An auditor is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. Get all latest content delivered straight to your inbox. The kind of stringent measures prescribed against auditors gives the picture that the Act indeed expects the auditors to be bloodhounds in discharging their duties and not merely be watch dogs. Sridharan also highlighted that India has already built into law the separation of audit and non-audit services that other countries are only now attempting to achieve. The auditor is a watchdog and not a bloodhound. Clearly, auditing has changed considerably It is hoped this development will result in greater efforts by the profession to reduce the number of scandals. Audit regulator National Financial Reporting Authority (NFRA) has urged the audit fraternity to refrain from taking shelter under the adulated description of the auditor “being only a watchdog and not a bloodhound”. His limitations are just to warn you, like a watch dog when a stranger enter house of master he just barks & get it to the notice of his master than some unknown has entered the house. He is a watchdog, but not a bloodhound.” The art of simplicity is a puzzle of complexity. Explain fraud triangle. What is reasonable skill, care and caution must depend on the particular circumstances of each case. This has been recognised by the profession, which now requires the larger firms to split off their audit function from their other activities. NFRA “Auditor is a watchdog and not a bloodhound” is a serious misconception. The separation of the audit function and the increased pressure on auditors to detect fraud means that auditors are now increasingly being regarded and treated more like bloodhounds and not like compliant watchdogs. Where there is nothing to excite suspicion very little inquiry will be reasonably sufficient. The law on the fraud related responsibilities of the auditor has moved far ahead of what it was in the 1890s. Auditors’ key task is to determine whether a set of accounts gives a “true and fair” picture of a company’s business. An external auditor is a bloodhound looking for rules that have been broken. And if he is responsible then what is the need of forensic accountants or fraud examiners. Lord Justice Lopes, not only referred to the auditor as a watchdog (not a bloodhound), but made other observations in relation to his role as a "detective." Auditors like to say their role is that of a watchdog (who barks when they see something suspicious) rather than a bloodhound (who actually searches for something suspicious). An auditor is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. Sir it is rightly said that the auditor is a watchdog not a bloodhound. What is not encompassed by these words is that these words were echoed before the modern Companies Acts and in particular the Companies Acts 1948, 1967, 1980 and 2006. It is required that an auditor must be sufficiently careful and vigilant in … of its accounts, equated him to a watchdog and not a bloodhound,' he would not have realised that his formulation was to become, not only the most popular formulation of the function of a com-pany auditor, but also was to be relied on by the profession in the twentieth century as a basis for the standard expected of audi-tors. Bernard Agulhas, Independent Regulatory Board For Auditors Click here (then “like” the page) to follow Bruce on Facebook. SA 240 says that when obtaining reasonable assurance, the auditor is responsible for maintaining professional skepticism throughout the audit, considering the potential for management override of controls and recognizing the fact that audit procedures that are effective for detecting error may not be effective in detecting fraud. More Stories Like These. Lord Justice Topes had once famously remarked that: “The auditor is a watchdog and not a bloodhound.”. The judge summed up auditor’s duty by stating, “Auditor is a watchdog, not a bloodhound.” It was noted that the auditors were to be appointed by the shareholders, and were to report to them directly, and not to or through the directors. Learn more. Mor than half a century ago Lord Lopes, British jurist, put the problem succinctly. He is a watchdog, but not a bloodhound. Wholetuber Manish - GST, Income Tax, Financial Advise & More, Dhani Super Saver Card Review: Benefits & How to Apply, Vacancies in Deloitte for Fresher Undergraduates, DHANI ONE FREEDOM INTEREST FREE LOAN DHANI CREDIT LINE | DHANI ONE FREEDOM REVIEW | NEW DHANI APP, Make recommendations on the foundation and laying down of accounting and auditing policies and standards, Monitor and enforce the compliance of the accounting standards and auditing standards, Oversee the quality of service of the professionals (such as auditors, CFOs, etc) and suggest measures required for improvement in the quality of service, Perform such other functions related to the above. “If this is not taken care of, any talk of nuanced professional judgments in arcane business and financial matters would have to be regarded only as smokescreens meant to mislead. Users of accounts are entitled to rely on accounts given the large sums of money incurred on the audit function and its related corollary the audit committee. After a year of inter-regnum when the National Audit Office was without a head, Anthony C. Mifsud was unanimously approved by Parliament as the new Auditor General on July 16. “If this is not taken care of, any talk of nuanced professional judgments in arcane business and financial matters would have to be regarded only as smokescreens meant to mislead. Go to www.guernseypress.com/gponline to subscribe to our discounted online edition. For interesting commentary on the watchdog theme and on whether the auditor could be likened to a watchdog, bloodhound, or other canine species, see The company’s internal auditor is a watchdog, making sure rules are being followed. Clearly, what was a common law understanding of the auditor’s duty in the absence of any statute to govern the same would not at all be applicable today. In absence of such suspicious circumstances, he should rely on representations made by tried servants of co.(Important) Auditor has duty of “reasonable care” It means that while auditing he will keep a questioning mind and not a suspicious mind. auditor that do not bound to detect and do not need to do thoroughly inspection over fraud activity that may happened in an organization. In conclusion, the Chairman said that we need to forget the watchdog and not bloodhound description. An auditor is appointed by the shareholders in case of a limited company. The larger firms have developed other areas such as management consultancy activities, taxation and are now increasingly developing their legal practices. The judge summed up auditor’s duty by stating, “Auditor is a watchdog, not a bloodhound.”. What is reasonable skill, care, and caution must depend on the particular circumstances of each case. According to the above phrase it is explained that like a watch dog auditor should protect the interest of those who appointed. The object was to ensure that the shareholders received “independent and reliable information respecting the true financial position of the company at the time of the audit.”. The perception of auditor’s duty with regards to detection and prevention of frauds and errors was initially based on the decision given in Kingston Cotton Mills Co. (1896) case. However whilst these developments will be good for users of accounts there is a parallel development which threatens to undermine these welcome developments. Accountants firms are now much bigger and academic learning has improved dramatically since the author first qualified as an accountant in the early 1970s. A few years ago, in 2015, the Royal Bank of Scotland warned that accountancy firms were ‘quietly’ starting to take market share from established mid-market law firms that were not able to invest in the technology required to compete. However, parallel to this development the larger accountancy firms are becoming more like ‘bloodhounds’ by growing their management consultant arms but more particularly their legal capabilities. Where suspicion is aroused more care is obviously necessary; but still an auditor is not bound to exercise more than reasonable care and skill, even in a case of suspicion, and he is perfectly justified in acting on the opinion of an expert where special knowledge is required. He will not assume that the management is always upto something and try to look for fraudulent activity. The dod do not start biting the stranger. The Auditor has to find out if there are any mistakes, omissions, fraudulence and theft which is in interest of the company internally and externally. An auditor is not bound to be a detective, or, as was said to approach his work with suspicion, or with a forgone conclusion that there is something wrong. He is entitled to assume that they are honest, and to rely upon their representations, provided he takes reasonable care. It has been observed in the case of Kingston Cotton Mills Co. (1896) case that an auditor is a watchdog and not a bloodhound. When any person starts the business then various transactions which are related to cash and This development in the Financial Times noted on 4 November 2020 that as a result of this acquisition the large scale and access to technology platforms threatens some mid-tier law firms that rely on providing process-driven legal advice but have large fixed costs and charge higher fees. bloodhound definition: 1. a large dog that has a very good ability to smell things, and is used for hunting animals or…. The auditor’s duties were now comprehensively detailed in the law. Recommended Jobs. Companies Act, 2013 does not seem to echo this thought! He is a watchdog, not a bloodhound. The NFRA has the following responsibilities: The NFRA Chairman said the point that needs emphasis is that good audit quality starts from getting the very elementary basics right. The object was to ensure that the shareholders received “independent and reliable information respecting the true financial position of the company at the time of the audit.” The art of simplicity is a puzzle of complexity.SimplicityQuotations by Doug Horton . What is reasonable care in any particular case must depend upon the circumstances of that case. Advocate Raymond Ashton offers his insights, THE auditor’s duty of care in relation to the audit was considered by Lopes in Re Kingston Cotton Mill Co (No 2) 1895 2 Ch 2 at pp 288-289: ‘It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably competent, careful and cautious auditor would use. auditor is responsible for authontication correctness of the account auditor duty is restricted to the reporting only and he is bound to report ... An auditor is a watch dog and but not an bloodhound ... Customize/purpose build up department is a watchdog or blood hound or both? This letter arises because the auditors in effect audit the accounts of the directors. 1 Mr. Mustaffa Bin Bukhari These recent developments should be carefully monitored by regulators as a matter of some priority and acting not as watchdogs but as bloodhounds. He is a watchdog, not a bloodhound.’ (Reference 3). He is justified in believing tried servants of the company in whom confidence is placed by the company. However auditor needs to be cautious over the possibilities of fraud that may occur and if ever any frauds are found by the auditor, it is important that the fraud is address properly by the auditor. Government Quotations by Lord Justice Topes. 3. “Auditor is a watchdog but not a bloodhound”- if auditor discovers something suspicious, he should probe. Assistant Supervisor, IS Audit. The company's internal auditor is a watchdog, making sure rules are being followed. The NFRA is a body constituted under the provisions of Section 132 of the Companies Act, 2013. 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