The of import of corporate administration is emerging speedy and published in worldwide such as USA, UK, Japan and many other states harmonizing the account made by Joshi and Wakil ( 2004 ) in their diary. The corporate administration literature presumes that the Board of Director has an of import function in the administration map since the construct of company as a separate legal entity came into being. Shareholder will name Board of Director to run the company ‘s operation by provide peculiar service such as pull offing the public presentation of concern and accomplishing sufficient return for stockholders to maximise stockholder ‘s personal wealth ( Ballesta and Garcia-Meca, 2005 ) nevertheless those agents ( Board of Director ) might non ever move in the involvements of the company ‘s proprietors ( stockholders ) under the struggle of bureau theory.
Therefore stockholders need to hold assurance that those fiscal statement prepared by Board of Director are accurate and comply with the needed criterions and ordinance, hence stockholder needfully appointed an independent external hearer ( besides known as statutory hearer ) and it is necessitating by Malaysia Companies Act 1965. The occupation range of the external hearer is to analyze those fiscal statement which prepared by Board of Director and to show their sentiment on whether the fiscal statement are prepared and presented in all material respects in conformity with an identified fiscal coverage model in a true and just position and issues standard audit study.
This survey foremost is discussed what is the standard audit study, following up is the intent of standard audit study is prepared and at the terminal is the utility of standard audit study to stakeholders.
Standard Audit Report ( SAR )
Harmonizing to the Al-Thuneibat, Khamees and Al-Fayoumi ( 2008 ) in their diary, standard audit study represents the most of import portion of the audit procedure and it is the chief channel of communicating between the hearer and the users of the fiscal statements. Standard audit study is the reappraisal and rating study resulted from the trial of control and substantial processs that auditor performed therefore the study must reasonable, nonsubjective and acknowledged by the users as a relevant beginning of information because they will utilize the study as a relevant beginning of information and will see it in the decision-making procedure. The consequence on decision-making agencies that the study must hold information content which will impact investing determinations, recognition determinations and portion monetary values.
Harmonizing to Giacomino and Akers ( 2012 ) , there have been few alterations and betterment in the standard audit study since several old ages and the considerable alterations in the audit study are: 3-paragraph format ( introductory, range and sentiment ) alternatively of two, added “ independent ” to the rubric, to place this as an audit study and distinguish it from other study on fiscal statement that might be issued by Board of Director, addressee ( place the individual who may utilize the study ) . Introductory paragraph, changed “ examined ” to “ audited ” , to identifies which fiscal statement are covered by the hearer ‘s study and when an audit was conducted, added the diction that “ these fiscal statements are the duty of direction ” , to clear up that the fiscal statement are the duty of direction and added this specific statement “ our duty is to show an sentiment on these fiscal statements based on our audit ” to sing the hearer ‘s duties is to show an sentiment on fiscal statement.
Scope paragraph, scrutinizing criterions require that an audit be “ planned and performed to obtain sensible confidence about whether the fiscal statements are free of material misstatement ” and added two sentences to depict audit processs to explicate the range of the audit so the criterion of the hearer work is clear and other factor such as restriction of audit testing is known, at the terminal of the range paragraph, added “ we believe our audit provides a sensible footing for our sentiment. ”
Opinion paragraph, adding this statement “ in all stuff respects ” , to supply the hearer ‘s sentiment on the fiscal statement in footings of true and just position and, replaced the “ capable to ” give voicing with an unqualified sentiment and explanatory paragraph to vouch the reader that the audit has been carried out in conformity with established rules and patterns. Date of the study, to inform the user that the hearer has considered effects of minutess that the hearer became cognizant of on the statements up to that day of the month. Auditor ‘s reference, normally list out where the hearer responsible locate so he can be contacted if necessary. Auditor ‘s signature, the hearer ‘s study should be signed assume duty for the audit.
Those alterations were intended to do the audit study more utile by specifying an audit and more efficaciously pass oning the duties of direction and the hearer with the hope that SASs ( 53-61 ) would assist cut down the outlook spread.
The purpose Standard Audit Report prepared
Prevent and detect fraud and do certain fiscal statement is true and just
Section 169 Companies Act 1965 province that the manager of company need present audited fiscal statement at one-year general meeting ( AGM ) and do certain those statement give a true and just position of the company ‘s personal businesss and consequences of its operation. Hearers need guaranting entry of the audit study in clip to the members of the company and showing an sentiment on the truth and equity of the fiscal statements under Section 174 Companies Act 1965.
The standard audit study address the range of hearer ‘s legal duties is prevent and detect those fraud by verifying all minutess, exercising considerable judgement in the choice of audit processs, soundness of internal control of the entity and the direction has duty for readying the fiscal statements and care those accounting records. ( Dixon, Woodhead and Sohliman, 2006 ; Fadzly and Ahmad, 2004 )
Management of the company might show fiscal statements that contain job such as misstatement, fraud, prejudice and etc. If those stakeholders no found out those jobs, they will non cognize the company is traveling concern and go on swear the public presentation of direction, therefore they will repent their determination if the company all of a sudden bankrupt. Therefore, stakeholders needed engage independent external hearer to forestall and observe those jobs in the fiscal statement that prepared by the direction and do certain those fiscal statements is free from favoritism and prejudice and truth and equity.
Those hearer will turn to those fiscal statements are prepared under International Financial Reporting Standards ( IFRS ) which grown in footings of the measure of disclosure and the item therein and presented truth and reasonably in conformity with by and large accepted accounting rules ( GAAP ) and are based upon the audit within a deemed materiality degree therefore stakeholder has confident to swear those standard audit studies and doing the funding and puting determination.
However, hearer ‘s sentiment in standard audit study is self explanatory and based on trials performed based on statistical samples, reappraisals, treatments with direction and most significantly degrees of materiality that is different among entities. Those hearers are reacting to scrutinize failures, this inducement hearer follow up harsh and proper guidelines for supplying high quality standard audit study which focus on the cardinal countries of hazard to set up and continue their reputes. ( Fafatas, 2010 )
Utility of the Standard Audit Report
Supporting stakeholders doing sagely determination
Stakeholders needed standard audit study to back up their investing and fiscal determination, therefore hearer timely entry the elaborate criterion audit study will gives more assurance to those stakeholders even the auditing has built-in restrictions in footings of range of work and materiality.
Harmonizing the study research of Gomez-Guillamon, 2003, one time the standard audit study publically known, those users of the standard audit study such as stockholders, possible investors, bankers and providers will do shrewdly investing and imparting determination based on their judgement and assurance with their concluding determination, this has show that standard audit study has greatest influence on doing determinations at aggregative degree. Company ‘s stockholders and possible investors evaluate the public presentation of the company, bankers evaluate the recognition worthiness of the company before loaning and providers investors evaluate the liquidness of the company before providing goods based on the type of sentiment ( unqualified, qualified and accent of affair ) in the standard audit study that issued by hearer.
Harmonizing to ISA 700, qualified hearer ‘s sentiments are spliting into four of the different types and viz. : limitation-on-scope, traveling concern, dissension with direction and disclaimer of sentiment. In private and international trading exempt companies, the type of making prevalent was limitation-on-scope and this implied direction did non execute good their responsibility such as did non decently execute the annual stocktake on the clip. The traveling concern making normally were made by exclusive practicians due to they was non advanced with current criterions and this makings were qualified on the footing of uncertainness.
The dissension with direction making was related to disagreement with the intervention or revelations of affairs in the fiscal statements is, this occur when the hearer disagreed with direction as to the non-preparation of amalgamate fiscal statements, inappropriate accounting intervention and going from International Financial Reporting Standards ( IFRS ) , deficiency of professional rating of belongings and sums in the fiscal statements, chiefly in position of the fact that direction did non decently supply for depreciation on belongings and fixed assets. The disclaimers of sentiment making merely fewer issued by hearer, this making occurs when hearers could non execute audit processs on a figure of fiscal statement points and the company with a earnestly impaired traveling concern in add-on to the non-provision for depreciation by managers. ( Farrugia and J. Baldacchino, 2005 )
As an illustration HSBC Holdings plc, the hearers issued a qualified study and province down their sentiment on the standard audit study that the Group and parent company have decently prepared the fiscal statements in conformity with the demands of the Companies Act 2006 and it give a true and just position of the province of the Group ‘s and of the parent company ‘s personal businesss therefore company ‘s stockholders and possible investors disburden on their wisely investing determination to put in the HSBC Holdings plc. From this point, we can presume that those stakeholders highlight the type of sentiment in the hearer ‘s study as being indispensable and valuable information to impact their investing and loaning determinations.
Monitoring agents ‘ activities and bettering transparence
Harmonizing to the bureau theory, independent external hearer considered as a consistent group in supervising the agent ‘s activities and pare down the benefits from keep backing information because the hearers assisting chief maintain an oculus on the agent ‘s activities and bettering transparence of all the concern activities. As a consequence, hearers will issues standard audit study that highlights internal control system and how they monitoring the fiscal coverage procedure in assisting users to understand the internal control system and fiscal coverage procedure. Therefore the standard audit study will increases the trustiness of fiscal statement, supply diverse utile information and help the users of the study rating the public presentation of the company and doing wisely determination. ( Hashim and Rahman, 2011 )
From those point, we found out that the standard audit study has greatest influence those stakeholders doing sagely investing and fiscal determination at aggregative degree, gives those stakeholders gain more confident to swear the public presentation of the direction and those fiscal statement is from favoritism and prejudice and truth and fairness even scrutinizing has built-in restrictions in footings of range of work and materiality. Hearers reacting to scrutinize failures, therefore hearers set up and continue their reputes for supplying high quality standard audit study which focus on the cardinal countries of hazard
Interestingly, harmonizing to CFA Institute conducted recent study in March of 2011, those users of the standard audit study suggestion that the hearer needed provided more specific information in the standard audit study and sententious reappraisal about how they reach their sentiment. This shows that the standard audit study still has infinite to betterment.