Audited financial statements should be reliable. This simple statement reflects the fact that reliability matters to users of audited financial statements and provides a context for thinking about the role and responsibility of auditors.
Reliability should be central to auditing and this paper explores five aspects of reliability and the challenges they pose for auditors.
The focus on reliability and outcomes from the audit provides a unique platform on which to look at the broader issues around audit quality.
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In building up a picture of what the statement ‘audited financial statements should be reliable’ means, we suggest that there are five key aspects of reliability.
Information in audited financial statements must faithfully represent what it purports to represent in accordance with accounting standards.
Reliable audited financial statements need to be fit for purpose.
In reality audited financial statements are used in varied and sometimes unpredictable ways. Auditors should take steps to address the robustness of audited financial statements.
By virtue of being reputational intermediaries, auditors give organisations the appearance of being reliable and producing reliable information. Auditors should therefore be concerned about broader aspects of organisational reliability.
The auditors’ reputational intermediary role demands that audit firms examine their own reliability.
This focus on reliability leads us to ask four fundamental questions
If there is an expectation that ‘audited financial statements should be reliable’ just how reliable does the information need to be for users?
What practical steps can be taken by auditors to gauge and address the expectations of those using audited financial statements?
Auditors should be wary about acting for organisations that cannot produce reliable information but does it benefit society for auditors to refuse to act for such organisations or other risky businesses?
How should confidence in the reliability of audited financial information be maintained or, if necessary re-established when perceived failures occur?