pathfinder - The Institute of Chartered Accountants of Nigeria

PATHFINDERQUESTION 2(a)The application of auditing standards to the audit of small companies managedand owned substantially by the same people is a subject which the AuditingPractices Committee is aware of.A fundamental question in this context is whether the value derived from theaudit of such company is commensurate with the cost of carrying it out.From the point of view of the proprietor there is clearly an advantage in havingaccounts properly prepared but the additional advantage of having themaudited is marginal, unless there is a dire need to do so. The same applies tothe other shareholders who are usually small in number and closely connectedwith the proprietor.The creditors derive same benefits, but, since accounts are often filed manymonths after a company‟s year end, those providing credit more often resort totrade sources for more up-to-date information on the company‟s creditworthiness.(b)(i)(ii)(iii)(iv)Some of the arguments in favour of abolishing audit requirements for smallcompanies are:Proprietors of such companies tend to require financial services (accountingservices, tax advice) from professional accountants, and regard the audit aspectof the work as part of the price of incorporation, but of no added value.Since the shareholders and directors are the same people, there is somethingludicrous about the spectacle of “directors” supplying information to theauditors so that the latter is then in a position to report back to them (themembers).There is no legal requirement for outside interests to be served by the auditorand in any case, such outsiders make no contribution to the audit fee.Many outside interests such as banks are well protected by personal guaranteesfrom directors and charges against company assets. They are, therefore, notdependent on the audit for protection.INTERMEDIATE EXAMINATION - NOVEMBER 201044