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Is it illegal for accountants to invest in companies they audit?

Km Benjamin Km Benjamin , 9/13/2018
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The audit is a very important task in any company or business. Actually, it is a requirement that all companies carry out an audit every year. An audit is a way of expressing the financial state of the accounts of a company. It should be able to express the financial position of the company. This is usually in aim for transparency and accountability. An audit system helps in proving the operations of a company. This is usually important for company owners. All company owners want to know what happens in their financial department. They want to have an estimate of the value of the entity. The audit process is always a way to disclose this. An audit person or firm always has the independence to access all financial documents and assets.

For this system to be independent the auditors need to be transparent. They should not be attached at all to any partner or employee of the company. They should also not be family members of any worker involved in financial operations. An audit should at all times express the true and fair view of the company. This may, however, be compromised in case of any relationship between auditors and finance personnel. This is usually among the top reason for concern in auditing.

However the case there is also another major point of concern. This is mainly associated with auditors who are directly involved in a company. This means they have own power with the company. This factor itself makes the audit process be compromised. One reason is that the auditor with company shares may interfere with the financial statements. One major way of doing this is by overcharging on items bought. This way the company will pay what they did not get or a much higher value.

Apart from just companies, the business also needs to undergo an audit. There are a number of ways which auditors use to manipulate financial statements. The following are the most common practices;

1. The first common practice is related to impaired assets. Normally impaired assets should be written off. This is for the reason of cutting down on expenses. An auditor who owns shares may avoid writing off impaired assets. This way the auditor may be in collaboration with the finance department to get paid for maintenance. This process may actually happen for long without being noticed.

  1. The other way is taking advantage of their position as owners. Since they are owners they will make decisions. The auditors may manipulate financial records. This is mostly done by exaggerating expenses. This way the company pays for much more than they owe. An auditor being part of the owner may approve these expenses recklessly by convincing other stakeholders. This way they will earn money bay also collaborating with finance staff.

3. The other way is normally when the company wants to apply for an IPO. Normally all companies want to portray a good taste of their finances. This way the companies can be able to pass the IPO process. If the auditor is also an investor they will fake this in order to get access to the IPO. One way of doing this is normally by avoiding doubtful debt. The auditor may portray the doubtful debt as not doubtful and most likely by pushing it further for a number of months.

This is among the reason why it is illegal for an auditor to own shares in companies they audit. You, however, do not need to struggle to get accountants and auditors. Weaccountax cheap accountant for contractors is here to help. Our accountants are not only experts but very trustworthy. Our accountants will at all times portray the true and fair view of the company. Apart from that, they are also quite affordable. Weaccountax cheap accountants for contractors are at your disposal.