ARTICLES & UPDATES

The auditor serves as the first line of defense in protecting shareholders and investors, as they rely on financial statements to make informed decisions. An auditor’s report is a measure of trust for professional investors, its significance lying in investment evaluation and the detection of hidden risks. An auditor’s opinion also prevents management from presenting financial statements that misrepresent reality. Therefore, the auditor’s role is to enhance market confidence.

When the auditor’s role is strong and transparent, the likelihood of misleading shareholders and investors decreases. If an auditor places a reservation (qualification) on the financial statements, it indicates a material issue affecting the reliability of the figures and their dependability. If these reservations are not addressed over time, the responsibility then lies with the board of directors, either due to weak internal controls or a reluctance to correct errors. This serves as a negative signal for shareholders, as unresolved reservations may conceal larger problems that the company does not wish to disclose.

The company’s management is responsible for performing all managerial functions in accordance with its objectives, the most important of which are generating profits and ensuring continuity.

The board of directors must provide shareholders with the company’s financial statements for the expired accounting period, the board’s report, and the auditor’s report at least seven days before the ordinary general assembly meeting. This ensures that shareholders are informed about the company’s financial position and have sufficient time to review the financial statements to discuss any unclear or ambiguous matters with the board and the auditor.

According to the law, auditors are required to comply with international auditing standards issued by the International Federation of Accountants, provided these do not conflict with the provisions of national laws. Auditors must notify management of any material errors, draw attention to risks, and refuse to approve financial statements if they are invalid. If management ignores reservations, the auditor must issue a qualified or adverse opinion. If repeated recommendations are ignored, the auditor may protect themselves by issuing a dissenting opinion.

If the auditor compromises with the board and does not express their professional opinion properly, they become responsible for any professional errors committed and for the accuracy of the information in their report, and they are liable for compensation. Under the law, the Deputy Minister of Finance may refer an auditor to an investigative committee if they are found to have violated legal provisions, breached professional standards, committed gross negligence, acted dishonorably, or failed to fulfill their duties in addressing reservations and informing shareholders and management. The law provides for penalties including fines and suspension from practicing the profession.

Therefore, investors should not rely solely on declared profits without reviewing the auditor’s report, as ignoring reservations may indicate a genuine problem. Both the board of directors and the auditor share responsibility for failing to address reservations and observations.

Attorney / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com