What is the relationship between auditor and shareholder?

What is the relationship between auditor and shareholder?

The audit is the linchpin to give shareholders confidence that they can rely on published financial statements to decide whether and in which companies to invest, and at what price. Auditors were intended to be the eyes through which both directors and investors look for the truth.

Are shareholders accountable to auditors?

Whilst US corporations have shareholders and boards of directors, shareholders in the US have little to do with the audit process and auditors have no direct accountability to them. In effect, they act in place of the owners of the company i.e. the independent directors act as principals.

What is the main difference between the board of directors and auditors?

The audit committee plays a critical role in establishing and monitoring corporate governance practices. The board of directors has overall responsibility and accountability for risk management, internal control and corporate governance within the organization.

Do auditors report to directors?

Auditors report on the financial statements to shareholders. Shareholders appoint directors to run the company on their behalf. Directors are often also shareholders. The audit committee, comprised of non-executive directors, liaises between auditors and the main board of directors.

How auditing is useful to shareholders?

An external audit gives shareholders confidence An independent review of the financial statements can provide transparency to the shareholders that the company is being run within their best interests and can highlight any issues that have occurred which may not have been brought to their attention.

Is auditor an agent of the shareholder?

Thus, although an auditor is an agent of the shareholders and according to the law of agency ‘the knowledge of the agent is the knowledge of the principal’, the shareholders are not bound for any information which the auditor might have acquired during the course of audit if he had not communicated it to the …

Are directors appointed by shareholders?

Most commonly, directors are appointed by the shareholders at the Annual General Meeting (AGM), or in extreme circumstances, at an Extraordinary General Meeting (EGM). A resolution for the appointment is put to a vote, and passed if a majority of shares are voted in favour.

Why do auditors report to shareholders?

Shareholders and other users of the financial statements As the auditor’s report is addressed to the shareholders of the company, it implies that the KAMs were identified with these users of the financial statements in mind.

Is audit committee part of board of directors?

An audit committee is made of members of a company’s board of directors and oversees its financial statements and reporting. Per regulation, the audit committee must include outside board members as well as those well-versed in finance or accounting in order to produce honest and accurate reports.

Can BOD override audit committee?

The Audit Committee shall have to right to investigate any matter covered under the broad terms of reference. The recommendations of the Audit Committee will be binding on the Board. Though the Board is a superior body, yet it cannot override the recommendation of the committee.

Do directors keep accounting records?

Directors are legally required to keep specified registers, books and records that reflect the operation of the business. It is usually the company secretary’s primary responsibility, though it is also the responsibility of the director(s) to ensure they are maintained and kept up to date.

Which auditor is responsible to the shareholders?

The auditors’ duty of care Auditors owe a duty of care to shareholders as a body. Their audit report is addressed to all shareholders.

How do auditors report to the shareholders?

The auditors have to report on the accounts, balance sheet and the profit and loss account examined by them. The report is addressed to the shareholders and it is the duty of the directors to attach the report to the balance sheet so that every shareholder gets a copy of the report.

Can the director and shareholder of a company be the same?

Every company must have at least one director and at least one shareholder. It’s not uncommon for the company’s directors and shareholders to be the same people, especially for SMEs. Whilst the directors and shareholders may be the same people, it is important for these people to understand the difference between the two roles.

What are the powers of a director of a company?

A director is entitled to access any financial records of the company. A director can be appointed or removed as a director by a decision of a majority of the directors, or a majority of the shareholders. The shareholders (together) hold the entire ownership of the company.

What are the agency problems of Auditors?

Since auditors act on behalf of shareholders they become agents while shareholders are the principal. The auditors may prejudice the interest of the shareholders thus causing agency problems in the following ways: Colluding with the management in performance of their duties whereby their independence is compromised.