Audit quality is vital to the proper functioning of the market economy. Scrupulous adherence to high standards of disclosure and strict compliance with legal requirements are essential to the protection of shareholder interests and promotion of investor confidence.

It is the auditors who ensure that the financial statements comply with established accounting and disclosure standards. The auditor's opinion enhances the credibility of financial information, thus helping management, shareholders and other relevant stakeholders to make sound decisions. Failure by auditors to report accounting manipulations or non-compliance can lead, not only to individual bankruptcies, but also to overall loss in investment confidence.

For small (unlisted) firms, studies show that auditing lowers interest rates on borrowed funds by nearly 50 basis points.

As national economies become more closely linked across the globe, the importance of reliable and transparent financial statements in accordance with uniform international standards is becoming increasingly apparent. Audits can therefore be more useful to investors if the auditor follows the practices set out by the International Federation of Accountants (IFAC) and if financial statements are prepared according to the International Accounting Standards Board (IASB) principles

As a general rule:

• Audits should be conducted by a qualified and independent auditor;
• Auditors should alert accounting and auditing standard setters about emerging techniques of dubious propriety;
• National professional accounting bodies should ensure that their members, as auditors of financial statements, comply with applicable professional standards.

Useful links:

International Federation of Accountants - IFAC

International Accounting Standards Board (IASB)

Association of Chartered Certified Accountants - ACCA