The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities.Required:Explain the responsibilities of external auditors to directors and shareholders

  • Responsibilities of external auditors to directors and shareholders
  •  The external auditors are required to prepare a report to shareholders on the truth and fairness (or fair presentation) of financial statements prepared by management for the benefit of shareholders.
  •  The auditors, if appointed by shareholders, act as agents for the shareholders in the same way as directors act as agents for the company.
  •  Auditors have no specific duties to directors although it is clearly necessary that an adequate working relationship is formed in order that the audit can be performed properly. Directors generally have a duty to provide auditors with the information and explanations they require to perform the audit.
  •  Auditing standards require that auditors report weaknesses in systems that they discover during the course of their audit to management (ISA 400 ‗Risk Assessments and Internal Control‘).

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