The Role Of Internal Auditor From External Auditor

Published Date: 02 Nov 2017

Explain the meaning of audit and its nature. (3 marks)

Distinguish between accounting and auditing. (5 marks)

Discuss the objective of auditing and why auditing is needed. (8 marks)

Distinguish the role of internal auditor from external auditor. (8 marks)

Explain the importance of audit to the users of financial statement. (5 marks)

Discuss the types of audit and provide ONE (1) example for each type.(12 marks)

Explain the meaning of ‘true and fair view’. (3 marks)

Explain the categories of audit report. (12 marks)

Select TWO (2) companies’ annual report for year 2011. Discuss what category of audit report that has been issued by auditor on the company’s financial statement. (8 marks)

Discuss your personal views on unaudited financial statements and the circumstances or conditions that it can be used. (8 marks)

WRITEN REPORT

A) Explain the meaning of audit and its nature.

Arens , Elder, and Beasley (2006) state that auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. It is analytical in nature. According to Arens et al. (2006) auditing should be done by competent, independent person. An auditor will perform audit on quantifiable or some more subjective information. For example, they will perform audit for companies’ financial statements or for the efficiency on manufacturing operation.

For the auditors to done an audit process, there should have some standards or criteria to provide them guidelines to evaluate those information. For example, when a financial statement is being audit, the auditor should carry out the audit process according to generally accepted accounting principles (GAAP). However, for auditing the more subjective information like audit the efficiency on manufacturing operation, there are no or less standards is established to be follow. Therefore, some agreed standards should be established before the audit process for these information starts.

According to Arens et al. (2006) the information for an auditor to audit should be in verifiable form and with sufficient quantity and quality of evidence. The example of different form of evidence are oral testimony of the client, written communication with outsider, observation by the auditors themselves, electronic data about the transaction and so on. After the auditing process, the auditors should prepare the audit report which includes their opinions, findings and conclusion of what they had audited to the users. Therefore, the higher quality or more evidence the auditors have for the audit process, it will increase the reliability of the audit report.

Other than sufficient quality and quantity of evidence, the high level of independence of auditors to the company also can build up the confidence of the users rely on the audit reports. Therefore, according to Arens et al. (2006) the auditors should have an "independent mental attitude" in auditing process which means they should not have any biased in accumulation and evaluation on those evidence or information provided.

For the audit report that prepared, it may differ in nature and in various forms. But, all of the reports must show the users on the correspondence between the information and the established standards.

(B) Distinguish between accounting and auditing.

There are some distinctions between accounting and auditing.

The difference between accounting and auditing is that, the process of accounting is the business function that recording, classifying and summarizing daily business transaction in the books of the firm in order to prepare financial statements at the end of the accounting period which is useful for manager’s decision making, whereas, the process of auditing is evaluating the accounting information that presented in the financial statements of the organization to ensure that the organization or the company establish the financial statement that reflect the true and fair view. ("Difference Between Accounting and Auditing," 2011) The process of accounting is start when bookkeeping is end, whereas, the process of auditing will start where accounting end.

The main goal for accounting is to provide clear, comprehensive and reliable information about the economic events and the status of assets and liabilities of the organization and this will present in the form of statement like statement of financial position, statement of comprehensive income and so on. However, the aim of auditing is to analyze, examining and evaluate the company’s financial statements or others more subjective information, then, give some company’s improvement recommendations or opinions based on the evaluation. ("What is difference between accounting and auditing," 2010). It also aims to provide the true picture for the users about the economic conditions of the company or the organization. Besides, Accounting is concerned with balancing the accounts whereas auditing is concerned with the establishment of credibility of financial statements. Accounting is to clearly state the trading results whereas auditing is to ensure the correctness of financial statements.

The one that responsible in accounting process is accountant who have accounting knowledge to done their job, while, the auditors which required both accounting and auditing knowledge to carry out the auditing process. Accountants should understand clearly about the rules and principles which provide the basis in preparing the accounting information and guide them to prepare and record the business activity in properly manner like prepare it on timely basis and reasonable cost. However, auditors should understand also the standards established by some authority bodies or law like generally accepted accounting principle (GAAP) other than accounting knowledge. This is because auditing is focus on determining whether the information recorded have reflect the business activity that occurred during the accounting period and check whether it has follow the standards established by generally accepted accounting principle(GAAP) by accumulate and interpreting the evidence of audit. (Arens , Elder, and Beasley , 2006)

Accountants consider as permanent employees of the company who work under the control of company’s management and get salary from the company, whereas, auditors normally are independent person that hired by the company for a specific period of time to done the auditing process and their working process is control by law. At the same time, accounting process is done in day-to-day basis with current data and present in the form of statement at the end of accounting period- normally one year, and no report is needed to be prepared. However, auditing process is using the past data in their analysis and evaluation and it is present in the form of reports in every short time interval like once a month which normally less than one year.

The financial statement of the company which prepared after the accounting process is normally read by its internal or external users. For example, managers who are internal users, they need it for decision making. For external users, like bankers will decide whether to provide loan for the company or the organization with this financial statement. However, after the auditing process, the audit report will be prepared in order to shows the true picture of its economic condition and provide the more reliable or high credibility of the financial statements to the users like shareholders or owners’ of the entity.

(C) Discuss the objective of auditing and why auditing is needed.

The objectives of auditing is enable the auditors to express their opinion in the audit report after evaluate the financial or non-financial information about the company. They will give those opinion by accumulate and reviewing the related evidence. For example, they will give opinion about whether the financial statement prepare by the company had followed the standards as in financial reporting framework or not. They will also evaluate this according to the standards or criteria as stated in generally accepted accounting principle (GAAP) and compare it to see whether the statement prepared is correspond to those standards.

They will also give opinion about whether the company had followed the procedure in gathering, recording and presenting those data. Besides, auditing can help the company to know how the financial or non-financial information of the company is actually report and whether it is report properly. So, the users can review that information systematically and understand the whole picture about the company’s performance and economic activities easily. After that, they will make conclusion or opinion about this like recommend what the company should improve.

At the same time, after the auditors audit the financial statement of the company, it also will determine whether it reflects the true and fair view while reporting the performance or financial position of the company. They will evaluate it by gathering and reviewing thoroughly all the evidence provided. For example, they will see whether their recording is accurate, reliable and reasonable to prevent the company give the wrong information which will mislead their users when they use or review those information in decision making or when they want to have more understanding about the performance of that particular company.

By auditing, the users of those information or statements especially internal users like managers, chief executive officer (CEO) or business’ owner can review how actually the operation of the company to evaluate whether the performance had met the planned goals and what corrective action should be taken for the improvement such as downsizing, expanding, closing or maintaining the company.. Besides, they can save some time in reviewing that information. So, they can made the necessary decisions faster and maintain the company’s economic activities in efficient and effective condition.

Besides, the other objective of auditing is to detect the errors and fraud of all the financial or non-financial information about the company that presented. By auditing, the auditors will examine whether those information presented especially financial statement have error or not. For example, they will check those financial statement whether have some clerical error like error when calculating figures, posting the transaction to wrong account or wrong side of account, whether the business transaction had omitted from the accounting and so on with the evidence of audit.

Other than error, auditing also can detect fraud in the presented information. Although it is difficult task to detect as those fraud are attempt to conceal, but through auditing, auditors will always find their best way to detect those fraud as it occurs very often with the aim of earning benefits or money from other parties and it is illegal. For example, after auditing the high management of the company or users of those information will discover whether the financial reporting had misappropriate the assets and understate the loss or liabilities in order to show the company have good business performance or not. If so, they will take action in investigate who are the one who done this and report it to the court or regulatory agencies after identified it. Normally, the auditors will detect both errors and fraud by using the provided evidence.

After auditing, both financial and non-financial the information with high level of credibility can be presented by the organization or the company to the users or public. This is because, through auditing process, the management of the company able to see the clear picture about the ways of gathering, reporting and presenting those information and they can know whether it is helpful to those users to understand better and making decisions or not and make improvement or changes in the ways used if they found it cannot help the users review those information easily. Auditing also help in detecting fraud and error of those presented information. Therefore, the true picture of the company’s business activities and performance can be shows which will build up the confidence of all the users when review that information as they think the information presented is trustable, with low level of error and have lower chances to get fraud information.

(D) Distinguish the role of internal auditor from external auditor.

Internal auditor is the employee that hired by the organization or the company itself and treats his or her as their own employee. The internal auditor is work on the behalf of the organization. Their primary clients include management of the organization and board of director. However, external auditor is the employee that independence and outside the organization is hired by the organization or the company and do not treats his or her as their own employee. The external auditor is work for the third party like shareholders, but not the organization or the company itself. Their primary client is board of director.

The scope of work of an internal auditor is comprehensive. He or she have to done assessment on all the organizations’ activity or operations and helping the organization to accomplish its objectives, improving operations, risk management, internal controls and governance processes. However, the scope of work of external auditor is review directly on the aspects that related to annual financial statement but not the whole organization.

Internal auditors have to provide the opinions or recommendations about the whole organization after audit both financial and non-financial information. The internal auditors will access all the company resources and give the recommendation about the procedure to reduce risk and improve internal control. They will also give the opinion about whether the risk management system of the company is operates efficiently and effectively. Besides, they will evaluate and provide reasonable assurance of risk management and decide if the internal control systems are implemented as intended to allow the organization’s goals to be met. (Costello. J, 2009) They also help in implementing the policy of the company’s operations and management to improve its efficiency and effectiveness.

However, the external auditors have to give independent opinion or recommendation about the overall presentation of organization’s financial statements annually. They will state out whether the procedure and ways of the company’s financial reporting had followed the generally accepted accounting principle, GAAP. They will also focus on whether the financial statement had presented fairly and reflect what business transaction that actually happened during the accounting period. They will evaluate these with evidence and supporting documents. To improve the credibility of the audit report, they also have to state down their procedure to get that information. After that, they will give recommendation about what should improve in order to prepare a financial statement that reflects true and fair view and with higher level of credibility.

The internal auditors have to audits during the entire year and always concerning the all the transaction of the whole organization which involve both financial and operational transactions and also detect the fraud of the whole company. While the external auditors only concerned about the transactions that affect the financial results or performance and detect the related fraud only.

(E) Explain the importance of audit to the users of financial statement.

Audit is important to help the users of financial statement in reviewing the financial statement and make decision with those information. This is because, the users of the financial statement may not have enough capabilities and knowledge to review and evaluate each account in the financial statement. Therefore, with the help of auditor in examine each account like calculate the organization’s inventory themselves, send formal letter to the organization’s banker to check the accuracy of reporting the organization’s cash inflow and outflow and so on will help the users of financial statements determine the trustworthiness of the financial statement which is important for them to make important decisions. For example, the managers can made right decision on whether expand, downsize or remain constant for the business’ operation with the reliable information. This is because with the wrong information like overstated the company’s cash flow may result in wrong decision made and led to loss to the company. Therefore, audit is important for the financial statement’s users to review the financial statement and use the true information in decision making.

Other than that, audit also important for the financial users as they can review the true financial performance and determine the truth value of the business especially for the buyers of the business. With the auditing process done on the financial statement, the users like buyer of business can determine what the business is actually valued and does it worth to buy. This also can prevent them from incurring loss after buy over the business. Besides, the investors also can know how much return that they actually can get from the company by looking at the truth financial performance. Sometimes, they will also decide whether to continue invest in the business with information provided in the audit report of financial statement.

Besides, audit also important for the users of financial statement as it save time of the users in evaluate the trustworthiness of the financial statement. This is because the auditors already go through the evaluating process and stated their recommendation in the audit report. Therefore, the users can get to know what are the errors or fraud in the financial statement by directly reviewing the audit report and save some time to determine it by themselves. So, the operations of the users will not be affected. For example, the banker who provide loan for the organization can save some time to evaluate whether the financial performance provided is truth or not and can get the true picture directly about the financial performance of the organization and decide whether to give them loan easily and faster. Therefore, it will save bankers time in the evaluation process and they can use the saved time to concern with their economic events which is more important to them.

(F) Discuss the types of audit and provide ONE (1) example for each type.

There are few types of audit. One of the type is operational audit which sometimes called performance audit is examine the use of organizations’ resources to evaluate whether those resources are being used in most efficient and effective ways. (University of Massachusetts, 2012) This operational audit is not only limited to accounting, it also include the evaluation of organizational structure, computer operations, production method, marketing, and other method which the auditor qualified. (Arens, Elder, and Beasley, 2006) According to Arens et al. (2006) , because of the effectiveness of the operation can be evaluate in many ways, therefore, it is difficult or impossible to characterized the conduct of typical operational audit. For example, one organization can evaluate based on the relevancy and sufficiency of the information that the managers use in decision making, while other organization evaluate by determining the efficiency of the information flow in the organization. Therefore, operational audit is actually difficult to evaluate in objective manners, it is extremely subjective. Operational audit also determine whether the results or the performance of the organization had met the organization’s plans and objectives by comparing it. After that, they will give recommendations for the management to improve the operations. The example of operational audit is that, an auditor evaluates the efficiency and effectiveness of the processing payroll transactions in a newly installed computer systems. (Arens, Elder, and Beasley, 2006)

The other type of audit is compliance audit. The compliance audit is conducted to determine whether the auditee is following specific procedures, rules, or regulations that set by some higher authority. (Arens, Elder, and Beasley, 2006) According to Arens et al. (2006), in virtually, every private and not-for-profit organization, prescribed policies, contractual agreements, and legal requirements may require the compliance auditing which are widely perform by Certified Public Accountant, CPA. Determine whether the wage rates is compliance with legal requirement and whether accounting personnel are following the procedures prescribed by the company controller are some common aspect in compliance auditing in private organization. After audit, the auditors will prepare the audit report which normally concerned more by the management department of the organization. In the reports, auditors will state the gaps between the regulations and the organization’s procedure and suggest some training and follow-up programs to ensure personnel are adequately informed about compliance requirements. (University of Massachusetts, 2012) The example of audit is the auditors determine whether the organization have met the bank requirement for loan continuation.

Financial statements audit is also one type of audit. Financial statement audit is to determine whether the overall financial statements are prepared in accordance with specified financial reporting framework or criteria from Generally Accepted Accounting Principle, GAAP. The basic set of financial statements including balance sheet, income statement and a statement of changes in shareholders’ equity and statement of cash flows. The auditors will perform some appropriate test to determine whether the statement contain material errors or other misstatements in order to determine whether the financial statement is presented in fairly basis and in accordance to Generally Accepted Accounting Principle, GAAP. (Arens, Elder, and Beasley, 2006) When the business is expanded, the financial statement audit process is no longer focus on accounting transaction only. It also considers both risk of errors and operating control intended to prevent those errors. (Arens, Elder, and Beasley, 2006) For example, financial statement audit will conduct audit process on financial statement of the Genting Highlands Malaysia Berhad with evidence provided like document, records or outside sources of evidence.

Information Technology also is one type of audit. This type of audit involve evaluate the internal control related to the management of information technology environments and related infrastructure, applications and data. (University of Massachusetts, 2012) This audit also will determine how actually the automated information processing systems of the organization are being used and does it operates efficiency and effectively. Normally, this type of audit include evaluating the organization’s computer facility, security software tools, procedure in controlling the input and output or production program, operating system and so on. Information technology audit also focus on reviewing the new information system before and after the organization had implemented the new system to ensure that the system used is secure and appropriate and available for the organization’s operations at all the time. Auditors will also evaluate whether the systems used in the organization is reliable, accurate, timely and will the system only available and can be viewed by the authorized users which protect the organization’s highly confidential information from letting out to the outsider. This type of audit will become more important as the automated information recording and processing system are being used. The example of this type of audit is that the auditors will audit regularly evaluate whether the existing computer system is updated for the financial reporting where the updated system can help the organization come out with the standardized financial statement as others organization to all the users and it also facilitate in comparing the financial performance with others organization.

(G) Explain the meaning of ‘true and fair view’.

One of the objectives of auditing is to determine whether the financial statement of the organization reflects "true and fair view" as required by those standards, laws or rules and regulations. Concept of true and fair view does not mean it is absolutely the truth, but, it means the financial statement is already reviewed by the auditors and it is accurate and can be used by user to make decision or judgement. The financial statements with true and fair view will not causing the users makes the wrong judgement or decision as there is no misstatements or errors. This is because, the financial statement that reflects true and fair view means the auditors had evaluated and confirm the statement is record according to what activities actually happened and amount used in the accounting period and all other information is accurately recorded and presented.

The financial statements or the book of account of the company can be said is reflecting true and fair view as the statements records all the business transaction correctly, statements or accounts are prepared according to the accepted principles of accountancy and followed the standards issued by the regulatory bodies, Companies Act and others relevant laws, no fraud and error in the books of account and the financial statement prepared is correspond to the organization’s books of account. (Vikash, 2006) In addition, when the evidence of audit provided is satisfy for the auditors means that the presentation of financial statement had apply "true and fair view".

(H) Explain the categories of audit report.

The audit reports are being categorized. The following shows the categories of audit report.

Standard unqualified report is the reports that prepare or issued based on the generally accepted accounting principle and when it met five conditions. The five conditions is when all the statement like balance sheet, income statement, statement of retained earnings and statements of cash flow are included in the financial statement; the three generally accepted accounting principle have been followed in all respect on the engagement; sufficient evidence has been accumulated, and the auditor has concluded that the three standards of field work have been met; adequate disclosures have been included in the footnotes and other part of the financial statement and there are no circumstances requiring the addition of explanatory paragraph or modification of the wording report. (Arens, Elder, and Beasley, 2006) However, when any of the five conditions above does not me, the standard unqualified report cannot be issued. The standard unqualified report sometimes called clean opinion where the qualification or the modification of the auditor’s opinion is not required. But sometimes there have some situation will prevent the auditors from giving the clean opinion. Therefore, the company will make some changes on their accounting records in order to prevent the qualification or the modification of the auditor’s opinion. This report is considered as the best type of reports that the companies received and it is prepared by the independent auditors. This report consists of report title, audit report address, three introductory paragraphs, scope paragraph which states what the auditors did in audit process, opinion paragraph which is the final paragraph, name of certified public accountant, CPA firm or the name of the auditor who prepared this report and audit report date.

The unqualified with explanatory paragraph or modified wording is prepared when the criteria of a complete audit with satisfactory results and financial statements are fairly presented, but the auditors believe that it is important or required to provide additional information. (Arens, Elder, and Beasley, 2006) The explanatory paragraph is needed when the company lack consistent in application of generally accepted principle and when the auditors agree with the departure from promulgated accounting principle. Besides, the explanatory paragraph is required when the auditors have substantial doubt on whether the business or the organization can going concern like when they discovered the organization incurring the large amount of loss or lose many major customers which may lead to discontinuous of operations of the organization. This explanatory paragraph also have to prepare when the situations required the auditors to prepare although they think it is not necessary, for example, there is the existence of significant related party transactions, the important events occur which affect the balance sheet date and so on. The modified wording has to prepare when the reports involve other auditors. This modified wording is also called shared opinion where the auditors are impractical in reviewing others auditors’ work. When modified wording is prepared it will state in the introductory paragraph but not include in the separate paragraph on the report which discuss the shared responsibility of the auditors.

The qualified report is prepared when there have the limitations of the scope of audit or failure to follow the generally accepted accounting principles. (Arens, Elder, and Beasley, 2006) But, the auditors still conclude that the overall presentation of the financial statement is fairly stated. Therefore, it is consider as the least severe audit report other than the standard unqualified and unqualified report with explanatory paragraph or modified wording. This report can take the form of the qualification of both the scope and the opinion when the auditors are unable to accumulate enough or all the evidence that required for audit process which is necessary according to generally accepted accounting principles. Besides, this qualification also can be used when the clients of the auditors restrict their scope of work or there are some situations or circumstances causes the auditors cannot conduct the complete auditing process. The auditors also can use the qualification of the opinion alone when the organization’s financial statements do not prepare according to the generally accepted accounting principles. Since the auditors is satisfied with the overall financial statements presentation but with the exception of specific aspects, therefore, the term "except" have to be used in the opinion paragraph of this report.

The adverse or disclaimer report is prepared when the auditors are unsatisfied with the overall financial statement of the organization is fairly presented. The adverse report is prepared when the auditors discovered that the overall financial statement are so materially misstated or misleading that it does not present fairly of the organization’s financial position or the result of operations and cash flow in conformity with to generally accepted accounting principles. . (Arens, Elder, and Beasley, 2006) Therefore, this report is considered as the worst audit report that the organization had. This report is rarely used and it only can be prepared when the auditors have adequate knowledge and investigations that confirm the presentation of the financial statement is not followed the generally accepted accounting principles. The disclaimer report is necessary when there are either severe limitations on the scope of the audit or when there are nonindependent relationships under the Code of Professional Conduct between an auditor and the client or both. (Arens, Elder, and Beasley, 2006)This is because these problems will cause the auditors cannot express their opinion on the organization’s financial statement as a whole. Other than that, when the organization arise the going concern problem, the auditors also have the option to prepare this type of report. Unlike adverse report, the auditors who have with less knowledge also eligible to prepare this report. However, both reports are prepared only when the condition is highly material. (Arens, Elder, and Beasley, 2006)

(I) Select TWO (2) companies’ annual report for year 2011. Discuss what category of audit report that has been issued by auditor on the company’s financial statement.

According to the annual report of the company of both Genting Malaysia Berhad and Tenga Nasional Berhad as shown in the Appendixafter analysis both reports separately, the category of audit report of that has been issued by the auditors on the company’s financial statement is standard unqualified report. This is because the reports have all the elements required in the standard unqualified report like report title, audit report address, three introductory paragraphs, scope paragraph which states what the auditors did in audit process, opinion paragraph which is the final paragraph, name of certified public accountant, CPA firm or the name of the auditor who prepared this report and audit report date. From the auditors’ opinion, it also stated that the financial statement of these companies are satisfied as it gives the true and fair view of the financial position of the Group and of the company as of 31 December 2011 and of their financial performance and cash flow for the year ended. The auditors of both companies also state that the financial statement prepared is in accordance to MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965. The company also had disclosed the supplementary information in Note 45 to meet the requirement of Bursa Malaysia Securities and Malaysian Institute of Accountants, MIA.

In the annual report of both companies, it does not have any explanatory notes and modified wording about the financial statements of the company although it has some part is audited by other auditor. This is because the auditors do not make reference in both audit report. The audit reports of both companies also state that both financial statement contain all the five necessary statement, that is, balance sheet, income statement, statement of retained earnings and statements of cash flow of the Group and of the Company for the year ended. The financial statement also provides the attachment to the auditors of the both companies which includes a summary of company’s or group’s accounting policies and other explanatory notes for the auditors as evidence. They also able to provide other sufficient evidences that required to the auditors to conduct audit process. The auditors also state that the financial statements do not received any qualifications or adverse comment made under Section 174 (3) of the Act. Therefore, the audit report that prepare in the annual report of Genting Malaysia Berhad and Tenage Nasional Berhad are considered as standard qualified report.

(J) Discuss your personal views on unaudited financial statements and the circumstances or conditions that it can be used.

From our viewpoint, an unaudited financial statement is the accounting reports that not checking for accuracy of its presentation and recording by the third party. Therefore, the organization will not know whether the financial statements prepared and presented had followed the standards, rules and regulations. They also cannot detect the errors of the statements. Hence, the quality and the credibility of the organization’s financial statement are affected. This is because, the accountant actually perform the job like recording those daily business transaction only and they do not need to analyze the accuracy, true and fair view of the financial statement and also whether it’s comply with the laws and standards. Besides, they might not have necessary knowledge to oversees and improve the quality of these statements. Therefore, they may not discover any error or fraud in the statements and they do not know the trustworthiness of these statements.

From our opinion, the users should not rely the unaudited financial statements as these statements are not reliable and may have fraud that had not detected and cause the users make the wrong decisions. For example, some organization will prepare the financial statements that overstated the assets owned and profits earned and understate the liabilities of the organization to show their organization have high financial performance which will bring benefits to them. For example, they can get loan easily by providing this unaudited financial statement to the bankers which also one of the users to get more cash flow for the organization’s daily transaction. Therefore, the bankers are being cheated and made wrong decision to approve the loan, because the financial statements that they reviewed is understated the liabilities. So, the organization may not able to pay back the loan. Hence, the bank may incurred loss as the result of bad debt expenses for this organization and increases the expenses and loss to the bank. Therefore, the users should not rely on the unaudited financial statements as it might the wrong information and it will lead to wrong judgments and decision making which will cause the users experiencing loss and the organization can gain benefits.

However, they are still having some circumstances or situation that the unaudited financial statement can be used, that is, when it is impossible to get the audited financial statement due to time constraint. This is because the auditing process required a long period of time and it normally conduct at the end of the year. Therefore, if the users like suppliers need the financial statements immediately to decide whether give credit to the organization as the trading process starts, the organization can temporary shows the unaudited financial statement to them and shows the audited one in the later time as the unaudited financial statement also had recorded according to the Financial Reporting Standard. Hence, it can save some time for both party and let the trading process going smoothly.

The unaudited financial statement also can be used if the statements are presented by the large or well-known company or organization as the temporary presentation. This is because if the users can detect any fraud on the statement, they can take legal action on this particular organization as the managers or supervisors of the organization difficult to escape from it or difficult to immigrate since the organization is well-known and easier for the authority bodies to find out the one who have to responsible on this issue. Therefore, the user can claim back their loss from the company. From the other viewpoint, the well-known company will always try to maintain their good reputation. So, they will not cheat their financial statement’s users when showing them the unaudited one as they know their organization’s reputation will affected and dropped if any fraud detected and it will bring a huge loss for them. Hence, the unaudited financial statement can be used under this situation.