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The Importance of Auditing and Auditors

By 1Audit Team,
05 Sep 2023

The objectives of investors and creditors vary from those of management in companies. For instance, management often prefers high salaries and benefits (expenses afford by the company), whereas investors seek high profits and returns on their investments. Both investors and creditors rely on the report’s fairness in financial statements to achieve their respective goals. To instill confidence in these financial statements, independent auditors provide their expert opinion on their fairness, known as the auditor's opinion.

It can be said that the function of auditing lies in instilling confidence in financial statements. Financial statements are the responsibility of management, while the responsibility of auditors is to provide confidence about these statements. Through the auditing process, auditors not only enhance the usefulness and value of financial statements, but also increase confidence in other information disclosed by management that is not auditing.
It is acknowledged that the importance of the company's role as potential generators of wealth, as well as the impact of their activities on society and the environment. This recognition has led investors to expect the disclosure of more information beyond what is provided in financial statements, in order to verify the true state of the company. These expectations have expanded to encompass inquiries such as:

  •  What is the company's sustainability and continuity?
  • Does the company avoid fraud and deceit?
  •  Is the managed company effectively and efficiently?
  •  Does it possess an impartial database?
  • Does the management have sufficient information to make right decisions?
  •  Are there adequate supervisory procedures in place that oversee the workflow?
  • What is the environmental impact of the company's products, both primary and secondary?
  •  Is there a possibility that an error could lead to the collapse of the company?

All these matters related to corporate governance and report preparation are of interest to auditors, as auditors bear the responsibility of providing an independent and accurate assessment of the data's precision and validity. This pivotal role of auditors holds great significance for the boards of management in these companies, as it contributes to enhancing transparency in business activities and, consequently, building trust among companies, investors, and the community.

With the evolving world, it is expected that the demand for annual reports, financial statements, attached notes, and audit reports will continue as they are now. Additionally, the importance of management's report on corporate governance will increase. This report will include an evaluation of internal control effectiveness, the company's continuity capability, adherence to standard governance practices, and the management's environmental report. This growing demand for reports arises from the global trend towards enhancing corporate governance, prompted by significant accounting crises in the early years of the 21st century. As a result of these anticipated developments, auditing will spread and penetrate various areas such as reviewing non-financial data, electronic and textual data, media releases, human resources, intellectual capital, evaluating brand names, management skills, and other intangible assets.