Functions, Duties, and Responsibilities of External Auditors
External auditors are an essential part of the mechanism and are responsible for ensuring that financial information presented by companies is reliable and entirely accurate. The majority of their roles are carrying out audits, reviews, and report presentation-ports based on the suitability of financial statements for end users. Tasks include evaluating the internal control system, searching for the risks of material misstatement, and compliance with the applicable regulations. In auditing ZAIN, these external auditors should have scrutinized the organization’s records, among them balance sheets, income statements, and cash flow projections, to read the figures. They would have judged the effectiveness of the internal control system and accounting procedures to see if they produced accurate and functionally comparable results for determining ZAIN’s financial position. Exhibit 1 shows the financial statements of ZAIN for 2022, which will be a source of evidence demonstrating the external auditors’ examinations and details on several financial metrics. For example, financial reporting aspects such as revenue recognition, asset valuation, and liabilities are auditors’ assertions of management’s assertions (Azzam et al. 2020). Another vital aspect is examining the auditors’ report that comes with the annual financial statement because it offers their insights into ZAIN’s financial strength and compliance with accounting principles. Though any significant findings or issues discovered during the audit will indubitably be revealed in the audit report, it will not be possible to explain those. However, auditors from outside can undoubtedly contribute to a tangible increase of transparency and accountability in the financial reporting activity of the companies, as a result of which investors become confident in dealing with companies like ZAIN.
Going Concern Assumption
The going concern assumption in reporting financial records states that a company will conduct its ordinary operations during a potentially upcoming window that is not planned for or intended to sell off the business. One of the most critical factors that auditors consider is the company’s ability to meet its financial obligations and remain in the black, assuming that the present economic environment will not change (Majeed & Wathiq 2023). For instance, if ZAIN believes that using the going concern assumption for 2022 would be keeping in line with the financial statements and notes of 2021, then this is the decision that the company would publish. Management would prepare ZAIN’s evaluation, including a one-year outlook as well as potential factors such as liquidity, profitability, and market conditions. Auditors take a careful position in what management argues is a going concern condition by asking questions, analyzing financial projections, and evaluating the procedures taken by the company to eliminate risks that threaten its sustainability. Any doubts or risks encountered regarding continued operations as a going concern of ZAIN will be disclosed in the auditors’ report to inform suppliers or potential shareholders of the unknown ones.
Audit Risk and Audit Evidence
Audit risk is when auditors fail to find material misstatements either by mistakes or as a result of fraud. Since the higher the risk, the more persuasive evidence auditors need, they may be forced to issue an inappropriate opinion if they don’t have enough evidence to rely on. Critical to audit evidence is the information auditors obtain to substantiate their findings concerning the truthfulness of the financial data. This comprises documents, including financial records, submittals, communications with third parties, and management related to the requirements of the revenue contract (Ripain et al. 2023). The auditors apply several methods during the auditing period, among which the two notable ones are analytical reviews, tests of details, and ancillary trials. Moreover, auditors could assess internal control’s reliability and perform risk assessments to develop audit plans that prioritize risk areas. In this 2022 financial statement case of ZAIN, auditors would have obtained credible audit evidence through measures tailored to address peculiar risks inherently found in the telecommunications industry. The document provides the auditors with the evidence needed to form their own opinion regarding the accuracy and completeness of ZAIN financial reporting.
Risk of Material Misstatement
Auditors review financial information and detect any material misstatement risk in financial statements, which is the responsibility of the controller. Material misstatement means a single undetected discrepancy or a few of them taken together, which would significantly alter the decisions of the users of financial statements. One of the examples is that auditors in ZAIN’s 2022 financial statements will estimate the risk of misstatement of financial reporting primarily in revenue recognition, where the complex contractual agreements need to comply with the IFRS 15 accounting standards. They would review the entries to detect the areas of revenue misrepresentations and false statements (Hussain et al. 2024). The auditors apply the risk assessment method and perform substantive testing and analytical review to try to find any material misstatement that can affect the entity’s net worth. They evaluate the reporting items’ materiality to the original ones, considering users’ decision-making needs to determine the effect on the audit opinion. An auditors’ report would indicate whether some findings found during the audit process are considered more important and give additional information about the items selected by the auditors.
Evaluation of Independent Auditor’s Report
The 2022 Independent Auditor’s Report for ZAIN announced more consistently maintained audit procedures through modification of the audit approach chosen by the changes in ZAIN’s operations domains and regulatory environment. The report would consider the auditors’ opinion on ZAIN’s financial statement and discuss any substantial findings or matters of suspicion that have come up during the audit (Lee & Phua 2022).
Falling into a general description, the auditors are an ongoing evaluation of internal controls, compliance with accounting standards, and the adequacy of management’s estimates and decisions per year. In case of any modifications or emphasis, the audit opinion or paragraphs emphasizing the mode would reflect the changes in audit findings or significant events that affect the financial position of the ZAIN report. In essence, the Independent Auditor’s Report is a considerable communication bridge between the auditors and the stakeholders, which creates trust around the financial statement assessment and increases transparency in reporting.
References
Azzam, M., Alrabba, H., AlQudah, A. and Mansur, H., 2020. A study on the relationship between internal and external audits on financial reporting quality. Management Science Letters, 10(4), pp.937-942. http://dx.doi.org/10.5267/j.msl.2019.10.001
Hussain, A.R.M., Hasnan, S., Sanusi, Z. and Mahenthiran, S., 2024. Critical Factors Influencing Accounting Misstatements: Evidence from Malaysia. In New Approaches to CSR, Sustainability and Accountability, Volume V (pp. 127-152). Singapore: Springer Nature Singapore. https://doi.org/10.1007/978-981-99-9145-7_7
Lee, D.I.Y. and Phua, L.K., 2022. Does Audit Committee Moderate the Relationship Between Auditor Independence and Earnings Management During Initial Implementation of MFRS in Malaysia?. International Journal of Business and Society, 23(2), pp.751-772. DOI:10.33736/iibs.4836.2022
Majeed, H.A. and Wathiq, I.M., 2023. Impact of Social Responsibility Accounting Requirements on Integrated Financial Reporting and its Implications for Corporate Value: An Applied Study on Telecommunications Companies. Kurdish Studies, 11(2), pp.1116-1135.
Ripain, N., Wan-Hussin, W.N., Yusof, M. and Mohd, A., 2023. Audit Gender and Audit Fees: Malaysian Evidence. Available at SSRN 4675100. https://dx.doi.org/10.2139/ssrn.4675100
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