount of profit or
loss during the accounting period, in the case
of statement of comprehensive income
(SOCI).
Adequate disclosure Another duty of an auditor is to ensure that the
financial statements and all the other material
disclosures are made in accordance with the
applicable statute. The auditor also needs to
verify whether all the payments and benefits
accruing to directors from the company are
properly disclosed in the accounts.
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Regulation, monitoring and Supervision
Each country's regulation of external audits will differ. Most regimes do have certain common elements
which we examine in detail below.
Briefly these are as follows:
a) Education and work experience: the IFAC has issued guidance on this
b) Eligibility: there may well be statutory rules determining who can act as auditors. Membership of an
appropriate body is likely to be one criterion.
c) Supervision and monitoring: these activities initially came under particular scrutiny in a number of
countries during the 1990s and these activities are again under the spotlight following the recent
global economic crisis. Questions have been asked about why auditors have failed to identify
impending corporate failures and whether they were being regulated strongly enough. The
supervision regime has come under particular scrutiny in countries where regulation and supervision
is done by the auditors' own professional body (self-regulation). Suggestions have been made in
these countries that supervision ought to be by external government agencies.
Eligibility to Act as Auditor
To be allowed to perform external audits, an individual must go through an approval process. The
individual must:
Pass an approved set of examinations set by a Recognized Qualifying Body (RQB). Examples of an
RQB include the ACCA and the ICAEW;
Become a member (and stay a member) of a Recognized Supervisory Body (RSB). The ACCA and the
ICAEW are also examples of RSBs.
In addition, the individual must not be either of:
A director or employee of the client or any of its associated companies;
A business partner or employee of a director or employee of the client, or any of its associated
companies.
Page | 12
, Duties of an external auditor
The auditor must consider the following;
Maintenance of adequate accounting records The auditor while performing his duties must
check whether proper and adequate accounting
records have been maintained and prepared.
Compliance with legislation It is the duty of an auditor to ensure that all the
applicable regulations have been complied with
while preparing the financial statements.
Verification of records The auditor’s duty is to examine, compare and
verify the accounting records and returns with
the financial statements. If the accounting
records do not agree with the financial
statements or are incomplete, then it is the duty
of the auditor to report this fact to the
shareholders.
Truth and fairness It is the primary duty of the auditor to prepare a
report on the financial statements examined by
him and state whether, in his opinion and to the
best of his knowledge, the financial statements
provide:
A true and fair state of affairs at the end of
accounting period, in the case of statement
of financial position (SOFP) and
A true and fair view of the amount of profit or
loss during the accounting period, in the case
of statement of comprehensive income
(SOCI).
Adequate disclosure Another duty of an auditor is to ensure that the
financial statements and all the other material
disclosures are made in accordance with the
applicable statute. The auditor also needs to
verify whether all the payments and benefits
accruing to directors from the company are
properly disclosed in the accounts.
Page | 13
