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The audit opinion is quite brief and clear but needs to be read in conjunction with the supporting and explanatory statements. The conclusion must be that your auditors are going to be more inquisitive than ever. After recent scandals and apparent shortcomings, the profession takes auditing more seriously than ever - for example, auditors are meant to be thoroughly skeptical and at a detailed level their analytical reviews of figures (Chapters 6 and 9) are not simply reviews of movements between years - auditors are meant to research what the figures ought to be.
Directors' responsibilities statements
The extract below is from BT pic accounts and clearly states the responsibilities of the directors with respect to financial information.
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report, the Report on Directors' Remuneration and the Financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and the parent company financial statements in accordance with UK GAAP. In preparing the consolidated financial statements, the directors have also elected to comply with IFRS, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently
- make judgements and accounting estimates that are reasonable and prudent
- state whether IFRS, as adopted by the European Union, and IFRS issued by IASB and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the consolidated and parent company financial statements respectively
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements and the Report on Directors' Remuneration comply with the Companies Act 2006 and, as regards the consolidated financial statements,
Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed on pages 65 to 66 confirms that, to the best of their knowledge:
- the consolidated financial statements, which have been prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group
- the Report of the Directors on pages 11 to 97 includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces.
Significant accounting policies, critical accounting estimates and key judgements
Our significant accounting policies are set out on pages 109 to 115 of the consolidated financial statements and conform with IFRS. These policies, and applicable estimation techniques have been reviewed by the directors who have confirmed them to be appropriate for the preparation of the 2012/13 consolidated financial statements.
Disclosure of information to auditors
So far as each of the directors is aware, there is no relevant information that has not been disclosed to the auditors and each of the directors believes that all steps have been taken that ought to have been taken to make them aware of any relevant audit information and to establish that the auditors have been made aware of that information.
This really highlights that all directors should be aware of where the figures come from, and how they are compiled and presented. They should also be aware of the internal control systems in operation.
Internal audit function
Many companies have internal audit departments and these exist for a number of reasons:
1 They may be part of the internal control system in that they routinely check processes and transactions.
2 They may carry out general checking of the accounting systems - they may liaise with the external auditors with a view to reducing the amount of detailed checking which the external auditors have to do. But external auditors retain their responsibility for their audit reports.
3 They may operate more as an internal consultancy service covering both accounting and general management systems, offering advice on improvements to the efficient operation of the business.
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