Role of auditors in investment analysis is one aspect of fundamental analysis and business valuation that the savvy investment gurus have long ago recognised and has reaped fortune from it. Your investment appraisal will be incomplete if you fail to recognise the role played by auditors in the whole process of analysing your investment.
The traditional role of auditors is to express professional opinion on a set of prepared financial statements. What this means is that third parties rely on the audited information to make investment decisions as the main reason why we audit financial statements is to give it some credibility. There has been series of debate surrounding auditor’s liability and audited company accounts. The current stance of the law is that auditors can be exonerated from material misstatements in the accounts if it can be proven that professional care and due diligence are the basis of the audit procedures.
Notwithstanding the above, the role of auditors in investment analysis still cannot be over emphasised. This article is written to discuss the important roles of auditors in whole process of investment analysis. The roles of auditors in investment analysis will be looked at from two perspectives.
AS A CONSULTANT
As a consultant, the auditor who in most cases acts as information systems auditor is bestowed with the responsibility of evaluating the overall systems in the organization- paying particular attention to the robustness of the internal control system. A vital element of investment analysis is to enquire into the security of the initial investment. Auditors provide useful information regarding the controls in a company. An investor would not in his or her right senses make stake on an investment that is highly vulnerable and liable to collapse due to bad internal control. Auditors in organization advice management on the best ways to reduce risk or manage risk (both at the strategic and operational levels) so as to improve efficiency thereby increasing the financial and operational value of an investment.
The auditor bridges the credibility gap that exists between providers of funds and users of funds, irrespective of the increasing audit failures.
TRADITIONAL ROLES OF AUDITORS
In this section are brief discussion of what auditors traditionally does in general and how they relate to investment analysis.
AS A STATUTORY AUDITOR | ENSURE COMPLIANCE
Auditor’s traditional role is to ensure that a company has met the legal requirement of a state. This role is very important as it goes a long way to tell the general public that the company is a law abiding entity. Compliance in fact is what most businesses of today is all about. Failure to comply with any relevant law is enough to send a business backing.
Auditors advice management on the efficiency of operations and the quality of internal controls. Where there are lapses, the auditor being information professional is in a better position to dole out professional advice that the management can rely on and make substantial progress.
BOOST THE CONFIDENCE OF THE GENERAL PUBLIC
Attracting investment is all about creating an enviable public relation. This public relation is partially hinged on what the auditors tells the general company about the company. In fact, confidence of the public is improved by the mere fact that a company’s account is audited. This reliance of the public on information that has been certified by an auditor is however a cause for worry as auditors’ liability is increased by this dependency.
EXPRESS PROFESSIONAL OPINION
Audit report is an essential part of an annual report of a company that contains professional opinion of an independent third party called the auditor. The major thing that is contained in the auditor’s report is the professional opinion of the auditor on the compliance of financial statement to set of accounting standards.
Investment analysis is an art that involves all hands to be on deck. The role of auditors in investment analysis is an invaluable role in the world of investment appraisal. At the very least, auditors perform loan audit.