Possible Inherent Conflicts Between the Public Auditor and the CFO on Internal Controls

Ph.D.
Case Study
Finance & Accounting
Pages 6 (1506 words)
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The case study analyses the potential and inherent conflicts that may arise between an external auditor and the management, specifically the Chief Financial Officer of the company during the course of the audit. Moreover, the ways through which the potential conflicts can be…

Introduction

The public auditor, whose primary job is to give an opinion on the financial statements of the company after necessary examination of the statements, also places his reliance on the internal controls established by the management of the company to prevent, detect and mitigate the events of frauds and errors which may lead to erroneous financial reporting and deception of the shareholders.
This is the reason that the auditor lays great emphasis on the establishment of strong and well defined internal controls where the occurrence of material misstatements can be prevented, and if not, then properly detected and appropriate actions be taken to mitigate the same from occurring again.
In the course of the audit, the strong emphasis laid by the auditors on establishment of the internal control department may create conflicts between the auditor and the management of the company, specially the Chief Financial Officer.
The auditor and the CFO initially have their roles clearly defined as to the extent of their jobs and are required to work independently with clear objectivity without interference in each other’s work.
The auditor’s responsibility is to report on the financial statements prepared by the management whether they are free from material misstatements and give a true and fair view. The auditor also has to report on the internal controls established by the management if they are organized enough to prevent and detect the frauds and errors. The auditor has to ultimately report to the shareholders on the safeguards established by the management to safeguard their rights.
Conventionally, the role of the CFO is understood to be in the position of manager and regulator concerning the implementation of principles of accounting. Further, the post of the CFO also includes the preparation of the financial statements and related reports along with the supervision of the capital structure of the ...
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