A statutory audit

A Statutory Audit: Promoting Transparency and Accountability

A statutory audit is a legally required review of a company's, organization's, or government's financial health. That goes a long way toward determining whether an organization is offering a true picture of its financial situation. This is accomplished by examining data such as bank balances, accounting records, and financial transaction records. A battery of global corporate fiascos, such as Dick Smith (retailer) in 2016, Banco Espirito Santo (bank) in 2014, Dynegy in 2012 and Schlecker (retailer) in 2012 have left governments, investors and the general populations of the world sceptic of the auditing profession. Prior to the failures, there was no communication of the actual findings with regards to the financial woes of the aforementioned corporates with all the stakeholders. This lack of warning from auditors resulted in the failure of companies, thereby raising serious questions about the quality and reliability of audited information (Johari, Mohd-Sanusi and Chong, 2017). Despite the black light shone on auditing by the instances of failure, there is no viably direct replacement for it. This paper, therefore, seeks to make authentic the need for statutory audits.

The Role of Statutory Audits in Promoting Corporate Success

Statutory audits are critical in promoting corporate success. As it is, the directors of many firms often are separate from the real owners of the same. According to Hasnah et al, (2016), financial management involves activities such as budgeting, accounting and reporting as well as performance management. Through proper management and accurate reporting, audits will provide a three-dimensional view on how the documentation of activities and financial reports were prepared and made accessible. Besides, it is a mandatory process that is backed by law. Auditors play a central role in ensuring that this process achieves the desired role of promoting transparency, accountability, integrity and equity in business operations.

Supervision and Monitoring of Management Performance

According to Marianne O, (2009) as read by Abate D, (2016), corporate governance has a number of fundamental aspects. Among others, there is the supervision and monitoring of management performance. This function sees statutory auditing monitor how the various public and private agencies dispense functions vis a vis the expectations and documentations. Based on internal auditing, a public firm may present a report on the management of resources under its control. This information may not be as accurate. For verification, documentation and transparency, statutory audit has to be done by an external auditor. Such an auditor would require to put their professional skills and ethics on the forefront. For instance, where an auditor discovers anomalies that are unclear, then, a level headed auditor will allow nothing to cloud their objective(s). This will guarantee that the report that comes out at the end of the process is genuine and speaks clearly of how the situation is. In so, doing, the audit process will prove itself of value to the user(s) of the same and hopefully salvage a dire situation.

Accountability and Financial Planning

Accountability is another aspect that necessitates statutory auditing (Abate D, 2016). An effective audit will check all systems including books of accounts, their relevance, cost-effectiveness and prudent recording of company financial engagements. In this case, an efficient audit will avail well prepared, analysed and verified yearly reports and financial statements to shareholders and stakeholders. It will also provide other useful information that will enable an objective realization of the current state of a firm and guide proper financial planning. For example, at the end of a statutory audit where all stakeholders are given insight into an organization's financial records and activities, each one will be able to make informed judgment on their investment safety and priorities.

Detection of Inappropriate Activities and Wastefulness

According to Goodson S. G et al (2012), detection as a role of auditing, can spot inappropriate, wasteful, prohibited and deceitful activities. On the other hand, any anomaly identified in the cause of auditing that is brought about by unrelated reasons may lead to mounting procedures to identify cases of fraud, misappropriation and abuse of office. For example, it may be discovered that transport as a component is not as economical as should be. A proper audit should reveal the extent to which employees may be abusing the privilege and engaging in activities not useful to organizational progress. It may also show that, although employees may be engaging in perfectly legal activities within their mandate, still wastage is there and needs to be reined in. A proper audit sanctioned by law would therefore help to stop such hemorrhage of scarce resources.

Appreciating Trends and Identifying Solutions

A legally backed audit will assist an organization to appreciate trends and focusing on contemporary issues before they become real problems. For example, the audit can highlight a challenge such as shifting security threats, economic decline and demographic trends and identify solutions and opportunities arising from scientific and technological changes. Through auditing, a firm is provided with useful and relevant information that can be used by the management to sail through what would have otherwise been tempestuous times.

The Importance of Statutory Audits

Despite the shortcomings associated with auditing in recent years, it still remains key to good corporate management. By virtue of its compulsory nature, measures should be put in place to reinforce rather than discourage its use. Through proper use, this practice can ultimately strengthen corporate governance by providing for monitoring, accountability, and protecting the central values of the public sector entity.

REFERENCES

Goodson, S and Mary, K and Lapointe J, 2012. Supplementary Guidance: The Role of Auditing in Public Sector Governance. The Institute of Internal Auditors: pp. 15-18

Ojo, M. (2009). The Role of External Auditors in Corporate Governance: Agency Problems and the Management of Risk. SSRN Electronic Journal. [online] Available at: https://ssrn.com/abstract=1427899 or http://dx.doi.org/10.2139/ssrn.1427899 [Accessed 1 Mar. 2017].

Arena, M. and Sarens, G. (2015). Editorial: Internal Auditing: Creating Stepping Stones for the Future. International Journal of Auditing, 19(3), pp.131-133.

Boolaky, P. K., and Soobaroyen, T. (2017) Adoption of International Standards on Auditing (ISA): Do Institutional Factors Matter?. Int. J. Audit.[online] 21: 59-81. doi: 10.1111/ijau.12081..

Johari, J., Mohd-Sanusi, Z. and Chong, V. (2017). Effects of Auditors' Ethical Orientation and Self-Interest Independence Threat on the Mediating Role of Moral Intensity and Ethical Decision-Making Process. International Journal of Auditing, [online] 21(1), pp.38-58. Available at: http://dx.doi.org/10.1111/ijau.12080 [Accessed 1 Mar. 2017].

Muhamad, J., Hasnah, H. and Faudziah, F. (2005). Internal auditing practices and internal control system. Managerial Auditing Journal, 20(8), pp.pp.844 - 866.

Boolaky, P. (2017). Adoption of International Standards on Auditing (ISA): Do Institutional Factors Matter?. Internal Journal of Auditing, [online] 21(1), pp.59-81. Available at: http://dx.doi.org/10.1111/ [Accessed 1 Mar. 2017].

Dureti, A. (2016). Ensuring Good Corporate Governance through Auditors: Appraisal of the Ethiopian Legal Regime Governing their Roles and Responsibilities. Masters. Addis Ababa University.