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The Editor,
Mandatory audits for every limited liability company are audits that require a qualified independent person to collect evidence to determine the reliability of the financial statements. If there is no need to determine the reliability of a set of financials then there is no need for an audit.
Through the auditing process, supporting evidences are collected, evaluated, reviewed and an opinion on the quality of the financial statement posited. Supporting evidence can be physical, documentary, verbal or written certificates. Physical evidence is like the existence of a motor vehicle or a building. Documentary evidence can be external or internal. There are two types of external evidence. One in which the information is send directly to the auditor by the external party like a bank confirmation and the other where the externally generated document circulates within the client company. An example is a purchase invoice. Internally generated document may circulate within an external organization, an example is a sales invoice, or circulates only inside the client company. Some personal records may exist only in the client company. Verbal certificate is one where a supervisor gives a nod to a subordinate to perform a task. Written certificate is like signing a cheque or giving a signed written instruction.
In an environment where the quality of the financial information can stand up to the most rigorous scrutiny the process of verification is substantially reduced. In a territorial distinct area where the preparation of financial statements is not a way of life among certain businesses the validation of the information becomes an imperative. Therefore if a businessman exists in a situation where he has no need to report to an outside party he would willingly forego an audit. An astute third party will want to rely on the attestation of a qualified auditor.
According to Richard Downer in an article published in a daily newspaper ‘ companies …will volunteer to have audits if potential investors’, customers or suppliers wont deal with them on the basis of un-audited numbers’. However, Downer’s observation that the duty of care is owed to the shareholders only is faulty. This reasoning is contrary to the ruling in Twomax Ltd. and Goode v. Dixon, McFarlane and Robinson (UK 1982), the implied liability in Stephens Industries v. Haskins & Sells (USA, 1971) and the existence of a special relationship in Pompellone v. Royal Bank Trust Co. (Trinidad) ltd. (Trinidad, 1982). Indeed the tax authority do not benefit from private audits. The purpose of the revenue authority is to put the largest shovel into the taxpayers store according to an eminent jurist. Taxpayers must therefore arrange their business so as to minimize the size of the shovel.
However, Downer has succinctly stated that the decision to have an audit should be driven by business consideration rather than by legislation. If a businessman wants to be among those who have good practices let him do the things akin to good practices. In any case there are a vast number of businesses registered as limited liability companies whose audited accounts are non-existent. Mandatory statutory audits have not worked for those companies As the level of sophistication increases in the global village and the accounting profession devise new an improved ways for good practices businesses will find themselves left behind without knowledge of these practices. Qualified accountant will possess the information. And businessmen who don’t want to be left behind will clamour for the services of qualified persons. Let the businessman decide. Let the market drive the decisions.
Yours truly,
Neville Robinson 58 Lejune Avenue, Keystone.
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