Duties Roles and Responsibility of an auditing firm
Dr. P Janaki Ramudu
Brinda Balachander (08PG297)
Priyanshu Mishra (08PG335)
Ranjini Ballal (08PG339)
Roles, duties and responsibilities of auditing firms
Auditing means the evaluation of a person, organization, system, process, enterprise,
project or product. Audits are performed for the following reasons:
To determine the validity and reliability of information
To provide an assessment of a system's internal control.
The goal of an audit is to express opinion on the person / organization / system in
question, under evaluation based on work done. Due to practical constraints, an audit
seeks to provide only reasonable assurance that the statements are free from material
error. Hence, statistical sampling is often adopted in audits.
In the case of financial audits, a set of financial statements are said to be true and fair
when they are free of material misstatements - a concept influenced by both
quantitative and qualitative factors.
Audit is a vital part of Accounting. Traditionally, audits were mainly associated with
gaining information about financial systems and the financial records of a company or a
business. However, recent auditing has begun to include other information about the
system, such as information about security risks, information systems performance
(beyond financial systems), and environmental performance. As a result, there are now
professions conducting security audits, IS audits, and environmental audits.
In financial accounting, an audit is an independent assessment of the fairness by which a
company's financial statements are presented by its management. It is performed by
competent, independent and objective person(s) known as auditors or accountants,
who then issue an auditor's report based on the results of the audit. Such systems must
adhere to generally accepted standards set by governing bodies regulating businesses.
These standards provide assurance for third parties or external users that such
statements present a company's financial condition and results of operations.
The ICAI defines Auditing (AAS-1) as: "Auditing is the independent examination of
financial information of any entity, whether profit oriented or not and irrespective of its
size or legal form, when such an examination is conducted with a view to expressing an
Top auditing firms in the world
The Big Four are the four largest international accountancy and professional services
firms, which handle the vast majority of audits for publicly traded companies as well as
many private companies, creating an oligopoly over the auditing industry. The Big Four
firms are shown below, with their latest publicly available data:
Firm Revenues Employees Fiscal Year
PricewaterhouseCoopers $26.2bn 163,000 2009
Deloitte Touche Tohmatsu $26.1bn 169,000 2009
Ernst & Young $21.4bn 144,441 2009
KPMG $22.7bn 135,000 2008
This group was once known as the "Big Eight", and was reduced to the "Big Five" by a
series of mergers. The Big Five became the Big Four after the downfall of Arthur
Andersen in 2002, following its involvement in the Enron Scandal.
None of the Big Four accounting firms is a single firm. Each is a network of firms, owned
and managed independently, which have entered into agreements with other member
firms in the network to share a common name, brand and quality standards. Each
network has established an entity to co-ordinate the activities of the network. In two
cases (KPMG and Deloitte Touche Tomatsu), the co-ordinating entity is Swiss, and in
two cases (PricewaterhouseCoopers and Ernst & Young) the co-ordinating entity is a UK
limited company. Those entities do not themselves practice accountancy, and do not
own or control the member firms.
In most cases each member firm practices in a single country, and is structured to
comply with the regulatory environment in that country. However, in 2007 KPMG
announced a merger of four member firms (in the United Kingdom, Germany,
Switzerland and Liechtenstein) to form a single firm.
The next two largest firms to set high-quality accounting standards are the Grant
Thornton and BDO Seidman.
ABOUT BDO INTERNATIONAL
BDO International is a worldwide network of public accountancy firms, called BDO
Member Firms, serving international clients. Each BDO Member Firm is an independent
legal entity in its own country. The network, originally formed in 1963, is coordinated
by BDO Global Coordination B.V., with an office in Brussels, Belgium. The name, first
devised in 1973, is an acronym of Binder Dijker Otte & Co.
As at 30 September 2008, 100 BDO Member Firms in 110 countries employed 44,000
professionals in 1,095 offices throughout the world.
Global fee income of all BDO Member Firms for the year ending 30 September 2008
totalled € 3,649 million (US$ 5,145 million), making BDO International the fifth largest
accounting firm network globally.
The largest member firms are:
Australia - BDO Kendalls Russia - BDO Unicon
Belgium - BDO Atrio Ireland - BDO Simpson Xavier
Germany - BDO Deutsche Hong Kong - BDO Limited
India - BDO Haribhakti & Co.
Netherlands - BDO CampsObers
Denmark - BDO ScanRevision
New Zealand - BDO Spicers
Switzerland - BDO Visura
Norway - BDO Noraudit & Co.
Sweden - BDO Nordic
Canada - BDO Dunwoody LLP
Spain - BDO Audiberia
United Kingdom - BDO Stoy
Turkey - BDO Denet
Israel - Ziv Haft
United States - BDO Seidman, LLP
Philippines - BDO Alba Romeo & Co.
BDO international, as an auditing firm:
BDO’s distinctive reputation for client proximity is built upon its commitment to all its
stakeholders that what matters to them matters to it. Its clients recognise it as their
preferred adviser, appreciating its seamless service worldwide.
Its story is one of continuously responding to ever changing client needs.
It was founded in 1963 when firms from the UK, Netherlands, Germany, US and Canada
joined forces to share and expand their knowledge to better support clients. It was
known as Binder Seidman International Group until 1973, when it adopted the name
Binder Dijker Otte & Co: BDO.
It continued to build its international capabilities, growing the strong local roots that
mean it now provides services to its clients in 110 countries. In 1988, it established a
worldwide structure and the BDO acronym was placed before each local member firm’s
name. This, together with the introduction of a new logo and a consistent global brand,
clearly demonstrated that the local expertise of its member firms was combined with
the international expertise and strength of its international network.
Since then, its network has continued to transform in response to client needs,
culminating in the change of its name in 2009 to simply BDO. Its move to a single global
trading name demonstrates its commitment to service its clients and to compete
successfully in its market on a multinational basis.
BDO is the world’s fifth largest accounting network. It has an excellent partner to staff
ratio, with 44,000 people working with its clients and offering challenging, ethical and
practical advice from 1,095 offices in 110 countries.
Its commitment to knowledge and best practice sharing means that expertise is easily
shared across the network. Its common methodologies and IT platform ensure effective
and efficient service delivery to all its clients. To maintain standards it has a robust
accreditation process and quality assurance review procedure.
It remains focused on helping its clients navigate ever-changing economic and market
conditions by providing high quality advice and service to all its clients on a consistent
basis. This will enable it to achieve its ambition to significantly increase its market share
and ensure that it is recognised in the market as a unified global network.
Tax services accounting
Service line % of total revenue
Audit & accounting 57.1
Tax services 20.1
Specialist advisory services* 19.9
* includes corporate finance and transaction, business restructuring, and forensic, risk
advisory, management consulting and business advisory services.
From the graph we can see that most of the revenue is earned form Auditing and
Audit and accounting services:
Obtaining an understanding of the business being audited from an internal and
external point of view.
Assessing the risk of material misstatements, and the controls in place to prevent
Choosing appropriate procedures to obtain evidence of the significant financial
Ensuring rigorous quality control over audit performance.
Each BDO Member Firm has appointed tax specialists who contribute to and can draw
upon the network’s expertise in order to assist clients with cross-border transactions.
The structure gives a quicker access to senior professionals who will give
straightforward practical and technical advice.
Various advisory services are provided such as:
Business advisory Forensic Accounting
Business Restructuring Risk Advisory
The business advisory experts of BDO ensure the business’ success by driving growth,
value and profitability. Across the globe, the member firms have access to best practice
methods to help the entrepreneurs meet their ambitions. Many BDO member firms
around the world are the leading advisers to growing businesses and the people who
run them. They focus on ways to optimise profitability, whilst partnering to plan and
implement strategies for the future, in areas including:
Preparation of statutory financial Business and ownership structures
Trusts, asset protection and estate
Tax compliance, preparation and planning
Family business counselling
Cash flows, budgets and financial
Strategic planning Business planning
Working capital management Outsourced accounting
BDO business restructuring teams around the world draw upon a global knowledge
base of expertise and tailor it to ensure the solutions are local to the customers’ needs.
The services range from:
Turnaround: Working capital management, P&L analytics, performance
improvement, project management
Work-outs: Financial intermediation, business planning, financial modeling,
performance monitoring, refinancing
Distress debt advisory: Intensive cash management, debt and equity
restructuring, distress M&A, contingency planning, crisis management
Optimum exits (including insolvency options): Solvent exits, orderly closures,
formal appointments, cross-border insolvencies, tax-driven restructuring
Creditor-initiated procedures: Creditor services, compulsory liquidations,
personal insolvencies (including bankruptcies)
BDO corporate finance experts work together with businesses to maximise their value
through advising on acquisitions, fund raisings, flotations and disposals. A typical BDO
corporate finance client is either a business with trans-national capabilities or
ambitions, or a private equity firm with their niche in the middle market. BDO partners
with its clients for mutual success due to the following reasons:
It has national and international cross-service teams, providing clients with a
one-stop resource for accounting, taxation or strategic issues that may arise in
the scope of the transactions undertaken.
The approach ensures that the best practices across BDO network are shared
with each member firm. High levels of partner contact, an experienced team
behind them and consistently unified service delivery means that no matter how
many jurisdictions the transaction covers, the service will be seamless.
With over 600 offices around the world, there is a one point contact on the
ground that works from a global knowledge base but also knows how to combine
this with the conditions of the local market, ensuring an approach and a solution
that meets the objectives of the client.
The services offered are large and varied:
Flotations Private Finance Initiatives and
Public Private Partnerships
Buying a business / selling a
business Mergers and Acquisitions
Listing on the UK’s Alternative Due Diligence
The UK Member Firm has acted as lead adviser on more AIM flotations than any other
UK accountancy firm for the last two years. It also has won the coveted Financial
Adviser of the Year award (BVCA/Real Deals) and also picked up Best Managed Firm at
the European Practice Management awards in 2005.
A complex area such as forensic accounting means that the client needs effective, quality
service from the outset. BDO partners to work through the findings and ensure integrity
remains paramount throughout the process. Its forensic accounting experts across the
globe have an approach to client contact that sees the best practices of the network rise
to become the accepted practice. The specialized service offerings are:
Expert witness and dispute Anti-money laundering
Alternative Dispute Resolution
The BDO approach to risk assurance provides a challenging mix of talent, experience
and determination to find the best solution for its clients. BDO Risk Advisory experts in
more than 600 offices across the world apply a best practice approach to quality and
service delivery. This ensures that the client benefits from a group with local knowledge
at the fore, but who is also switched on to global developments and trends:
Regulatory & Compliance Services Technology Risk & Security
Internal Audit Services Business Process Enhancement
Through commitment to local knowledge in the context of a global marketplace, BDO
gives value-added risk management capabilities to mitigate business risk, support
business strategy and continuously improve operational performance.
BDO is sensitive to the needs of companies that must comply with requirements of
national and international regulators, including capital market regulators such as the
U.S. Securities and Exchange Commission (SEC), as well as the pronouncements of
accounting standard-setters, such as the Financial Accounting Standards Board (FASB)
and the International Accounting Standards Board (IASB).
Its partners and staff take part in regular training, and its national assurance,
accounting, and SEC leadership teams are active in professional and technical
committees. BDO expresses its views and perspectives through these committees and
through comment letters to the SEC, FASB and other regulators and standard-setters.
The rigorous training and participation in professional activities enable it to take a
proactive role in working with its clients to help them remain abreast of today’s ever-
changing rules. It can assist with technical training and presentations to management
and audit committees, in addition to working meetings to consider implementation
approaches and timetables.
BDO International is governed by the BDO Council and the BDO Policy Board. The
International Executive Office, located in Brussels, is responsible for the implementation
of policy and the day to day coordination of the network. The Council comprises one
representative from each Member Firm. The Council approves budgets and financial
matters, appoints the Policy Board and approves any changes to the Member Firm
The Policy Board comprises a representative of the network’s five largest Member
Firms whose appointment, for a three year term, is approved by the Council. The CEO of
BDO International also attends meetings of the Policy Board. The Policy Board sets
policies and priorities for the network and oversees the work of the Chief Executive and
the International Executive Office. The Policy Board meets at least four times a year and
more often if required.
The BDO International Executive Office, managed by the CEO of BDO International, is
tasked with coordinating the activities of the network. It does not provide any
professional services: this is the sole preserve of the Member Firms. A Global
Leadership Team was appointed on 1 January 2009 to assist the CEO and comprises the
CEO, Global Head of Audit & Accounting, Global Head of Tax, Global Head of Client
Service, Global Head of People and the International Secretary.
Neither BDO Global Coordination BV nor any of the Member Firms are responsible for
each other’s acts and omissions. Each BDO Member Firm is an independent legal entity
in its own country.
Forum of Firms:
The Forum of Firms is an association of international networks of accounting firms that
perform audits of financial statements that are or may be used across national borders.
The Forum’s goal is to promote consistent and high quality standards of financial
reporting and auditing practices world wide. In January 2008, BDO International was
named one of the first full members of the Forum of Firms, after reporting it had
implemented a globally coordinated quality assurance programme, committed to the
use of International Standards on Auditing (ISAs), and met other specific ethics
requirements. BDO is one of the international networks of accounting firms that
achieved full member status, the first group of firms to do so since the Forum was
formally established in 2002. Being officially recognised as a Member of the Forum of
Firms is proof that BDO has embraced the high quality assurance and ethics standards
required of Forum members in order to serve the public interest and to help raise the
standards of the international practice of auditing.
Financial audits exist to add credibility to the implied assertion by an organization's
management that its financial statements fairly represent the organization's position
and performance to the firm's stakeholders (interested parties). The principal
stakeholders of a company are typically its shareholders, but other parties such as tax
authorities, banks, regulators, suppliers, customers and employees may also have an
interest in ensuring that the financial statements are accurate.
The audit is designed to reduce the possibility that a material misstatement is not
detected by audit procedures. A misstatement is defined as false or missing information,
whether caused by fraud (including deliberate misstatement) or error. "Material" is
very broadly defined as being large enough or important enough to cause stakeholders
to alter their decisions.
Audits exist because they add value through easing the cost of information asymmetry,
not because they are required by law. For example, a privately-held company that does
not issue securities on a public exchange might engage a firm to audit its financial
statements in order to obtain more desirable loan terms from a financial institution or
trade accounts with its customers. Without the audit, the lending party would not have
assurance as to whether or not the company's financial position is accurate. In turn, the
lender could price-protect against this information asymmetry.
The exact form and content of the "audit opinion" will vary between countries, firms
and audited organizations.
In the US, the CPA firm provides written assurance that financial reports are "fairly
presented in conformity with generally accepted accounting principles (GAAP)." The
measure for "fairly presented" is that there is less than 5% chance (5% audit risk) that
the financial statements are "materially misstated."
Duties and Responsibilities:
With rapid changes in business and the regulatory environment, companies face new
and increasing challenges, risks and burdens. BDO provides a hands-on service
constantly interacting with its clients' management. It strives to deliver efficient,
effective and comprehensive assurance services without losing the personal touch.
Its risk-based audit approach focuses on business drivers, the associated risks and
potential effects on the financial statements.
Its BDO audit approach is applied consistently across our international network
through the use of the BDO Audit Manual, which complies fully with International
Standards on Auditing while adding supplementary guidance to address local statutory
requirements. This sound audit methodology, together with its commitment to quality
service, ensures that its audit work is conducted effectively and efficiently.
Its professionals' expertise is highly-diversified. This enables it to carry out audits on
financial statements prepared under International Financial Reporting Standards (IFRS)
and under generally accepted accounting standards in Hong Kong, China, USA, U.K. and
other major jurisdictions.
BDO as an accounting network leverages local knowledge with international reach. As is
evident by the use of a local firm name in conjunction with the acronym of BDO, it
values the local knowledge, the local networking and the personal touch. This allows it
to deliver, at each location, cohesive service, nimble and responsive, without a
bureaucratic overlay yet with all the checks and balances to ensure that its clients are
provided with high level of technical expertise.
BDO member firms are connected seamlessly through the BDO secure intranet E-
connect, which allows it to communicate and share knowledge and best practices with
other professionals located around the world.
Its well-established electronic platform enables it to effectively coordinate with the
respective local offices and to centralise reporting at the office or country of client's
Its directors invest significant time in developing strong relationships with the clients'
management team and are ready to provide proactive support throughout the year.
The scope of its audits extends far beyond number crunching. It adds value by looking at
the facts behind the numbers and providing recommendations on its clients'
operational and internal control procedures based on its findings.
Latest updates - New audit tool development:
In 2008 BDO revised its international audit methodology and made considerable
progress in the development of a related audit tool by working closely with Qurius NV, a
leading Dutch software solution provider. The development of the new tool represents a
significant project intended to benefit the entire network. Execution of the project is
being carried out by teams comprising representatives from a number of BDO Member
Firms that will address the IT infrastructure, testing, and deployment of the revised
audit methodology using the new tool throughout the network, supported by a robust
training programme. This constitutes a considerable financial investment by BDO
International and is an excellent example of the way the Member Firms collaborate to
enhance the overall professional service offering to clients of the network. The new
methodology and audit tool are intended to be used efficiently and effectively on all
audit clients served by our Member Firms in 2010. The new audit tool will represent a
high quality, leading edge technology which is expected to enhance the current audit
processes for all our clients.
Clients welcome innovative and pragmatic approach. BDO organizes around their needs
and work hard to find out what they really want. It shares knowledge across the firm to
deliver seamless client service that meets their specific requirements. It is a full-service
firm offering a comprehensive range of national and international services. Quality
advice and support for clients are delivered in four main areas:
Managing regulation, compliance and risk
Preparing and supporting acquisitions
Accessing new markets
Enhancing financial efficiency
Throughout BDO, client proximity is fundamental to the success of the network. This
means that all BDO Member Firms ensure the best possible experience for all their
clients, across the world. BDO achieves this by:
• Delivering a first class professional service
• Exercising strong professional judgement
• Being straightforward in approach
• Providing guidance for the sustainable development of our clients’ businesses
• Acting with honesty and integrity
• Sharing information within the network
• Investing in a robust international quality control process
• Striving for continuous improvement.
BDO is currently developing a single market position to be adopted by all BDO Member
Firms. This will enable BDO to be more clearly positioned as a leading international
brand with a distinctive reputation for delivering a consistently high quality service on a
global basis. This will drive growth, improve network stability, give BDO positive
differentiation from the competition and assist all Member Firms in servicing larger and
more diverse clients.
BDO has the following organizations as clients:
Some of the Indian clients are:
Clients always come first since business is built on, and sustained by, the long-term
relationships developed with them. The overall client satisfaction score for BDO is as
This shows that BDO, as an auditing firm, has been
doing a good job consistently over a period of
time. Over the years, the firm has strived to unite
innovation and information together and to create
an ecosystem for effective implementation of
cutting edge governance.